Charlie Munger reaps $70,000 a year from a $1,000 investment he made in 1962


Charlie Munger (right) and Warren Buffett.SCOTT MORGAN/REUTERS

  • Charlie Munger is paid $70,000 a year for a $1,000 purchase he made over 60 years ago.

  • Warren Buffett’s right-hand man probably made over $1 million from the oil royalties he acquired in 1962.

  • Buffett’s father also bought oil royalties, and the investor’s sister still receives monthly checks.

Charlie Munger makes $70,000 a year from a $1,000 investment he made six decades ago — and has likely netted over $1 million in total from the lucrative bet.

Warren Buffett’s business partner revealed the initial cost of his oil royalties and today’s yield Berkshire Hathawayis annual shareholders’ meeting on Saturday.

Munger placed his oil bet in 1962 after meeting a businessman named Al Marshall during a golf tournament with a married couple. At the third well, Marshall outlined his plan to bid at a local oil license auction. Munger responded in his typically blunt manner, “You’re doing everything wrong.”

Marshall hired Munger to go along with his bid and handle the legal and financial aspects of the purchases. Part of Munger’s contract structure was an ABC trust, a type of tax haven that is now banned.

“That still makes me $2,000-$3,000 a month,” Marshall told author Janet Lowe for her book Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger.

“We only donated $1,000 each and probably made half a million each,” Marshall said before the book’s publication in 2000.

Munger, a billionaire investor and 99-year-old vice chairman of Berkshire, told the story himself during the Daily Journal’s 2016 shareholder meeting.

“I soon realized that under the peculiar rules of an idiotic civilization, the only people who would bid for those oil royalties were oil royalty brokers, a dingy, dishonorable, cheap bunch of bastards who realized no one would ever bid their price,” he said he.

“50 years later we were getting $100,000 a year from that investment,” Munger continued. “The problem with this story is that it only happened once.”

Whether Munger gets 70,000, 100,000, or some other amount from the royalties each year, it’s safe to say he’s made a fortune off it over time.

This type of passive income explains why Munger loves to earn an income modest salary of $100,000 from Berkshire for several decades. He also holds the majority of his roughly $2 billion fortune in Berkshire stocks, which don’t pay dividends.

During Saturday’s meeting, Buffett revealed that Munger isn’t the only one benefiting from age-old oil royalties. The famous Berkshire investor and CEO noted that his own father bought them for between $1,000 and $1,500 before he died, and they’ve now been passed down to Buffett’s younger sister, who continues to receive monthly checks as a result to this day.

Continue reading: Warren Buffett and Charlie Munger comment on banks, rule out a takeover by Occidental and warn against AI. Here are 10 highlights from the Berkshire Hathaway Annual Meeting

Continue reading the original article Business Insider

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