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Munger and Carl F. Braun


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Hello All,

 

I'm a long-time BRK fanatic and board member, but haven't posted in years. Recently I've been trying to follow the breadcrumbs that Munger has left us in his speeches to have a deeper understanding of human misjudgment. Re-reading Poor Charlie's Almanack, I remembered Munger's mention of Carl Braun and his admiration for Braun's corporate culture. I started doing some digging, but found surprisingly little has been written about this company or its managers. I ran into Guy Spier at the FFH AM and asked him if he had any insight into Braun. I sent the below email to him afterwards to let him know what I'd found. I forwarded the email to Norm Rothery too, who encouraged me to share with the board so here it is. If anyone out there has more insight into the Braun corporate culture, inter-office communication policies or accounting system, I'd love to hear about it.

 


 

Hello Guy,

 

You may remember me as the Indian guy with glasses who sat in front of you at the Fairfax AGM and cornered you to grill you on Carl Braun and the Moonies as it relates to a Mungerian understanding of human misjudgment while you were trying to make a break for the toilet.

 

For reference, Munger talked about Braun in this talk:

https://old.ycombinator.com/munger.html

 

I did a bit of digging and came up with some stuff.  Thought I'd share it with you.

 

It seems like the entire family were fanatics.  I found the following anecdotes from ex-employees on this LinkedIn group:

https://www.linkedin.com/groups/C-F-Braun-Co-Alumni-1372987

 

"I remember all the slots on the screws throughout the facility had to be straight vertical."

 

"I began getting Christmas cards from suppliers and taped them on the wall. The next morning they were sitting on my desk in a neat pile. I assumed they had fallen down so I again taped them with more tape. The next morning they were sitting on my desk with a poorly written note saying if they were on the wall again I was fired and signed 'guard'."

 

"When Larry started there in 1965, you could only have one piece of paper on your desk at a time. One family photo. No plants or other decor."

 

"Remember having to staple all your papers from the backside so that the staple wouldn't scratch the desktop?"

 

"You had to wear white (maybe pastel blue) shirts. I have a copy of a memo from '74 allowing pastel colored shirts."

 

"I had heard that Carl Braun had talked to a young engineer about his hair being too long. The engineer said he didn't have enough pay to always get haircuts. So Braun went to payroll and increased his pay by $2.00 a month or something and told him to get it cut."

 

"Another story was when the retaining wall along the main walkway through the campus was constructed, Carl was out "inspecting" the work. He "sighted" down the wall, then found a foreman to tell him that the wall was not where it should be and to relocate it. The foreman, like any of us, had some doubt. He checked where the wall should be on the drawings, measured it and found it was out by one inch! The wall was moved!"

 

"One day, I was driving in to C.F. Braun and had basically had enough of the "you must dress the Braun way." So when I parked my VW bus, I grabbed my "tweed" jacket, put it on in the parking lot and decided to walk in the building where I worked without putting on a tie. Well, needless to say, the "agents" of the "secret society" intercepted me by the time I reached my desk. Was I shocked, you bet! I couldn't believe I was seen without my tie. The "agents" told me to not let it happen again and said to drive back home and get one. So I drove all the way back to Long Beach for my tie. They said they would let it slide this time and not dock my pay."

 

"Even as a Computer Operator, a matching suit with tie and white shirt was the standard outfit and you could be sent home if attire was not proper OR if your hair was too long. Facial Hair would be grounds for termination."

 

There's plenty more on the LinkedIn group.  Seems like it was a crazy place.

 

For more on the culture at CF Braun, there's this "Information Week" article:

http://www.informationweek.com/strategic-cio/executive-insights-and-innovation/do-your-employees-dress-for-failure/d/d-id/1113285

 

It seems that the books that were written by Braun for the employees were referred to informally as the "red books" due to the color of the binding.  I was able to get electronic copies of a few of the "red books".  You can read some of them here: http://catalog.hathitrust.org/Search/Home?type%5B%5D=author&lookfor%5B%5D=%22Braun%2C%20Carl%20F.%22&page=1&ft= 

I'll get around to them eventually.  They don't seem very long.  Braun also wrote one book on accounting that Munger referenced specifically.  I ordered that one off of Amazon (http://www.amazon.com/Objective-Accounting-Communication-Carl-Braun/dp/B002E5DT9S/ref=sr_1_1?s=books&ie=UTF8&qid=1429326378&sr=1-1&keywords=carl+braun+accounting) and am particularly interested in reading it.  I'll let you know if there's anything interesting in it.

The gist so far seems to be that CF Braun was out-Japanesing the Japanese before anyone had heard about "5S" or "Kaizen".  The company was fanatical about standardization, neatness, waste and professionalism.

 

Hope you're well and that you had a good time in Toronto.

