Thanksgiving 感恩节
This Thanksgiving Day, November 28th, 2024, marks one year since Charlie Munger’s passing. It feels especially fitting to pause and give thanks for the wit and wisdom he so generously shared throughout his remarkable life. His enduring insights continue to inspire and guide us.
2024 年 11 月 28 日，这个感恩节，是查理·芒格逝世一周年的日子。此时停下来，为他在非凡一生中如此慷慨分享的机智和智慧表示感谢，感觉特别合适。他经久不衰的见解继续激励和引导着我们。
Introduction 介绍；引言；导论；入门
This transcript marks a full-circle moment for me. While I didn’t attend the 2015 Daily Journal Annual Meeting—my first was in 2016—I felt it was important to revisit and document this meeting. It’s the only meeting with a known recording that I had yet to transcribe.
这份文字记录对我来说标志着一个圆满的时刻。虽然我没有参加 2015 年的《每日日报》年会——我第一次参加是在 2016 年——但我觉得重新审视并记录这次会议很重要。这是唯一一次有已知录音但我尚未转录的会议。
In keeping with my approach, I’ve made this transcript interactive, adding contextual links to provide additional insights into Charlie’s remarks. I’ve also created a carefully edited recording of the meeting, removing 28 minutes of interruptions while preserving all of Charlie and Gerry’s answers, along with the overall atmosphere of the gathering.
按照我的方法，我将这份文字记录做成了互动式的，添加了上下文链接，以便对查理的言论提供更多的见解。我还精心编辑了会议的录音，去除了 28 分钟的中断，同时保留了查理和格里的所有回答以及会议的整体氛围。
I also want to give special recognition to Phil DeMuth for his exceptional notes on this meeting, which I’ve read many times over the years.
我还想特别表彰菲尔·德穆斯（Phil DeMuth）为本次会议所做的出色笔记，多年来我已多次阅读。
Special Request 特殊请求
If you have unpublished recordings, notes, or photographs from past Daily Journal meetings—particularly from 2014 or earlier—I would greatly appreciate it if you could share them. My goal is to preserve these materials and make them accessible to everyone who values Charlie’s legacy.
如果您有过去《每日日报》会议未发表的录音、笔记或照片——特别是 2014 年或更早的——如果您能分享，我将非常感激。我的目标是保存这些资料，并让重视查理遗产的每个人都能获取。
Feel free to reach me at: rlewis@latticeworkinvesting.com.
随时通过以下邮箱联系我：rlewis@latticeworkinvesting.com 。
(Note: I’ve endeavored to transcribe Charlie and Gerry’s words as accurately as possible, while summarizing audience questions for clarity and brevity. Please note, the transcript begins mid-sentence as the recording is missing the first few minutes of audio.)
（注意：我已尽力尽可能准确地转录查理和格里的话，同时为清晰和简洁起见对观众的问题进行了总结。请注意，由于录音缺少开头的几分钟音频，所以这份文字记录是从句子中间开始的。）
Start of Transcript 转录开始
Question 1: Regarding Journal Technologies.
问题 1：关于期刊技术。
Charlie Munger: …We have a lot of business now spread over the whole country.
查理·芒格：……我们现在在全国有很多业务。
It’s cost us a lot of money. It’s cost us a lot of effort. It will cost us a lot of effort in the future, but I would say the momentum is gaining, gaining, gaining.
这花费了我们很多钱。这花费了我们很多努力。未来这还会花费我们很多努力，但我想说势头正在增强、增强、增强。
You people who came in as value investors, well you’ve got something else. You’ve got a damn venture capital type investment. And I don’t want to apologize because I’m sharing the same outcome myself, and it looks like it may work. If it does work, it’ll be a long slow grind, but it could be a way bigger business than the print business ever was.
你们这些以价值投资者身份进来的人，好吧，你们得到的是别的东西。你们得到的是该死的风险资本式投资。我不想道歉，因为我自己也面临着同样的结果，而且看起来它可能会奏效。如果真的奏效，这将是一个漫长而缓慢的过程，但它可能会成为比印刷业务大得多的业务。
We have now crossed the… Well, we have more software revenues now than we have in our traditional business. And the fact that it’s costing us a lot of money does not bother me at all. I think a lot like Jeff Bezos on that (link 1, link 2). [laughter]
我们现在已经跨越了……嗯，我们现在的软件收入比传统业务的收入还多。而且这花费了我们很多钱这一事实一点也不让我烦恼。在这方面我和杰夫·贝佐斯的想法很像（链接 1，链接 2）。[笑声]
As long as we’re taking territory, why, I’m happy. I said to the directors, “There’s no point in being rich if you don’t use it to compete effectively.” So it’s a very good question, but I regard it as a total fluke. It isn’t what I’ve done in life. You can argue that Berkshire Hathaway has once created a business from scratch. It’s worth a fortune, which is the reinsurance department. It’s something that, you know, we’ve done personally…And we may eventually get one of it done here.
只要我们在占领地盘，哎呀，我就高兴。我对董事们说：“如果你不利用财富去有效竞争，有钱也没意义。”所以这是个很好的问题，但我认为这完全是侥幸。这不是我一生中所做的事。你可以说伯克希尔·哈撒韦曾经白手起家创建了一项业务。它价值不菲，那就是再保险部门。这是，你知道，我们亲自做的……而且我们最终可能在这里也做成一件这样的事。
If we succeed, it’s not only good for the shareholders, it’s good for the world. This whole system the government uses is very inefficient, and needs a lot of automation, and the software is very complicated, and the service is complicated. It’s very difficult hard going. One of the reasons the opportunity was available was, it is a very impossible, difficult… People like Microsoft, they hate this kind of business. It’s too hard. They have their own way of shooting fish in a barrel.
I kind of like it because it’s so hard, because if we win it’ll be pretty hard to take away. Now that’s probably the best question anybody’s ever asked at this meeting. [laughter] It’s very important. It affects the whole future of the company.
我有点喜欢它，因为它太难了，因为如果我们赢了，就很难被夺走。这可能是这次会议上任何人问过的最好的问题。[笑声]这非常重要。它影响着公司的整个未来。
Question 2: You earlier said that that one of the most important things you picked up from Darwin was the value of objectivity by forcing yourself to search for disconfirming evidence. What important thing did you pick up from Einstein that you didn’t know before?
问题 2：您之前说过，您从达尔文那里学到的最重要的一点是通过强迫自己寻找反驳证据来保持客观性的价值。您从爱因斯坦那里学到了什么之前不知道的重要东西？
Charlie Munger: Well I didn’t know anything about relativity until Einstein taught me. I wasn’t smart enough to figure it out for myself. [laughter]
查理·芒格：在爱因斯坦教我之前，我对相对论一无所知。我自己不够聪明，想不出来。 [笑声]
Of course we look for disconfirming evidence. One of the directors said very simply, we should make a list of everything that irritates a customer, and then we should eliminate those defects one by one. And of course, that is the way to compete in a service business. It involves continued fanaticism and so forth.
当然，我们会寻找否定性的证据。一位主管非常简单地说，我们应该列出所有让客户感到恼火的事情，然后我们应该逐一消除这些缺陷。当然，这就是在服务行业竞争的方式。这涉及持续的狂热等等。
One of the reasons we bought the little company in Logan, Utah, [New Dawn Technologies] is that we liked the service ethos of the place, and their recruitment methods. Of course, our then accountants, goddamn their souls…I mean our past accountants, goddamn their souls [laughter] just went crazy when we did that. It looked to them like we’d gone stark raving mad. How could it be worth anything? It just bothered them, and they just raised hell with us for months and months, and it made our reports late. I feel very good about that acquisition today. Similarly with the other one. [ISD Technologies] I think both those things have helped us and the cultures are melding. We are now operating under a common name [Journal Technologies].
It’s a damn miracle, because we should have failed, but I’m not at all sure we are. Of course we learn from evolution that you’ve got to keep trying to go extinct. You’re seeing a perfect example of Darwinian, you’re watching one business die, while somebody tries to replace it with another. And almost everybody else in the newspaper business that’s tried to do that has failed. Now some of them bought other businesses, like television stations, with the profits they had, but most of the people who just tried to take their existing newspaper and transform it into something else, most of them have failed.
And that’s the common result. I’ve heard Bill Gates say often that in technology that’s often the case. Here was Kodak that owned the world in silver-based photography. It was the dominant company in the world, the second most important trademark in the world. Armies of Ph.D. chemists, who knew more about silver-based photography than anybody in the world. Fabulous business right through the Great Depression. Total widow and orphan wonderful stock. It wiped out the shareholders with a technological change. Bill Gates said, it happens again, and again, and again, when technology changes enough.
