Charlie Munger receives $70,000 a year from a $1,000 purchase he made 60 years ago.
Warren Buffett’s right-hand man He probably earned over a million dollars from oil royalties purchased in 1962.
Buffett’s father also bought oil royalties, and the tycoon’s sister still receives monthly checks.
Charlie Munger made $70,000 a year on his $1,000 investment six decades ago — and probably collected $1 million in total from his profitable bets.
Munger made his oil bet in 1962 after meeting businessman Al Marshall during a husband-and-wife golf tournament. At the third well, Marshall announced his plans to bid on the local oil-royalty auction. “You’re doing it all wrong,” replied Munger in characteristically blunt fashion.
Marshall asked Munger to join the auction and handle the legal and financial aspects of the purchases. Munger’s deal structure included an ABC trust, a type of tax shelter that has since been banned.
“And I’m still making $2,000 to $3,000 a month,” Marshall told Janet Lowe, author of “Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger.”
“We only pitched $1,000 each and each of us made half a million out of it,” Marshall said before the book came out in 2000.
Munger, the billionaire investor and 99-year-old vice chairman of Berkshire, relayed the story himself at the 2016 Daily Journal shareholder meeting.
I soon realized that, according to a peculiar law of idiot civilization, the only people bidding for oil royalties were the oil royalty brokers, a bunch of sleazy, disrespectful, cheap idiots who understood that no one would ever compete. Their value,” he said.
“After 50 years, we would have made $100,000 a year on that investment,” Munger continued. “The problem with that story is that it only happened once.”
Whether Munger was receiving $70,000, $100,000 a year in royalties, or whatever, it’s unclear whether he made a fortune from them over time.
This type of passive income helps explain why Munger is happy to collect A A modest $100,000 salary From Berkshire for decades. He invests most of his nearly $2 billion fortune in Berkshire stock.
At Saturday’s meeting, Buffett noted that Munger is not the only beneficiary of the long-standing oil royalties. Before the legendary investor and Berkshire CEO died, his own father bought $1,000 to $1,500 worth of them and they were passed on to Buffett’s younger sister, who still receives a monthly check to this day.
Read more: Warren Buffett’s businesses are struggling with historic inflation, high interest rates and tight credit. 5 CEOs of Berkshire Hathaway break down why they’re thriving despite a tough economic backdrop.
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