 

-V

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I sometimes have wondered for my company how far down this kind of culture needs to be pushed to (hopefully) make a company more efficient, more prompt and more professional overall. What things do need to be stressed and what things don't. It sounds strange sort of, but if it works for some people and you can hire them and they thrive on it, it can certainly beneficial for both the company and employee.

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Yes it sounds insane but did the company run well?

 

Who cares? Munger likes it, it's like a blessing from God, ignore actual results, just be blinded by the Munger approval.  Now if Buffett would bless them then CF Braun could do no wrong, they'd be the holy grail of companies.

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Yes it sounds insane but did the company run well?

 

I lol'd at oddball, but your question is the relevant one.

 

Like Morgan said, this kind of military style might work for some people and some companies. Wouldn't work for me, though I do see value in being more thrifty, more organized, more detail oriented, etc. There is recognized psychological value both for the person doing it and for the clients. As long as it does not blow back killing growth/innovation/etc. I.e. they might not have invented glass ceramic ( https://en.wikipedia.org/wiki/S._Donald_Stookey ). But perhaps they did not need to. :)

 

Not a company for ScottHall, definitely.  8)

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Yes it sounds insane but did the company run well?

 

I lol'd at oddball, but your question is the relevant one.

 

Like Morgan said, this kind of military style might work for some people and some companies. Wouldn't work for me, though I do see value in being more thrifty, more organized, more detail oriented, etc. There is recognized psychological value both for the person doing it and for the clients. As long as it does not blow back killing growth/innovation/etc. I.e. they might not have invented glass ceramic ( https://en.wikipedia.org/wiki/S._Donald_Stookey ). But perhaps they did not need to. :)

 

Not a company for ScottHall, definitely.  8)

 

The funny thing is that my grandfather ran a pretty good sized construction/engineering company for about a quarter century, and was also strongly motivated by efficiency. The margins in the industry are generally terrible, and at the time for the niches the company worked in, were about 1-2%. So he'd say, hey, if you guys can do your jobs just one percent more efficiently, we'll double our profits. Got a vanity license plate printed up to that effect, which is pretty cool. Did some work on the BART system, which is (to my understanding) how the company expanded from a rather small outfit to a pretty large company in its own right, though by no means massive. It eventually sold out to a roll-up, I think towards the end of the 90s. Quanta Services, PWR.

 

I never heard stories this extreme, though; pretty sure it wasn't anywhere to this level, given certain stories I heard about personnel issues in the "old days". Probably wouldn't fly at all at CF Braun, perhaps rightfully.

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Yes it sounds insane but did the company run well?

 

I lol'd at oddball, but your question is the relevant one.

 

Like Morgan said, this kind of military style might work for some people and some companies. Wouldn't work for me, though I do see value in being more thrifty, more organized, more detail oriented, etc. There is recognized psychological value both for the person doing it and for the clients. As long as it does not blow back killing growth/innovation/etc. I.e. they might not have invented glass ceramic ( https://en.wikipedia.org/wiki/S._Donald_Stookey ). But perhaps they did not need to. :)

 

Not a company for ScottHall, definitely.  8)

 

It wouldn't work for Munger either.  A typical case of "do as I say, not as I do".  To me its just creepy, on par with companies that monitor keystrokes, and web cam cubicles. 

 

The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett.  He is certainly intelligent, but his biggest fans overlook his fortuitous meeting. 

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The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett.  He is certainly intelligent, but his biggest fans overlook his fortuitous meeting.

 

Whether or not we would have heard of him is irrelevant,

a) Munger's ideas would be the same and worthy of study.

b) He would be a billionaire

c) Buffett would not be as rich, his presumed purchase of excellent companies at fair prices would have happened much later, if you believe what he says.

d) Almost certainly they would have met anyway: super astute investors from the same neighborhood in Omaha, the world isn't that big.

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The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett.  He is certainly intelligent, but his biggest fans overlook his fortuitous meeting.

 

Whether or not we would have heard of him is irrelevant,

a) Munger's ideas would be the same and worthy of study.

b) He would be a billionaire

c) Buffett would not be as rich, his presumed purchase of excellent companies at fair prices would have happened much later, if you believe what he says.

d) Almost certainly they would have met anyway: super astute investors from the same neighborhood in Omaha, the world isn't that big.

 

Agreed netnet. Also, we would have almost certainly have heard of him. The man is no investing slouch:

 

            Charles Munger Partnership

            Annual Percentage Change

                Partnership (%)    S&P 500 (%)

 

1962                  30.1        -7.6

1963                  71.7        20.6

1964                  49.7        18.7

1965                    8.4        14.2

1966                  12.4        -15.8

1967                  56.2        19.0

1968                  40.4          7.7

1969                  28.3        -11.6

1970                  -0.1          8.7

1971                  25.4          9.8

1972                    8.3        18.2

1973                  -31.9        -13.1

1974                  -31.5        -23.1

1975                  73.2        44.4

 

Average return        24.3          6.4

Standard deviation    33.0        18.5

[Compound annual return 19.8        4.9]

[$1 at inception becomes $12.57 in Munger Partnership and $1.96 in S&P 500]

 

From: http://www.fool.com/EveningNews/FOTH/1999/foth990415.htm

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The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett.  He is certainly intelligent, but his biggest fans overlook his fortuitous meeting.