General Motors was the most important automobile company in the world when I was young. It wiped out its shareholders. How do you start from being the most important automobile company in the whole world, and number two is not close, and wiping out your shareholders? That’s very Darwinian. It’s tough out there. Some businesses are dying all the time and new ones come up.
Technological change is one of the hardest things to cope with, which is why so many people fail at it. Now IBM, on the other hand, went from butchers’ scales and god-knows-what, to Hollerith machines which they totally dominated, the early computer. And then when those became obsolete, they dominated for a long-time the big electronic computer. That was a miracle. That’s a real rarity. And of course when the other evolutions came along IBM has failed a lot. It’s normal to fail when there’s a big technological change. It’s hard to adapt to a world that’s different.
What’s really weird about it, look at the age of these people up here. We have the oldest board of directors in the history of the world. The youngest one is 60. [laughter] The Chairman is 91. Should we be climbing Half Dome with one arm and one leg? [laughter] But I’m telling you we are. And I don’t understand computing. [laughter]
Question 3: I wanted to get your opinion on activist investors.
Charlie Munger: Well, I never liked the pomposity of the old system, where the board of directors was absolutely permanent and the bureaucracy did as it pleased. But what’s happened is, what usually happens to me, I like the new system even worse…even less. [laughter]
I don’t think it’s a great thing for a civilization where the people who are getting richest are a bunch of people who buy a block of shares and howl for change that helps the shareholders no matter what. I didn’t think the old system was perfect either, but it can’t be a great way to run a civilization. To have it run by a bunch of activists. Carl Icahn’s a very able man, but he should not be running the world. [laughter] Next question.
Question 4: Hi Mr. Munger. If you were to redesign an education system…
Audience: Speak up.
Charlie Munger: It’s a high technology place. Get the microphone near the lips. [laughter]
Question 4 cont’d: If you were to redesign an education system, knowing what you know now about what’s been important in your life, what ideas would you consider it important to include and to avoid?
Charlie Munger: Well I have watched some of the smartest people in the world try to improve primary education, and it’s proved amazingly resistant to improvement. [laughter] And I’ve watched universities struggle. I would say in the liberal arts there’s a lot of craziness, and I don’t know exactly why.
I think there’s a lot of envy. You have a lot of very bright people who aren’t paid very well. Their main power is to give some student an A or a C.
Something makes the liberal arts professors, on average, a little crazy by my standards. I like them all, and I’d probably prefer they marry into the family than people from a lot of other professions, but there’s a lot of crazy alienation in the liberal arts professors in the modern world.
I think education is very hard to fix. I think the technical education keeps getting better and better and better. They keep driving people harder and harder and harder. So, I think that’s one of the glories of the world. And I think the other education is getting better, too, but it’s got some very irritating defects.
Question 5: Regarding reading and newspapers. Now that I have two your children at home, I don’t know how much time I need to be dedicating to my papers and my reading. With so many kids that you had, how did you balance your reading?
Charlie Munger: I have the kind of mind that when I want to read something I can tune everything else out. The people aren’t even present. In fact, I frequently sit in a room and converse with dead people while the living people around me are irritated, so I don’t think you should try my methods. It’s a miracle they worked for me. [laughter]
But I will say this. I know no wise person who doesn’t read a lot. I suspect that you can read on the computer now and get a lot of benefit out of it, but I doubt that it’ll work as well as reading print worked for me.
And I think people who multitask pay a huge price. They think they’re being extra productive, and I think they’re occupying…I always use a metaphor of the one-legged man in the ass-kicking contest. I think when you multitask so much you don’t have time to think about anything deeply, you are giving the world an advantage you shouldn’t do, and practically everybody is drifting into that mistake.
Concentrating hard on something that’s important is…I can’t succeed at all without doing it. I did not succeed in life by intelligence. I succeeded because I have a long attention span.
Question 6: Regarding the Federal Reserve’s balance sheet. In anyone’s lifetime in this room, will it ever go back to $0.9 trillion?
Charlie Munger: Well, of course, I’m so old I remember coffee at five cents, and all-you-can-eat cafeterias at 25 cents, and brand new automobiles at $600. So, I think you can count on Democracy, over a span of many decades, that they will cause the money to deteriorate. You know, I think that that will continue because of the nature of man. It may even accelerate eventually. I have been pleasantly surprised after the heavy bouts of inflation we went through and the experiences in places like Italy and Argentina and Brazil. I anticipated more trouble than we actually had.
In my lifetime, over the last 50 years, the common stock averages, accounting dividends, have produced about 10 percent per annum pre-tax. I don’t know what the percent of that is real gain, and how much is inflation. Well, let’s assume it was seven percent real gain and three percent inflation. I regard those figures as unbelievably good. I think that somebody my age has lived through the best and easiest period that ever happened in the history of the world, and the lowest death rates, the highest investment production, the biggest increases per annum in most people’s standard of living…. If you’re unhappy with what you’ve had over the last 50 years, you have an unfortunate misappraisal of life. It’s as good as it gets, and it’s very likely to get worse. I think it’s always wise to be prepared for it getting worse. Favorable surprises are easy to handle. It’s the unfavorable surprises that cause the trouble.
In terms of monetary authorities, I think you can count on the purchasing power of money to go down over time. And I think you can almost count that you’ll have way more trouble in the next 50 years than we had in the last. I regard what we’ve just been through…The net death rate from war, from everything…Steven Pinker is right. It’s the most fabulous period that’s ever happened. And of course, the technology is changing so that a few nutcases could really make the World Trade Center look like a picnic. So I think that we should all be prepared for adjusting to a world that is harder.
Question 7: What do you think about societal change, because of the labor displacement by technology.
Charlie Munger: Well, that’s an example of what I’m talking about. If you’re going to have free trade and better communication, more efficient container ships and so forth, obviously the people who once dominated and they get all this new competition from very talented people who’ve been held down by stupid governmental systems and Malthusian traps and they’re suddenly unleashed, of course that competition hurts the people who formerly were in the privileged position. It isn’t because the Federal Reserve didn’t do something right, or the politicians are unfair, or the rich people are mistreating the poor. The world has changed and unless you’re going to do away with free trade and modern technology and the liberation of these talented people who formerly worked in penury agriculture, of course that’s going to hurt the prospects of a group of hard working people with limited education, and it has. It is very hard to fix.
The people assume that all you have to do is tinker with the politics and you can fix it. Well, that’s what they tried to do in Greece. I think the Greek solution is idiocy. If we’re going to prosper, we have to work, and we have to have people subject to carrots and sticks. If you take away the stick the damn whole system won’t work.
And of course you can’t vote yourself rich. It’s an idiotic idea. Of course, a successful civilizations ought to have a social safety net. But I don’t think that…Look what happened in Japan. They were the export powerhouse of Asia, and up rose China and Korea, and Germany got way better. All of a sudden they’re not the export powerhouse.
Well of course if you have a wonderful monopolistic position, and some more talented people work harder, of course you’re less rich. These damned economists keep looking for ways to handle the federal reserve system in Japan or something. Think of how stupid that is. The solution is really obvious of why they lost. They got huge competition they didn’t formerly have when they were an export powerhouse. Japanese were better at quality control and so forth. Other people learned to play the same game. (link 1, link 2)
Do you know how the Koreans came up from nothing in the auto business? They worked 84 hours a week with no overtime for more than a decade. At the same time every little Korean came home from grade school, and worked with a tutor for four or five hours in the afternoon and the evening, driven by these Tiger Moms and what have you. Are you surprised when you lose to people like that? Only if you’re a total idiot. [laughter]
Question 8: Two part question. First, are there other opportunities for acquisition of technology companies to add to Journal Technologies, or are you simply trying to grow that organically going forward? Second, I know you stated that this is not a mini Berkshire Hathaway, but if there was the right opportunity to shoot fish in a barrel, would the board consider it?
Charlie Munger: I think our aged board is capable of shooting fish in a barrel, but I don’t think we’ll get many opportunities. We got an opportunity like that when we bought Wells Fargo stock at eight and change. I don’t anticipate a lot of future opportunities like that one. I regard that as a one-time fluke.
Now it was a fluke we earned the right to have by accumulating money from discipline and good service and so forth out of the foreclosure boom. But no, I don’t think that we…If we happen to succeed in this one [buying the banks in 2009], which I think is more likely than not, I don’t think the experiences seemed so easy to us that we want to try it again.
