These are my notes from video of an informal session with Charlie answering questions after the main Daily Journal meeting in February 2017. This is different than the main meeting which was widely reported on. The full video of the session is available here: https://www.youtube.com/watch?v=RpzrHPYWojY
On people sending him checks to work for him: https://youtu.be/RpzrHPYWojY?t=3m0s
“I sometimes get a check for something, ‘Here’s $50,000. I’ll pay this to work for you.’ I send the $50,000 back. I will say that it’s kind of a brash thing to do and I kind of admire it because it’s kind of a smartass stunt and I was something of a smartass when I was young myself.” -Charlie Munger
Know your competitive advantage in what you do: https://youtu.be/RpzrHPYWojY?t=8m0s
“You’ve got to figure out what your competitive position is in what you’re choosing. Real estate has a lot of difficulties. Those Patels from India that buy all the motels—they know more about motels than you do. They live in the goddamn motels. They pay no income taxes. They don’t pay much in workman’s compensation. And every dime they get, they fix up the thing and buy another motel. You want to compete with the Patels? Not I.” -Charlie Munger
On John Bogle and having a good idea: https://youtu.be/RpzrHPYWojY?t=13m0s
“I basically think he’s right about his basic approach: that other people are not going to match the averages and he is. And his idea has succeeded and he’s succeeded and he was right. On the other hand, he’s kind of a one trick pony. I don’t think he has another. He had one good idea in his life and he rode it very hard. That’s all you need. He’s an interesting sample. He had one good idea, he pushed it hard and it worked. You don’t need a lot of good ideas, but you do need one.” -Charlie Munger
On BYD’s CEO compared to Elon Musk: https://youtu.be/RpzrHPYWojY?t=17m56s
“I think Wang Chuanfu knows what he can do and what would be really difficult. And I think Elon Musk thinks he can do anything. I’d rather bet on the man that has some limit to his self-appraisal.” -Charlie Munger
Chinese baby food scandal: https://youtu.be/RpzrHPYWojY?t=27m35s
You can’t afford a scandal if you’re selling food. And when the people adulterated the baby formula in China, China killed the people that did that. They’re dead and they didn’t take a long time doing it. No a lot of appeals or anything. Kill our babies to make a little more money—you never will be missed.” -Charlie Munger
On Sumner Redstone: https://youtu.be/RpzrHPYWojY?t=29m23s
“Sumner Redstone was a very preculiar man. Almost nobody has ever liked him. He’s a very hard driven, tough tomato. And basically, almost nobody has ever liked him including his wives and his children. And he’s just gone through life… There’s an old saying: ‘screw them all except six and save those for pallbearers.’ That is the way Sumner Redstone went through life. And I think he was into the pallbearers because he lived so long. I’ve used Sumner Redstone all my life as an example of what not to do.” -Charlie Munger
On reading Barron’s for 50 years: https://youtu.be/RpzrHPYWojY?t=37m12s
“I read Barron’s for 50 years. In 50 years I found one investment opportunity in Barron’s out of which I made about $80 million with almost no risk. I took the $80 million and gave it to Li Lu who turned it into $400 or $500 million. So I have made $400 or $500 million reading Barron’s for 50 years and following one idea. Now that doesn’t help you very much does it? I’m sorry but that’s the way it really happened. If you can’t do it… I didn’t have a lot of ideas. I didn’t find them that easily, but I did pounce on one.” -Charlie Munger
Charlie has also read Fortune for 60 years and has not made an investment from it so far.
On deferring maintenance to show more profit: https://youtu.be/RpzrHPYWojY?t=44m8s
“When we bought Northern Natural Gas which Enron owned, of course to show more earnings and more cash, they just did no maintenance. The goddamn pipeline can blowup and kill people! The minute the ink dried on that, everybody took six months off and we spent… we went through the pipelines. We just caught up on all of the deferred maintenance. We were not interested in killing people. That’s the right way to behave. Enron was the wrong way to behave. Imagine deferring maintenance on a pipeline so you can show more cash. It’s disgusting. It’s like killing people on purpose so you can make more money. It’s deeply immoral.” -Charlie Munger
It was Charlie’s idea to have 20% of Todd Combs and Ted Weschler’s compensation dependent on each other’s investment performance to foster cooperation. At this time, Charlie thinks this incentive hasn’t changed any behavior at all. https://youtu.be/RpzrHPYWojY?t=48m56s
On Self-Driving Cars: https://youtu.be/RpzrHPYWojY?t=51m25s
“If I’m driving down the road and some guy goes out and stands there with a machine gun, I will turn around and—I’ll do something. A goddamn computer won’t. He’s not programmed to care about machine guns.” -Charlie Munger
On the 2016 US Election: https://youtu.be/RpzrHPYWojY?t=54m3s
Q: “Charlie, were you surprised on election day?”
