At Berkshire Hathaway Inc.’s Annual Meeting of Shareholders, Charlie Munger’s revelation of a brilliant investment he made more than 60 years ago offered a beacon of hope and inspiration to investors around the world entire.
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The octogenarian billionaire raked in $70,000 a year from a $1,000 bet on oil royalties, a deal he made with a golfer named Al Marshall after a chance encounter on the green in 1962. The direct advice and Munger’s legal savvy proved crucial in sealing the deal.
Marshall, who had worked for several oil producers, was unemployed at the time, but was making investments on his own by buying oil royalties at auction. Munger, then a real estate attorney, quickly realized that the oil royalties were understated and that Marshall was structuring the deals incorrectly. They decided to pool their resources and each invested $1,000 to buy the oil royalties.
According to the book, “Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger”, when Munger asked Marshall how he went about bidding on the third hole, Marshall explained his approach. Munger replied, “You’re doing everything wrong.” Marshall then challenged Munger saying, “If you’re so smart, why don’t you do the legal and financial work, and I’ll do the rest.”
Munger accepted the challenge and structured the transaction in an AB trust, which provided tax shelter. This trust has since been banned due to abuse. Despite this, Marshall claimed their AB trust was properly established and held firm.
Munger’s investment has been a steady source of passive income over the years, with estimates suggesting he’s collected over $1 million in royalties. The annual payments also gave him the freedom to collect a $100,000 salary from Berkshire Hathaway and keep most of his $2 billion fortune in stock in the company, which does not pay a dividend.
Even better, his family still received monthly checks of $2,000 to $3,000 from the trust he established, all from the initial $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 had 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 payment 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 your wildest dreams.
Munger’s reputation for making smart investment choices that pay off in the long run is legendary. From oil royalties to blue-chip stocks, Munger’s track record speaks volumes about his investment acumen. And for those looking to follow in his footsteps, investing in startups could be the key to unlocking passive income success.
Long term investment
It’s no secret that investing in the right companies over the long term can yield life-changing results over the long term. Many of the early investors in Tesla Inc. And Apple Inc. are still sitting on substantial gains as companies continue to rise. Another recently popular option is to invest in early stage startups 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 may not be for everyone, going long in companies with the expectation of a substantial reversal could mean hefty dividend payments down the line.
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This article How Charlie Munger Turned a $1,000 Investment into Over $1 Million in Oil Royalties With His Unemployed Friend originally appeared on Benzinga.com
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