You know, if you walk across a river from ice floe to ice floe, where if you fell in the water you’re going to die, then you reach the other side where there’s prosperity and you look back at that river, I don’t think you’d want to step back and try it again. So I don’t think it’s going to happen again. We of course would buy something that would help what we’re already doing, but we’re not looking to be new venture capitalists at our present age. It’s an activity we didn’t do even when we were young. I don’t know why we did it. It was mostly Guerin’s idea. [laughter]
Question 9: Two questions. First, what morning rituals have you used, whether when you were a younger lawyer or today that has helped your productivity? Second, do you have any comments on the passing of one of the greats, Lee Kuan Yew?
Charlie Munger: I’m not following the second question.
Peter Kaufman: Lee Kuan Yew.
Charlie Munger: Oh yes! Well that’s, that’s…Boy, I like people who serve me puff balls. [laughter]
Number one. I eat whatever I want to eat. I have never paid any attention to my health. I’ve never done any exercise I didn’t want to do, with the idea that it would improve my life. If any successes has come to me, it came because I insisted on thinking things through. That’s all I was capable of doing in life, was thinking pretty hard about trying to get the right answer, and then acting on it. I never learned to do anything else. So, all these people who think they’re going to get ahead by jogging or something, more power to them. [laughter]
As far as Lee Kuan Yew’s going, I just realized I made a mistake when he died. I’m going to commission a bust of Lee Kuan Yew and stick it somewhere important.
That is the most important governmental leader, it’s the most important nation builder, who ever existed in the history of the world. There is no other record equal to Lee Kuan Yew’s. Unbelievable achievement!
A malarial swamp turned into a modern civilized powerhouse, and then using that example to utterly change and transform China. And not only China, but Vietnam. It was the example of Lee Kuan Yew that the North [Vietnamese] of all people, turned to, to turn Vietnam into a powerhouse that’s civilizing.
There’s never been a career like Lee Kuan Yew’s. He did two things that…demonstrate how smart he was. There was one person in Lee Kuan Yew’s high school who was smarter than he was, and it was a female, one year older. So he married her. [laughter]
And of course…all his children are successful. His son is the Prime Minister of Singapore. This guy is just very rational and other people went for the lady with the most curvaceous whatever. He hired the one that got higher grades than he did and she was the only one who did.
He had this practical judgment. Peter Kaufman loves the story of when he came to power. He was surrounded by Muslims who hate him. He has no assets, no army, no nothing, he’s in a dangerous position. He realizes that in his new nation he has to have an army, and he asked the world to help him create an army, a defense system.
Everybody in the world declines. After all, it’s a malarial swamp. And one country said, “We’ll help you,” and it was Israel. He thought, “How can I have Israel help me when the Muslims hate Israel, and I’m surrounded by Muslims who hate me?” He solved his problem! He accepted help from the Israelis, and he told everybody they were Mexicans. [laughter]
Anyway, there’s never been anything like it, and it’s been a privilege to live in the same world with a man who accomplishes so much, and has used so much discipline and intelligence and decency.
He totally eliminated bribery. When he went on his anti-corruption kick, one of the first persons that succumbed was, it wasn’t his best friend, it was almost his best friend. When the guy committed suicide, the wife came to him, who was also a friend, and said, “Chinese culture, committing suicide is a loss of face for the family, can we cover the suicide up?” He said, “I cannot help you in any way.” This guy was very tough about getting done what had to be done. Singapore was a very corrupt place.
And if his example causes China to clean up, which looks to me like it’s a better than 50% bet. It will be one more unbelievable example of the achievements of probably the most admirable man, judging by consequences, of anybody with whom I’ve shared the planet. So I’m glad you mentioned him. How are you smart enough to know how good Lee Kuan Yew was? What’s your background?
Question 9 cont’d: I just read about you all the time. That’s all. [laughter]
Charlie Munger: Well, I’ve got an echo. Next Question.
Question 10: Dale Carnegie said, there’s no such thing as constructive criticism…
Charlie Munger: Carnegie was wrong on that.
Question 10 cont’d: Do you think the way to live to be 91 is to embrace an organic diet and eat fish you’ve caught on Cass Lake?
Charlie Munger: No, I think peanut brittle is the way to go. [laughter] There’s nothing like peanut brittle.
Question 11: What’s your advice to a 30 year old who wants to achieve financial freedom through investing?
Charlie Munger: Well, achieving success through investments has been pretty easy in my lifetime. If you were rational and disciplined, and you had a tailwind of a 10 percent per annum on average going for you, pre-tax, from carefully selected stocks, that was a big tailwind. And if you saved your money, and you lived within your means, and were shrewd, and so forth, that was enough to take care of you. Just a little discipline in saving, and the passage of time would do it.
Now, if the world is going to get 10 percent out of indexes, which I don’t think it will, in the future, in real terms, getting more has proven to be quite difficult. Some of you who’ve come along later are finding that if you stay in the big stocks, it’s damn near impossible for most people. When things are damn near impossible, maybe you could stop trying.
That was not my system, but I do not recommend my system to everybody. I do, as a way of life, but I don’t think all you have to do is read Charlie Munger and you’ll get rich. If it were that easy, why, this place would be a football stadium.
Gerry Salzman [Daily Journal CEO]: Charlie says the way to get rich is to keep $10 million in your checking account in case a good deal comes along. [laughter]
Charlie Munger: By the way, that was the advice of Howard Ahmanson to a young bunch of starving graduates. [laughter] Rich people sometimes get a little pompous.
Question 12: I have a question about the Posco position. I’ve heard you say, it’s a low-cost producer and talk about the Korean productivity. Right now the steel prices are at all-time lows…
Charlie Munger: What are you talking about?
Question 12 cont’d: Posco.
Charlie Munger: Oh, Posco, yes, ok. Well, it’s a very interesting example, as a matter of fact, which shows how hard the world is. That is the most efficient steel company in the world, and it had pretty close to a local monopoly of a whole country for a long, long time. In spite of that, in spite of having some very important steel technology that they have that nobody else in the world has, Posco is selling like an ordinary commoditized steel company.
It’s very, very hard to avoid being commoditized in high powered competition in the modern world. In places like Dow Chemical, have all our complex chemical products commoditized in spite of the fact they’ve got thousands of PhD chemists, and people as talented and brilliant as the people who created Posco just find the markets flooded and the prices bad and so forth.
It shows how hard and dangerous it is to make money in a commoditized business, and how many businesses that you formerly thought were hugely advantaged can be commoditized. So, you’ve done a wonderful service to this meeting by raising the case of Posco. Posco’s an excellent example for everybody to think about. It really shows how hard it is.
Question 13: You have said in the past that the private mortgage insurance solution is flawed. Can you talk about why the current insurance solution with Fannie and Freddie works? And talk about some of the problem with bringing in private capital into the mortgage insurance market.
Charlie Munger: Well you remember what private insurance…did when it caused the big financial crisis. Finance went plum crazy in the United States. Crazy and immoral, that is not a good combination…Crazy and immoral. And they added a third, they were deeply full of pride about the fact that they were crazy and immoral.
And they damn near caused a catastrophe. And the people who did it have one thing in common, not one has any shame at all. I’ve never seen anybody who contributed to the creation of the great financial crisis with shoddy underwriting, lousy bonds, I’ve never met anybody who contributed to it who was ashamed of himself. It was always somebody else’s fault, or maybe the government’s fault. That’s just the way it is.
We have stumbled by accident in reaction to the crisis into what we did. All the things we did were great expedients, given the terrible problems we had, and it’s working after a fashion. The main risk is that given the political pressures, the government will start going crazy the way everybody else did, in reducing the standards and so forth.
I mean, you keep trying to enable your citizens to vote themselves rich by various stratagems, like unlimited credit to people who don’t deserve credit, which is really a dumb idea. You’d think people would know that by now, but I don’t think they really do. I’m satisfied with the current system provided they keep the standards up.
But of course, they don’t want to do that, they want to lessen them as fast as they can, and that’s what the politicians will keep urging them to do. I think it’s a terrible idea. I don’t think there’s anything wrong with having a conservative system, like the FHA was in the Depression and so on, that happened to involve the government. But, letting private agencies and private insurance do as they please? We’ve shown how well that works, our unregulated, wonderful people in finance. I think I’d rather trust some pathogen.
Question 14: I’d like to get your thoughts on American Express. Do you think its moat has narrowed recently?
Charlie Munger: Well, I don’t think it was desirable that it lost its contract with Costco. Again, that’s an example of how tough capitalism is. Obviously, other people were willing to do it a lot cheaper. It just shows how tough a position that looks impregnable can be in modern capitalism. It’s what makes everything difficult to those who already have some money.