 

Well, you could say . . . The thing about Buffett is that no one would have ever heard of him had he not had the lucky break to get turned down by Harvard and wind up going to Columbia to study under Ben Graham.  Remember, before Buffett was exposed to value investing he was trying all sorts of harebrained investing schemes, such as charting and technical analysis and so forth.  Now Buffett would have probably figured out value investing eventually on his own, but his story would have been quite a bit different, and his years of great compounding would likely have been delayed by at least a good number of years. 

 

 

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  • 2 weeks later...

The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett.  He is certainly intelligent, but his biggest fans overlook his fortuitous meeting.

 

Well, you could say . . . The thing about Buffett is that no one would have ever heard of him had he not had the lucky break to get turned down by Harvard and wind up going to Columbia to study under Ben Graham.  Remember, before Buffett was exposed to value investing he was trying all sorts of harebrained investing schemes, such as charting and technical analysis and so forth.  Now Buffett would have probably figured out value investing eventually on his own, but his story would have been quite a bit different, and his years of great compounding would likely have been delayed by at least a good number of years.

 

He had been familiar with Graham and his writings for quite some time before going to Columbia, so your timeline is incorrect. What you are talking about was something he dabbled in for a very short time in his adolescence. Basically, Buffett was always a value/fundamental investor. Graham just expounded those ideas the best.

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The thing about Munger is that no one ever would have heard of him had he not had a "lucky" meeting with Buffett.  He is certainly intelligent, but his biggest fans overlook his fortuitous meeting.

 

Whether or not we would have heard of him is irrelevant,

a) Munger's ideas would be the same and worthy of study.

b) He would be a billionaire

c) Buffett would not be as rich, his presumed purchase of excellent companies at fair prices would have happened much later, if you believe what he says.

d) Almost certainly they would have met anyway: super astute investors from the same neighborhood in Omaha, the world isn't that big.

 

Agreed netnet. Also, we would have almost certainly have heard of him. The man is no investing slouch:

 

            Charles Munger Partnership

            Annual Percentage Change

                Partnership (%)    S&P 500 (%)

 

1962                  30.1        -7.6

1963                  71.7        20.6

1964                  49.7        18.7

1965                    8.4        14.2

1966                  12.4        -15.8

1967                  56.2        19.0

1968                  40.4          7.7

1969                  28.3        -11.6

1970                  -0.1          8.7

1971                  25.4          9.8

1972                    8.3        18.2

1973                  -31.9        -13.1

1974                  -31.5        -23.1

1975                  73.2        44.4

 

Average return        24.3          6.4

Standard deviation    33.0        18.5

[Compound annual return 19.8        4.9]

[$1 at inception becomes $12.57 in Munger Partnership and $1.96 in S&P 500]

 

From: http://www.fool.com/EveningNews/FOTH/1999/foth990415.htm

 

 

Those massive drawdowns in 73 & 74 would have wiped out most highly leveraged funds like his.  Charlie was a member of the Pacific Coast stock exchange and he had a light leash that resulted in his loans not being called.  As withwith the Buffett partnerships, he may not have reported results to his partners until sometime after EOY 1974 when the markets had turned up in 75.

 

Therefore, a contra factual scenario would be that he could easily have been wiped out during that bear market.

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  • 3 weeks later...

Those massive drawdowns in 73 & 74 would have wiped out most highly leveraged funds like his.  Charlie was a member of the Pacific Coast stock exchange and he had a light leash that resulted in his loans not being called.  As withwith the Buffett partnerships, he may not have reported results to his partners until sometime after EOY 1974 when the markets had turned up in 75.

 

Therefore, a contra factual scenario would be that he could easily have been wiped out during that bear market.

How do you know his fund was highly leveraged?

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Those massive drawdowns in 73 & 74 would have wiped out most highly leveraged funds like his.  Charlie was a member of the Pacific Coast stock exchange and he had a light leash that resulted in his loans not being called.  As withwith the Buffett partnerships, he may not have reported results to his partners until sometime after EOY 1974 when the markets had turned up in 75.

 

Therefore, a contra factual scenario would be that he could easily have been wiped out during that bear market.

How do you know his fund was highly leveraged?

 

I think it was said in "Damn Right" that he used leverage.

 

 

The British Columbia Power company was being taken over by the Canadian government. I think he said he borrowed as much as he could since a deal with the Canadian government is as close to a sure thing as you could get.

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