A: “Of course. Of course I was surprised on election day.”
Q: “Did you lose sleep for a few days?”
A: “Oh no, because I expect to be disappointed with politics.” -Charlie Munger
On giving away his money: https://youtu.be/RpzrHPYWojY?t=55m53s
“I do it myself. I give anything out I damn well please. I regard it as a tax exempt bunch of Munger money. I’ve got no staff, I just do it. I do it when I want to do it and I give where I want to give it.” -Charlie Munger
On buying new cars: https://youtu.be/RpzrHPYWojY?t=57m24s
Q: “Is it true you never bought a new car until you were in your 50s?”
A: “I bought them [new cars] for my wives, but I always bought a Cadillac with about 3,000 miles on it [for myself]. Way cheaper. I flew around in coach airplanes.” -Charlie Munger
Charlie has not joined The Giving Pledge since he has already given more than half of his wealth to his children because that’s what his deceased wife would have wanted. https://youtu.be/RpzrHPYWojY?t=1h38s
On owning the Buffalo News: https://youtu.be/RpzrHPYWojY?t=1h5m39s
“It just was delayed gratification. For seven years we made no profits. Then the guy [competing newspaper] disappears and the sky rains gold. Earnings went from nothing to $70 million a year pretax.” -Charlie Munger
Story about Li Lu on treating your partners well: https://youtu.be/RpzrHPYWojY?t=1h12m40s
“General Electric was famous for always negotiating down to the wire and just before they would close they would add one final twist. And of course it always worked, the other guy was all invested and so forth. So everybody feels robbed and cheated and mad, but they get their way in that last final twist.
So Li Lu made a couple of venture capitalist investments. He made this one with this guy. The guy made a lot of money in a previous deal and we were now going in with him again on another. Very high grade guy and very smart and so forth. Now we come to the General Electric moment. Li Lu says “I have to make one change in this investment.” It sounds just like General Electric just about to close. I didn’t tell Li Lu to do this. He did it himself. He said, “You know, this is a small amount of money to us and you’ve got your whole net worth in it. I cannot sign this thing if you won’t let me put in a clause saying if it all goes to hell we’ll give you your money back.” That was the change he wanted. Now you can imagine how likely we were to see the next venture capital investment. Nobody has to tell Li Lu to do that stuff. Some of these people it’s in their gene power. It’s just such a smart thing to do. It looks generous and it is generous, but there’s also self interest in it.” -Charlie Munger
On squeezing suppliers: https://youtu.be/RpzrHPYWojY?t=1h16m59s
“My theory of life is win-win. I want suppliers that trust me and I trust them, and I don’t want to screw the suppliers as hard as I can.” -Charlie Munger
Berkshire did not buy Conwood, a chewing tobacco company when they had the opportunity because they were not ok with owning a product that killed people. However, if Conwood had been a publicly traded stock, they would have been ok buying it since they would not have been operating it. https://youtu.be/RpzrHPYWojY?t=1h18m12s
A rich person once asked their lawyer to make the following argument to Warren Buffett: Giving money to poor people is easy. Giving to the rich is rarer and more generous. This rich person wanted Warren to give them a Cadillac.