I think that’s just the way it is, and American Express has had a long period of very extreme achievement and prosperity. I think they’ll have a lot of prosperity in the future, but I don’t think…it doesn’t look quite so easy as it once did. Now, the head guy would say it’s always been hard, he’s been paddling hard, but you know we paddled hard here too, and what good did it do us with the Daily Journal’s print business? We paddled like crazy, didn’t we Gerry?
Mr. Salzman: We tried. We paddled hard.
Charlie Munger: Yeah, what happened? It just keep receding, receding, receding. Welcome to adult life. [laughter]
Question 15: I recently watched your Elon Musk interview on YouTube, in which he said he had lunch with you and you had given him all sorts of reasons why Tesla would fail. Would you be kind enough to educate us why you thought Tesla would fail? And what BYD can learn from Tesla’s success?
Charlie Munger: I think the auto business is very difficult, very competitive, and everybody has learned to make wonderful cars. And everybody already in it has enormous size and wealth and what have you. So, I regarded it as a very, very tough business. Now, Elon Musk is a genius, so if anybody has a chance to do it, he probably is the man.
But we have a saying at Berkshire that when a man with a reputation for genius takes on a business with a reputation for tough operating conditions, it’s the reputation of the business that’s likely to prevail. And I just think it’s going to be that tough. Without government help, I think getting electric cars off the ground is really hard. In China, it works a lot better than it does here, because their air is worse.
What Elon Musk really needs is to have the whole country to have a disastrous smog attack that kills a lot of people. Short of that, I think it’s going to be very difficult. He’s a genius, but he’s going to have to be.
Question 16: How do you read? How do you retain and incorporate information? Do you have a filing system?
Charlie Munger: No, I’ve never taken notes. I never kept notes when I was student. I just read what I pleased when I feel like reading it, and I think what I think when I feel like thinking it. That’s my system. [laughter]
I don’t think it’s the right system for everybody, but it seems to have worked well enough for me to enable me to get by.
Question 17: My question is about so called ‘robo-advisors’. What are your thoughts on the subject?
Charlie Munger: Well, the robo-funds are the index funds, the big ones. You can hardly imagine more of a robo fund than an index fund. And of course, they’re beating 98% or something of the managed money over a long period of years, particularly the people who are managing billions. I just thank God that they didn’t give me the assignment of managing a few hundred billion dollars and beating the indexes. I would not have welcomed the challenge. It’s very difficult.
I think the people who still have a cinch in value investing are people who are willing to work in less efficient markets very diligently and intelligently. But I think it is very hard to be a great value investor with $200 billion under management. It takes a long time to buy in, a long time to sell out, other people copy your trades, it’s just very difficult.
Question 18: Financial economists in recent years have rediscovered that highly profitable, high-quality companies are better investments than other companies. It’s an insight you seemed to had in the 50s, or maybe the early 60s, when you were an attorney. How did you come upon this idea?
Charlie Munger: Well, everybody with any sense at all knows that some companies are better than others. What makes it difficult is they sell at higher prices in relation to assets, and earnings and so forth, and that takes the fun out of the game. If all you had to do was figure out which companies were better than others, an idiot could make a lot of money. But they keep raising the prices to where the odds change.
I always knew that. They were teaching my colleagues that the market was so efficient that nobody could beat it. But I knew people who’d beat the pari-mutuel system in Omaha by knowing more about horses than other people. I knew it was bullshit. And when I was very young…So I never went near a business school so I didn’t get polluted by the craziness. [laughter]
I never believed it either. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle, and there’s nothing remarkable about… I don’t have any wonderful insights that other people don’t have. I just have sort of slightly more consistently than others, I’ve avoided idiocy.
Other people are trying to be smart, all I’m trying to be is non-idiotic. I find that that’s all you have to do to get ahead in life, is to be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think.
Question 19: As chairman of a major hospital, can you speak to us about Obamacare?
Charlie Munger: Well of course, that’s one of the most complex subjects on Earth. Of course, the system of medical care that’s evolved in the United States has much wrong with it. On the other hand, it has much that’s good about it, all new drugs, the new devices, the new operations.
Medicine has taken more territory in my lifetime than it took in the whole previous history of mankind. It’s just amazing what’s been done, and a lot of it has been obvious and simple, like inoculating children against infantile paralysis, and scraping the tartar off your teeth so you don’t wear plates when you’re 55 years old, and so on, and so on, and so on.
People now take those benefits for granted, but I lived in a world where a lot of children died, and every city had a tuberculosis sanitarium, and half the people who got tuberculosis died. It’s just amazing how well medicine has worked. On the other hand, compared to the best it can possibly be, the American system is pretty peculiar.
It’s very hard to fix, because one kind of incentive is to say, “We’ll pay you so much a month for taking care of the people, and everything you save is yours.” That is the system the government uses in dealing with the convalescent homes. That’s a great name, the ‘convalescent home’. You convalesce in Heaven, you don’t convalesce in that home. [laughter]
It’s just tempting to have the euphemistic name. But that creates huge incentives to delay care and keep the money, and the government has strict rules and compliance systems and so forth. If we didn’t have that system, the cost of taking care of the old people in convalescent homes would be ten times what it is. It was the only feasible solution.
The rest of the world is going in that direction because the costs just keep rising, rising, and rising. If the government is going to pay ‘A’ anything he wants for selling services to ‘B’, who doesn’t have to pay anything? Why, of course the system is going to create a lot of unnecessary tests, unnecessary costs, unnecessary procedures, unnecessary interventions. Psychiatrists that keep talking to the patient forever and ever with no improvement.
Of course that system is going to cause problems, and the alternative system also causes problems. Now, add the fact that you’ve got politicians, and add the fact that you’ve got existing players who are enormously rich and powerful, who lobby like crazy. A state legislature now is just…With 19%, or whatever it is, of GDP going through the medical system, imagine what the lobbying is like.
So, we get these Rube Goldbergian systems, and we get this…a lot of abuse of various kinds. There’s hardly an ethical drug company that hasn’t created multiple gross abuses, which are in substance the equivalent to the bribery of doctors, which of course is illegal. You have all these ethical companies, ‘ethical’ meaning it’s the designation of a drug company who has patented drugs. They’ve all committed big follies.
And the device makers, if anything, have been worse. There’s been a lot of abuse and craziness, and the costs, of course, just keep rising and rising. And that’s in a system that averaged out has been the greatest achiever in the history of the world. It’s very complicated.
I think it will get addressed more because…and we probably will end up with systems that are more like we do with the convalescent homes. If you look at medicine, what’s happening is that more and more they’re going to a system where they pay somebody ‘X’ dollars and everything they save they keep.
And that system has some chance of controlling the costs. If you go into a great medical school hospital today, and you’re within a day of dying of some obvious thing like a very advanced cancer, the admitting physician is very likely to ask for a test of your cholesterol and every other damn thing, and all the bills go to the government.
As long as the incentives allow that, people will do it, and they’ll rationalize their behavior. So something has to be done on that, more than is now being done. And I think the drift will be more in the direction of the “block care”. I don’t see any other system that would have controlled cost in the convalescent homes.
By the way, your doctor can’t just walk by every bed in the convalescent home and send the bill to the government. That’s not allowed by the law. But if you transfer the patient into the hospital, you can walk by the bed five minutes every day, and send a $45 bill to the government.
So, if the incentives are wrong, the behavior will be wrong. I guarantee it. Not by everybody, but by enough of a percentage so that you won’t like the system. Well I think that’s enough on a subject that’s so difficult. But I think we can see where it’s going. By the way, we may end up with a whole system that’s…In the Netherlands, they have a system where the same people are giving a free system to everybody and a concierge system to the others. And it’s actually working pretty well, so that’s a possibility.
Question 20: A question in regards to the Asian population in the United States. A lot of us go to the elite universities in the U.S., and have exceptional academic achievements, but very few of us make it to the top professional positions. Why is this the case? Is there something working against us in this nation?
Charlie Munger: No, no, what’s working against you is the laws of arithmetic. It’s a strange thing, but exactly 99 percent of the people are in the bottom 99 percent. That will always be true no matter what. So of course very few people will get to the top 1 percent. In fact, only 1 percent gets there. [laughter]
Question 21: Could you talk about your experience with Heinz and with 3G and what you hope for the future? What’s so special about 3G that they’re able to squeeze out such extraordinary performance out of fairly stable, slow growth businesses?
Charlie Munger: Well of course, 3G has, through enormous discipline, enormous will, and enormous intelligence, they have adopted a zero-based budgeting system which is more extreme than anybody else’s. And yet they’ve been able to do it time after time in a way where the place ends up as strong or stronger after they’ve removed a lot of the cost. Of course, that’s a very interesting example.
