At Berkshire Hathaway Inc.’s annual shareholder meeting, Charlie Munger’s revelation about a brilliant investment he made over 60 years ago offered a glimmer of hope and inspiration to investors worldwide.
The octogenarian billionaire has been raking in $70,000 per year from a $1,000 bet on oil royalties, a deal he struck with a golfer named Al Marshall after a chance encounter on the green in 1962. Munger’s blunt advice and legal know-how proved crucial in sealing the deal.
Marshall, who had experience working for several oil producers, was unemployed at the time, but he was making investments on his own by purchasing oil royalties at auction. Munger, then a real estate lawyer, quickly realized the oil royalties were underpriced and that Marshall was structuring the deals incorrectly. They decided to pool their resources and each put up $1,000 to purchase the oil royalties.
According to the book, "Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger," when Munger asked Marshall how he was going about the bidding on the third hole, Marshall explained his approach. Munger responded, “You’re doing it all wrong.” Marshall then challenged Munger by saying, “If you're so smart, why don't you do the legal and financing work, and I'll do the rest."
Munger accepted the challenge and structured the deal in an AB trust, which offered a tax shelter. This trust has since been outlawed because of abuse. Despite this, Marshall claimed that their AB trust was properly done and has held together.
Munger’s investment has been a steady source of passive income over the years, with estimates suggesting he has collected well over $1 million in royalties. The annual payments have also given him the freedom to take a $100,000 salary from Berkshire Hathaway and to keep most of his $2 billion fortune in company stock, which doesn’t pay a dividend.
Even better, his family was still receiving monthly checks of $2,000 to $3,000 from the trust he established, all from the original $1,000 investment.
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But Munger’s windfall isn’t the only one in the family. Buffett revealed that his own father invested in oil royalties worth $1,000 to $1,500 before his death. The royalties have now passed to Buffett’s younger sister, who receives a monthly payout to this day. It’s proof that some investments stand the test of time and that a chance encounter on the golf course can lead to riches beyond one’s wildest dreams.
Munger’s reputation for making smart investment choices that pay off in the long run is the stuff of legend. Whether it’s oil royalties or blue-chip stocks, Munger’s track record speaks volumes about his investing acumen. And for those seeking to follow in his footsteps, investing in startups could be the key to unlocking passive income success.
Long Term Investing
It’s no secret that investing in the right companies long-term can yield life-changing results down the line. Many of the earliest investors in Tesla Inc. and Apple Inc. are still sitting on substantial gains as the companies continue to rise. Another recently popular option is investing in startups at their earliest stages on platforms like StartEngine. The platform allows investors to claim a stake in hundreds of companies on their platform, including investing in StartEngine itself.
While oil royalties might not be for everyone, taking long positions in companies with hopes of substantial upside down the line could mean hefty dividend payments down the line.
See more on startup investing from Benzinga.
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