The same thing went on in the nonprofit center. When the great financial crisis came, every university I know of laid off 6 percent, 8 percent, 10 percent of their people. I know of no case where the university didn’t work better after they got rid of the 10 percent. None. Zero. Successful places tend to get bloated, fat, complacent. It’s the nature of human life.
So if somebody is tough enough, and shrewd enough, and knows enough not to cut the wrong things and to do everything… of course has an opportunity to buy things and cut out expenses they don’t really need. And of course, 3G is probably the most extreme large operation in the world at doing that.
I actually think they will probably end up increasing the sales as well. What’s interesting about 3G is they’re teaching us something about reality. Namely, that successful places contain a lot of unnecessary people…I could have told them that just by observing them. I mean, if you went into the Department of Agriculture, would you have the feeling the thing was understaffed? [laughter]
I think you’d find many a corporate headquarters wondering, “What in the hell are all these people doing?”
Now the Daily Journal I do not think is overstaffed. I don’t think it ever has been. Gerry, why don’t you comment on that? He’s watched it all these years. I don’t think we’ve had a lot of unnecessary costs ever.
Mr. Salzman: Well, we haven’t had a lot of unnecessary costs. At one time, the Daily Journal by itself had approximately 300 employees. Now, we have about 150 employees. So you can see that we have taken the direction of the company and reduced expenses accordingly. Take for example the foreclosure business, which went from about 2006 to 2010 or ’11 just like that, we added one and a half people to handle all of that additional work. And when the boom went the other direction, we eliminated the one and half plus maybe a little bit more. So we tried to be ahead of the game in terms of anticipating and certainly using technology, because that’s the way we were able to handle that particular sequence of events.
Charlie Munger: Yeah, but, normally, if you’re just super successful, if the sky just rains gold, every vice president gets an assistant and pretty soon, the assistant has an assistant. It’s just the way human nature works. It’s sort of like cancer. And somebody who’s really tough about that can remove a lot of costs, but only from certain kinds of companies. 3G would perish if it tried to reduce a lot of costs at the Daily Journal Company. They would starve to death. [laughter]
Question 22: You said a few years ago that if we ever get to the point where everybody’s indexing, it’s not going to work very well.
Charlie Munger: Of course!
Question 22 cont’d: Could you explain a little more about that and what would that lead to?
Charlie Munger: Well, it’s far enough away from happening so that I don’t spend much time thinking about it. And I think human nature is such that it will never happen. So, I don’t spend much time thinking about what is almost certain never to happen.
In the world as it is, indexing has gained a lot, and it probably should have gained a lot, because it’s quite rational. And it’s bad for a lot of people who’d otherwise be earning money as stock pickers. And it probably should have been bad for those people.
It doesn’t make it pleasant to have it happen, any more than it helped Japan have a pleasant time when Korea came up so fast as a competitive powerhouse, and even more so when China rose. But I think indexing is here to stay. And I think it’s a fact of life.
If you stop to think about it, civilized man has always had soothsayers, and shamans, and faith healers, and God knows what all. And the stock picking industry is four or five percent super rational, disciplined people, and the rest of them are like faith healers or shamans. And that’s just the way it is, I’m afraid. It’s nice that they keep an image of being constructive, sensible people when they’re really would-be faith healers. It keeps the self-respect up. [laughter]
Question 23: Lee Kuan Yew’s main mantra, “Repeat what works.”, has been phenomenal. What are the chances of the culture he instilled continuing with the current government and future governments of Singapore?
Charlie Munger: Wel, they’re pretty good. Lee Kuan Yew left a base, he eliminated the corruption, made it hard to get in, and paid the people a lot. There’s no real incentive to steal in Singapore. If you’re either in Parliament or an advanced government administrator, you get paid very well, and in a Confucian civilization you’re admired, and so forth.
I think what he’s left in Singapore will continue to do very well. But of course, he rose when he was doing it and China wasn’t. Now Singapore has to compete with China. China makes it harder.
Question 23 cont’d: What about the changes since his son or predecessor came in, for example, allowing casinos to come into Singapore…
Charlie Munger: Well, I would have hated that. The guy who talked about envy…You make so much money running a casino, compared to any normal human business. There are no inventories, it’s like having a license to print money, and people just can’t stand the temptation. So, he organized a casino business, only foreigners can play, he didn’t want to ruin the locals. I would not have slept with the devil that much. But he was no longer really in power when that happened. If he’d still been young, I’d like to think he would not have done that.
I do not consider it desirable in the United States that we’ve created casinos everywhere and lotteries everywhere. That was not a desirable development in an advanced civilization, and the goddamn politicians that solve their short‑term problems by bringing in this poison deserve to be in the lowest circle of hell. But, that means that I’m consigning practically all of them, because practically all of them have done it. I can hardly find a place where they aren’t putting in new casinos. And the advertising on TV is happy people winning at the table. [laughter]
Talk about false advertising! You should look at the desperate faces of people trying to get even at the table. Imagine making your living putting those kinds of images on television. [laughter] I would rather it be in child prostitution! [laughter]
Question 24: You and Gerry were talking about paddling hard in a business that was structurally challenged. How do you deal so well with failures and upsets and disappointments better than other people?
Charlie Munger: I have so many fewer. [laughter] It’s very simple. An isolated example that’s very rare is much easier to endure than a perfect sea of misery that never ceases.
Question 24 cont’d: As a follow up to that, you’ve written about the benefits of trust…
Charlie Munger: Oh, it’s just so useful. Dealing with people you can trust and getting all the others the hell out of your life. It ought to be taught as a catechism. The trouble with doing it is, in an ordinary school, you’d immediately cast 40 percent of the people into oblivion. And nobody would even talk to them, and I’m not sure an egalitarian civilization is willing to be that tough.
But wise people, you want to avoid other people who are just total rat poison, and there are a lot of them.
Question 24 cont’d: How does someone earn that trust?
Charlie Munger: Well, you do it partly by experience. The simplest way to get trust is to deserve it, and to just keep deserving it. What else is going to work as well?
Now, the casinos tried to deserve trust by having a happy winner appear on television, but do any of us trust casinos? Would any of us say, oh goody, when the daughter brings home a boyfriend who makes his living in the credit department of a casino? [laughter]
And by the way, a lot of our major capitalistic institutions that parade as really respectable, they’re just casinos in drag. What do you think a derivative trading desk is? It’s a casino in drag. And the people come down feeling they’re contributing to the economy, and they’re managing risk. They make the witch doctors look good.
Question 25: Many people in the pension and endowment fund business are now following the Yale model, the so-called David Swensen model…
Charlie Munger: They certainly are.
Question 25 cont’d: This recommends a significant percentage of assets toward hedge funds and private equity. Recently I heard you say that if you were managing endowment funds, you would have it virtually all in common stocks. Would you comment on this?
Charlie Munger: Well, I don’t manage endowment funds, and I don’t like the politicization that exists in places like big state pension funds and so forth. Of course it’s very difficult to manage umpteen‑billion dollars with very superior results. And of course, since David Swensen was so extremely successful at Yale, of course the system has spread. Any successful system will spread by example.
The other thing that’s spread is the leveraged buyout system, and those people actually have an advantage in a world that has been like the one we have. If common stocks are yielding 10 percent averaged over time pre‑tax? And you have a different way of involving investment in common stocks in which you use leverage, and you also eliminate some unnecessary costs, like 3G, and a few other tricks. Just with the natural financial engineering, you have a natural advantage. And of course they’ve had wonderful experience in selecting the best…The top 25 percent of the LBO funds have served their endowment clients very well. And that is part of what people like David Swensen did.
When it gets to hedge funds, Warren has been famously skeptical about billions and billions and billions…hundreds of billions…trillions really, of money in hedge funds, and I think he’s right. I think there’ll be a lot of very bad experience. There will also be some good experience. And I think a few people have been able to select a few advisors for some of these private equity things where they really done well by being shrewder.
Some of the money they made at Yale or Harvard, in derivatives, was actually made shrewdly. They used leverage. I wouldn’t have done it myself, because I don’t like balance sheets swelling with vast amounts of leverage. I’m afraid of human nature.
Nonetheless, a lot of what they did was quite shrewd, and of course they did have large returns. I don’t think it’s easy to do. I don’t think anything any ordinary person can do easily is likely to work that well. What David Swensen did was select, with the aid of Yale’s reputation and his own, some of the smartest people around, and nurture a bunch of..
It was a like a guy who figured on how to make successful plays on Broadway. The fact it succeeded doesn’t mean it was easy. He did something very remarkable and of course the example spreads. But, I don’t think there’s any real easy solution for anybody. Anything that’s really likely to work, is likely to be hard.
Question 26: What do you think of new Internet platforms for starting companies such as Kickstarter?
Charlie Munger: I don’t know anything about new Internet platforms. [laughter]
Question 26 cont’d: All right. What advice would you give for early entrepreneurs, young game changers, in the old way of thinking?
Charlie Munger: Well, I don’t know anything about the new world of managing a big network based on computer science. It all came up and developed after I was too fixed in my habits to want to go back and learn to play a different game. And what I was doing worked well enough, so I didn’t feel deprived. So I just…I let it pass.
I wish everybody well who’s good at it. I feel the same way about a guy that walks across the tight rope over Niagara Falls. It’s his way of making a living, but I’m not inclined to try it. [laughter]
I’m not trying to outdo Page and his partner at Google, and I don’t have any advice for young men who want to get rich. Basically, I think the desire to get rich fast is pretty dangerous. And my own system was to get rich slow. And it protracts a rather pleasant process, so I recommend my system to everybody.
After all, if you get rich fast all you can do is be robbed by your own employees and your yacht and so forth. Whereas if you get rich slow you can keep yourself amused over a lifetime. [laughter]
So, my advice to you is to go to the “get rich slow” system.
Question 27: What are your thoughts on the long-term defensibility of a moat? Are there any themes you’ve distilled from the thousands of companies that you invested in?
Charlie Munger: We tend to look for easy decisions, and we find it very hard to find easy decisions, but we’ve just found enough barely to handle our own problems. I don’t have a system. Since I barely have enough for myself, I do not have a vast surplus to give to the multitudes. I’m not holding back on you, I just don’t have them. [laughter]
Question 28: In the past you mentioned how you didn’t want to use up the U.S.’s hydrocarbons, because you considered it as vital to the civilization. Now it seems like the world is awash in oil. Could give us your updated thoughts on the global oil market.
Charlie Munger: You’ll be surprised to know that I have not changed my mind. [laughter] I think the hydrocarbon reserves in the United States are one of the most precious things we have, every bit as precious as the topsoil of Iowa. Just as I don’t want to export all the topsoil in Iowa to Iran or something, just because they’re willing to give us some money, I don’t like exporting our hydrocarbons. I love the hydrocarbon reserves we have in the ground. The fashion is to be independent and to use them up as fast as we can. I think that’s insanity as a national policy. I must be in a minority of one percent tops, but of course I’m right. [laughter]
We have no substitute for those hydrocarbons. We use them to make our fertilizer. We’re not going to be able to run our airplanes without hydrocarbons. We do not want to use up all that. It’s chemical feedstock. It’s finite. It’s not at all safe to assume there’s a substitute.
It has a long record of over time of appreciating in value. We’re just damn lucky we didn’t learn to remove this fracked stuff earlier or we would have done it. But everybody else just has the idea that anything that happens in a free market is all right even if it’s an ax‑murder. [laughter]
They think exporting hydrocarbons makes sense. I think it’s a ridiculously stupid policy, but if you have a little oil lease and don’t like the current price of oil, of course you want to export, but I don’t think it’s good for the country at all. I love the fact we have a lot of hydrocarbons left that we haven’t exploited.
Why wouldn’t you be pleased to have it? How happy would we all be if we were importing 100 percent of our hydrocarbons right now, like Japan? We’d feel exposed and dangerous, right? And we’d be right to feel exposed and in danger.
And would we feel like some big power in the world that might prevent other people from misbehaving if we had no hydrocarbons at all, and were dependent on others? No, I think the fact that that idea is so unconventional doesn’t mean it’s wrong. It just means other people don’t think very well. [laughter]
Question 29: You mentioned earlier about unexpected change and technological change. Going forward, what kind of unexpected or under‑appreciated changes do you think are most relevant, and which industries do you think will be most impacted?
Charlie Munger: Well I think the one that affects, say the next 50 years for you young people, is that I think it’s very unlikely that we won’t have some major catastrophes. I think we’ve had a very favorable period, but I don’t think it’s terribly constructive to spend your time worrying about things you can’t fix. As long as when you are managing your money, you recognize that terrible things can happen, and in the rest of your life you can be a foolish optimist.
Benjamin Franklin said a very wise thing. He said, “You should keep your eyes wide open before marriage and half shut thereafter.” [laughter]
Regarding future catastrophes that you can’t fix…Franklin is right, keep your eyes half shut. I think that’s what most of us do anyway. Though I think that’s the change that’s most likely.
I don’t see how we bring back that age where an uneducated man can march ahead rapidly. As long as we have free trade and worldwide competition, and I don’t want to stop having free trade with a big nuclear power like China. China and the United States have to get along. Each country would be out of its mind not to get along with the other. I think the trade helps us to get along.
If it hurts some people, life is always going hurt some people in some ways and help others. I think there should be more willingness to take the blows of life as they fall. That’s what manhood is, taking life as it falls. Not whining all the time and trying to fix it by whining.
Question 30: Do you have thoughts around persistent negative interest rates on government bonds?
Charlie Munger: Well, so basically its never happened before in my whole life. I can remember 1.5% rates, you know, World War II and a little after that. But you’re talking about something that never happened before in my whole life. It certainly surprised all the economists. It surprised the people who created the life insurance industry in Japan, who basically all went broke because they guaranteed to pay a 3% interest rate. Image thinking that your life company could go broke because it guaranteed to pay a 3% interest rate for a long time. It’s very surprising. I think everybody’s been surprised by it, including all the people who sort of were in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted. I think we’re all still flabbergasted.
I was flabbergasted when they went low, when they went negative in Europe. I’m really flabbergasted. Negative interest rates? How many in this room would have predicted negative interest rates in Europe? Raise your hands.
See, that’s exactly the way I feel. How can I be an expert on something I never even thought about that seems so unlikely. It’s new territory.
Question 31: Regarding Journal Technologies. You mentioned that getting into the software business is difficult and one of the things you’re looking to do is solve the problems of your customers. Can you talk about what’s challenging or difficult about it and what are your customer’s problems that you’re trying to solve?
Charlie Munger: Well, every government department needs all kind of automation it doesn’t have. And it’s complicated, the systems interact with other systems. It’s a very, very complex activity and software is more and more important. And it’s very, very difficult.
And the governments have their own way of doing business that are created by history, and local legislation, and so forth. So there’s nothing simple about it. It’s plenty difficult.
You know, a company like Microsoft, they’re in a business somewhat similar to ours when they bought that thing in Plains [Great Plains Software], or whatever its name was. And they succeeded with it moderately. So even Microsoft finds it difficult to do anything but have moderate success when they buy some thoroughly proven software system, more or less similar to what we’re trying to do. There’s nothing easy about it.
But it’s very necessary. It’s a huge market. The right idea of course is to really serve the customer correctly, and somebody’s going to win.
Question 32: I’m curious whether or not you see any parallels between what’s happening today in television and what’s happened to the newspaper industry.
Charlie Munger: Well, the newspaper industry, of course, is easy. It had a revolutionary change in technology. And the worst single thing was to take the classified ads out of the paper, because that was the total goldmine. I don’t think that’s fixable.
Our newspapers, they were impregnable local powerhouses, and very constructive parts of the political system of the country. Of course, they’ve…been enormously weakened and I think that was not good for the country. I think it just happened by accident. We lost all these local powerhouses that could have total integrity, because they had impregnable financial positions, and away they go.
Television is a different thing. I’ve been a little surprised how well television has survived the new world of the Internet and cable television…I mean the old broadcast networks and so on. But I’m not sure I understand the situation well enough to predict what’s going to happen over the next 25 years. I’m a little suspicious about all the local incumbents. None of them look immune to me, to technological change. I don’t even understand…
Something happened recently, which I watched in China. When the Berkshire Report came on, it created a great buzz in China. China is interested…We look Confucian to the Chinese. They like elderly rich men. [laughter]
We’re trying to be wise. That’s the Chinese system. And so, we were getting a great buzz with the Berkshire report all through China…And all of a sudden, the buzz stopped.
What had happened? One woman in China took $150,000 of her own money and a year of her life and created a documentary film. And she ran the thing through the air over the Internet.
It was a film. She got 200 million views. What she did was a long thing about smog, and how the people were dying in China, and how Los Angeles had fixed its smog problem by taking the sulfur out of the air when people burn coal and oil and so on and so on. Terribly well done.
Well, somebody nobody’s ever heard of…Then the Chinese plenary Communist Party meeting…This one woman is changing the policy of China. She isn’t on the newspapers. She isn’t on the television stations. Nobody had ever heard of her.
One damn documentary. That is a new world. That’s a new source of power. I don’t know where a world like that is going to end up. I just know it’s different. And it’s important. And in this case, it was very constructive.
China has been dead wrong to allow people to die 10 years early in Beijing because the air is so lousy. Immoral. Stupid. Not a good combination. China’s going to fix it. This woman is actually helping, with one program.
The world changes like that so rapidly. It’s hard to know who’s going to have the power and what’s going to happen. And that’s the way I feel about a lot of the media. I understood it better when the people who had the printing press controlled the newspaper, and the people who had the network allocation controlled the broadcasting.
Murphy [Tom Murphy, CEO of Cap Cities] liked it better when they were all in black and white, and there were only three networks, and he had a big, strong position. He did not welcome all the new competition.
I do not understand how they get so damn much information through space at the same time.
You and I grew up in a world where these radio stations interfered with one another, right? That’s why you couldn’t have very many channels. Now, one woman can put 200 million hits on a whole damn movie through God-knows-what. How do the bits not conflict with one another? [laughter] It’s very complicated. I don’t understand it. You know, I understand peanut brittle. [laughter]
Question 33: Regarding low interest rates. Are there any specific unintended consequences that you are concerned about now that we’ve had such a prolonged period of low interest rates, which are clearly altering folks’ risk behavior?
Charlie Munger: Well, I think something so strange and so important is likely to have consequences. I think it’s highly likely that the people who confidently think they know the consequences, mainly the economics profession, none of whom predicted this, now they know what’s going to happen next? Again, the witch doctors. I never wanted to be a witch doctor. I just wanted a few things I could actually know something about. I wouldn’t like a profession that required me to be a witch doctor.
You ask me what’s going to happen? Hell, I don’t know what’s going to happen. I regard it all as very weird. If interest rates go to zero and all the governments in the world print money like crazy and prices going down. Of course I’m confused. Anybody who is intelligent who is not confused doesn’t understand the situation very well.
If you find it puzzling, your brain is working correctly.
Question 34: What do you think is the least talked about or most misunderstood moat by the public that is highly important?
Charlie Munger: Oh, well everybody would like to have a misunderstood moat. I must say, you’re the greediest fellow that’s spoken. [laughter]
All you want to know is to have a moat that you can understand that other people don’t. What a modest wish. [laughter]
So you’re going to ask a 91-year-old man how to do it? Reminds me of one of my favorite stories. A young man comes to Mozart and says to Mozart, he says, “I want your help. I want to compose symphonies. I want to be a creator of symphonies.”
Mozart says, “You’re too young to be composing symphonies.”
He says, “But you were doing symphonies when you were ten years of age and I’m 21.”
Mozart says, “Yes.” he says, “But I wasn’t running around asking other people how to do it.” [Laughter]
That’s the way I feel about your question. All you want is a misunderstood moat.
Question 35: What has surprised you the most about human nature?
Charlie Munger: The one thing that has surprised me all my life is how many people with high IQs do massively stupid things. Now, if you go to academia, you go into a great faculty department, I said this once at the Michigan Law School. Nobody in my law school would be surprised by highly intelligent people doing massively stupid things. So, it happens everywhere. But it is surprising how extreme the stupidity is and how talented the people are who do them. I think the human mind was almost made to misfunction on a lot of different ways. So I do think it’s quite surprising and it makes the world a very dangerous place. Because the man with whom you trust, because he’s your physician, your doctor, you investment manager, what have you, can go plum crazy. To give you an example that surprised me. I’m used to doctors who think a procedure that’s good for them is good for you, and are wrong. But in Redding, California, a couple of doctors rose who gave everybody who consulted them open heart surgery. They really convinced themselves that everybody needed open heart surgery. That a normal heart was a widow maker and that if you replaced it with carbon, or nylon, or something, they were way better off.
They did massive amounts of open-heart surgery. Now I expect the worst of human nature, but they had the feeling that they were doing the right thing and really helping the patients. That surprised me. I’m always being surprised by something like that. It seems impossible, how could anybody behave that way? And how could it go on for year after year? Tenet [Tenet Healthcare Corporation] was sending its other executives up there to learn how to run their other hospitals this way. [laughter]
By the way, their surgical results were wonderful. Nobody survives open heart surgery better than the guy who doesn’t need it at all. [laughter]
So that kind of surprise I get all the time. Don’t you find that case surprising?
Question 35 cont’d: It’s sort of like a confirmation bias. People want to believe their own results and their own theories?
Charlie Munger: No, it’s incentive caused bias. They were making money and status and they were demonstrating skills and so forth. But it’s so extreme, you’d think that couldn’t happen. And if it did happen, you’d think it would be identified by other people early. It ran on for years. What their bosses were doing was trying to get their other hospitals to have the same results. Amazing.
Question 35 cont’d: Were they sued?
Charlie Munger: Of course. What happened was, they did take away the doctors’ licenses, but nobody went to jail. You’d think they’d go the lowest circle of hell, but they didn’t. They just lost their licenses.
Question 36: When might you believe the software industry will catch up with the law profession in the form of reduced billable hours due to the processes and systems?
Charlie Munger: I wouldn’t hold your breath. [laughter] I do think there is some trend to limit the idea of hiring a lot of young people and have them all bill 13 hours and so on, and trying to increase the billable hours. It’s not just the law profession. The consultants do it. Lots of people do it. The accountants do it.
It’s just, again human nature operating. But I do think in law you’re seeing the elements of rebellion. Some clients are insisting on different systems. It’s gone too far.
Question 37: Regarding Singapore. In China there are debates about if China should learn Singapore’s management style, because this type of management style might only work in a tiny place like Singapore, a city-state, but not in a big country like China.
Charlie Munger: Well, what China adopted from Singapore was not its total management system. It adopted its system of an economic management business. It had private ownership of business and so forth. Before that, the Chinese government had owned practically everything.
[Lee Kuan Yew] never felt that his exact Singaporean system with its Democracy would necessarily be the right place for China immediately. It may well be that some other model will work better for a place that’s as big and as backwards as China was. And it may well be that the system of the Chinese lucked into by accident when they took part of what was done in Singapore, it may have been about right for China.
China’s weird combination of authoritarianism and free enterprise has worked wonders for the economic output of China. And Lee Kuan Yew’s example had a lot to do with it. But he didn’t think necessarily that what was right for a small city state, was right for a whole backward country of a different nation.
But I think almost everybody with any sense in China admires Lee Kuan Yew. It’s hard to think of a person with a Chinese…what would you call it? Racial identity? Country identity? It’s hard to think of anybody who has a more credible record than Lee Kuan Yew in the history of the world. He’s hugely admired in China and deserves to be. And of course people are proud of him. Which they should be.
But nobody thinks that just his exact solution… But I do think the anti-corruption part of China, that was right out of Lee Kuan Yew’s book.
Question 37 cont’d: In Hong Kong, there’s no corruption in the government officials.
Charlie Munger: There’s no question about the fact that Hong Kong has been hugely successful. But China had a lot of corruption while it increased its GDP at 8 or 9 or 10 percent per annum for decades. They weren’t perfect, but it was a lot of achievement from where they started. The whole thing is just very, very interesting, but what’s really interesting is how much influence on this outcome one human being had. And he started as a leftist labor leader. It’s perfectly amazing. I wish it would happen more often. [laughter]
Question 38: What methods would you use to quantify the appropriate amount of debt in an investment, whether it be real estate, private equity, or a public corporation?
Charlie Munger: Well, I think the appropriate amount of debt varies with the circumstances. So, I don’t have any general rule. Generally speaking, if your thing is uncertain, say as running a big complicated enterprise, there’s a lot to be said for having a lot of extra wealth and liquidity.
You’re a huge social safety net if you’re a controller of capitalist power. Do we want them all leveraged to the gills so they can buy back the maximum amount of stock? They are big social enterprises that should have reserves of safety. And the idea that they should all leverage themselves to the gills to please a bunch of activists strikes me as…It would be like taking all the safety margin out of the bridges on the theory we’d save steel. It’s a dumb idea.
Question 39: Could you speak about the growing market share of indexing and the effect that will have on the relationship of shareholders to the companies that they own.
Charlie Munger: It’s likely to have a significant effect over time, because now you get a bunch of permanent owners. The people who run the index funds are now, in effect, they are permanent owners. They can’t sell. Yes, of course, they will drift into using more of that power. Will it be used intelligently, the new power? I doubt it…I doubt it. But then I have a certain natural cynicism.
Question 40: Can you speak to the general level of market prices today? If you had all your money in a tax deferred account, would you be tempted to increase the level of cash?
Charlie Munger: Well, you’re asking me for a position I don’t occupy in life. [laughter] And if you said, “Charlie, how would you practice dentistry if you’d been a dentist?” I may not be able to give you as good an answer as I could about something I thought about a lot. I’m content owning virtually 100 percent stocks, but I really think that I own stocks that are better than other people’s on average. And therefore, my decision is easier.
What I would have to do if I had to own average stocks like everybody else? I’m not so sure. I’ve carefully avoided that fate. [laughter] I’ve been able to do it for a lot of decades. Now, the margins are not what they used to be, but you know, an old man is lucky to have any advantage at all. [laughter]
Question 41: Regarding moats of technology companies. Do you think companies like Google and Apple have long lasting moats, considering that they are right at the center of technology?
Charlie Munger: I am not an expert on the moats of technology companies. The reason, by and large, I don’t own them is because I do not understand whether or not their moats will last or not. I do think Google is a very remarkable company and if you put a gun to my head, said, “Charlie, you’ve got to buy a big technology company,” I might choose Google.
They certainly hire brains. And they’re getting the best brains, I think, of anybody. And they’re certainly fanatic. And they certainly have an entrenched position. But, do I understand the value of their moat compared to the value of everybody else’s moat? The answer’s no. You’re asking the wrong person.
By the way, anybody who does give you the answer is probably full of you know what. [laughter] I’m not sure anybody else knows either is what I’m saying.
Question 42: Denmark was recently declared the most happy country in the world. Any thoughts on that?
Charlie Munger: It may be true! [laughter] It may be true. You’ve got a Nordic nation without a lot of tropical diseases. You’ve got a big social safety net. It’s monoethnic, so they don’t have the tensions of different groups making the place hard to govern. They’re situated and surrounded by advanced civilizations, so they can live pretty well, whether they invent anything new themselves or not.
It’s very favorably located. And if you are in a small group with which you closely identify, you don’t mind supporting one another more. It’s just the way the human mind works. It may well be that if you measure happiness physiologically by time spent smiling, and so forth, Denmark may well be happier than almost any place else. I suspect it’s true. That does not make me want to live in Denmark. [laughter] I’ll take the world the way it is, where I live. I prefer it. But I suspect it’s pretty close to true. By the way, if you also want to be happy, join the Mormon church. I think that on average they’re happier than the people in Denmark. It works.
Question 43: I’m an engineer. Too many science students from the best Universities are lured away by Wall Street. How can we keep them in science?
Charlie Munger: I think the answer to that is, “I don’t know.” I don’t think it’s good having all the brains go into finance. Just like I don’t think it’s good to have so many gambling casinos and gambling casinos in disguise in the financial markets. So I don’t think that the current development is good. And if I were running the world as an omnipotent emperor, I would change the laws, so the outcome changed.
I would change the incentives. But, the chances of anybody paying attention to my ideas about the laws are zero. So I guess that you and I are going to have to just take it as it comes. But it is not a good outcome. And it’s not desirable. And the laws and customs that cause this huge drift of talent into finance, it’s not a desirable outcome at all.
Question 44: And as a follow up to your other one, if you want to know how the bits get around and the waves, I’m happy to talk to you on that. [laughter]
Charlie Munger: I think you’re coming a little late. [laughter] I could have understood it if I’d started younger.
Question 45: This is the fiftieth year for the Berkshire Hathaway report. Your letter seemed to be more optimistic about the future of Berkshire than Warren’s. I’d just like your comments on what you thought of Warren’s.
Charlie Munger: Well, I think Warren’s letter was very, very useful. I particularly liked it where he was criticizing things. Take the growth of the conglomerate movement which is sort of a chain letter game that people played with financial accounting. The accountants all blessed it. The accountants never should have blessed the conglomerate craze, with constantly buying low quality earnings and making the earnings go up.
It was an evil system, and it was an evil way to make money, and it was an evil way to run an accounting profession to bless the outcomes. Nobody else is talking that way. So, I tend to admire Warren when he gets off on important subjects like that, where he’s totally right. The chances that anybody will pay a lot of attention to him in a way that changes anything is, I think, quite small.
But, for a few of the cognoscenti, like you people. How many people here really approve of the way, say, ITT played the conglomerate game and the way their accountants blessed their earnings reports? Raise your hands if you thought it was wonderful.
The answer was is it wasn’t wonderful. And so I liked what Warren did and nobody else is doing it. What other CEOs are saying that American financiers and their accountants grossly misbehaved for a long time? Nobody. Well, I think it’s useful when somebody does that. And he’s totally right. It was awful…it was awful. And the fact that everybody went along with it, including the investment managers. And it’s still happening. Valeant, the pharmaceutical company, is ITT come back to life under Harold Geneen. Except the guy’s worse! Worse! So, it’s like my story about the unnecessary heart surgery in Redding. However bad you think it is, somebody actually comes by and does it worse. It wasn’t moral the first time and the second outcome it’s not better. And people are enthusiastic about it! I’m holding my nose. That’s the only correct response.
Question 46: At the Wesco meeting about twenty years ago, you were asked the question, “What do you consider the most important invention of the twentieth century?” Which you said, “It may be air conditioning.” You then talked about huge swathes of the United States that really were tropics before air conditioning. What would you say today has been the most significant invention of the last hundred years?
Charlie Munger: Well, it’s hard not to say the Internet. We had the good transportation, we had the airplanes, the trains, the air conditioning, the good pharmaceuticals and so on. But having the internet, and the instant cellphone, and the little portable computers, the iPads and so on, that’s what made this one woman in China change a whole governmental outcome who didn’t have any power before. And it’s having other dramatic changes, including destructive changes of investments. So I would say the internet is very important. Don’t you think everybody feels that way?
Question 47: Berkshire has put a lot of money behind MidAmerican Energy. How do you see that playing out?
Charlie Munger: Very well. I think it will work out very well. Again, we’re trying to do the right thing by the regulators, the customers, the engineering, the safety, you name it. (link 1, link 2) I think it’ll work very well for Berkshire and I think it will work very well for the customers of MidAmerican Energy.
I wish I was as optimistic about everything, as I am about that one. I regard that as almost a no-brainer.
Question 48: What separated Teledyne’s Henry Singleton from other people who developed conglomerates, and why did you and Warren seem to respect him?
Charlie Munger: Well, we respect Henry Singleton for a very simple reason, he was a genius. Henry Singleton never took an aptitude test where he didn’t score an 800 and leave early. He competed in the Putnam, the major mathematical symposium in the United States. Even when he was an old man, he could play chess blindfolded, at just below the Grand Master level. He had an awesome intellect, it was so far into the top one-thousandth of one percent.
So he was very interesting in the respect that this was an extreme, extreme, intellect. And of course, he did create a conglomerate because it was legally allowed at the time. And he did it the way that everybody else was doing it, and he did it better, and he made a lot of money. When they ran out of favor, the stock went way down and he bought it all back for less than it was worth. And of course, he died a very wealthy man.
He was a totally rational human being in things like finance. What I found interesting about Henry Singleton, and has interesting educational implications, is that as I was watching both Henry and Warren invest and operate at the same time…So I had two great windows of opportunity to examine human nature.
What was interesting to me was how much smarter Warren was at investing money than Henry! Henry was born a lot smarter, BUT Warren had thought about investments a lot longer. And Warren just ran rings around Henry as an investor even though Henry was a genius, and Warren was a mere almost-genius. [laughter] I found that just fascinating. Just absolutely fascinating.
Henry was very rational. He was quite similar to Berkshire in some ways. Henry never issued a stock option. He had certain commonalities with Warren that were just logical outcomes. That is my last question because we’ve reached the time when the directors meet, and besides, even for a group of addicts, you’ve probably had all you can take. [applause]
End of Transcript
Transcribing these meetings has been a labor of love and an enduring privilege. It’s my hope that these efforts continue to bring value to others who share my appreciation for Charlie’s wisdom. Thank you, as always, for your support and interest.
Sincerely,
White Stork Asset Management LLC
Partner, Investments
Links to additional Transcripts:
- Daily Journal Annual Meetings: 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023
- 2017 Fireside Chat with Charlie Munger
- Charlie Munger: Full Transcript of Caltech Zoom Talk, Dec. 2020
- Peter Kaufman on The Multidisciplinary Approach to Thinking: Transcript
- Li Lu: Value Investing in China, Full Transcript