On how investing has changed: https://youtu.be/RpzrHPYWojY?t=1h25m14s
“Everybody who did the value investing in my generation and plugged away at it—you didn’t have to be that smart, even—they all did well. Yours is going to be more difficult. But you know, you want something to do anyway. That’s kind of interesting to do, so the fact it’s difficult shouldn’t discourage you that much.” -Charlie Munger
On Dexter Shoes’ impact on the value of Berkshire stock: https://youtu.be/RpzrHPYWojY?t=1h27m15s
“It looks awful in terms of what the Berkshire stock is worth. We’re the main charity in Maine if you call us. But at the time, it was 2% of one year’s performance. That’s what we lost by having it go to zero. So our return for one year went down by two percentage points. Now, to be sure, if we had bought our own stock instead of this thing, or not given away our stock—it’s a huge error.” -Charlie Munger
On large funds beating the market index: https://youtu.be/RpzrHPYWojY?t=1h29m32s
“I was there the other day and this very nice portfolio manager—very smart, polished, generous, nice man. Assistant—very nice, polished, intelligent woman. And he said, ‘Well, you know, since we outperform in my fund, which has $100 billion dollars, by 2 percentage points a year…’
I raised my eyebrow. I just looked at him for a while. He said, ‘Well, I mean that we outperform our competitors by 2 percentage points a year.’
And I said, ‘Yes, and that overperformance—a lot of it was a long time ago when you had way less money.’
And there was another horrified pause and finally the woman says, ‘He’s on to us.'” -Charlie Munger
On a fund that made a portfolio of only the best ideas from their best investors: https://youtu.be/RpzrHPYWojY?t=1h31m11s
“We’ll get the best ideas from our best people and we’ll make a portfolio just of our best ideas from our best people. Nothing could be more plausible. They’ve done it three time’s and it’s failed every time. Now, how would you predict that? Well I can predict it because I know psychology. When you pound out an idea as a good idea, you’re pounding it in. So by asking people for their best ideas they were getting the stuff that people had most pounded in so they believed. So of course it didn’t work. And they stopped doing it because it didn’t work. They didn’t know why it didn’t work because they hadn’t read the psychology books, but they knew it didn’t work so they stopped. And it’s so plausible. Now I don’t think that’s true at Berkshire. I think at Berkshire if you had asked me and Warren for our best ideas, that would have worked, but it didn’t work at a place like that with a more conventional manager. By the way, I don’t think it would have worked that perfectly at Berkshire. … But isn’t that interesting how that would not have worked?” -Charlie Munger
On talking to Warren regularly: https://youtu.be/RpzrHPYWojY?t=1h32m30s
Q: “Is it still true you talk to Warren once a week now?”
A: “No, no. It’d be like talking to yourself. We don’t have any new ideas. 87 and 93.” -Charlie Munger
Al Gore made a lot of money through investments because he asked his manager to only invest in companies that didn’t produce carbon dioxide. This limited the manager to service businesses, a lot of which are tech companies. These investments did very well, not because they don’t produce carbon but because they are service businesses. https://youtu.be/RpzrHPYWojY?t=1h34m13s
Leveraged buyout operator of service companies: https://youtu.be/RpzrHPYWojY?t=1h35m52s
“There’s a leveraged buyout operator in Los Angeles that I know casually. He’s made 35% per annum for 30 years. All he buys are service companies. Instead of buying 100% and letting the management have 10%, he always tries to buy 60% and let the old manager that created the company own the other 40%. And he buys nothing but service companies. And he knows a lot about it. And with that formula, it’s like, you know—inventory, receivables—there are all kinds of horrible things in business that if you just buy service companies you can avoid. And it’s amazing how well it’s worked. … 35% per annum. And he’s smart because he’s causing people to have more of their own skin in the game. They know more about it. They’re more like partners. … And of course he knows more about it and he does nothing but service companies.” -Charlie Munger
Another example: https://youtu.be/RpzrHPYWojY?t=1h37m12s
“I know another guy who does nothing but mail order internet companies, also an LBO operator. He’s made 20 some percent per annum for a long, long time. But he know’s more about getting customers and this ratio and that. He knows more about these damn mail order companies. He really knows a lot. So two specialists. You know, each of them with a different specialty, both working. Interesting. And that’s why I made all that talk about how specialization frequently works. I’ve had more fun to go out and do everything, but these specialists do better averaged out. They know a lot.” -Charlie Munger
On good partnerships: https://youtu.be/RpzrHPYWojY?t=1h41m20s
“I do not have a big failed partnership of any kind. But that’s because I am a good partner and Warren is a good partner. It’s like, if you want a good spouse, deserve one. If you want to have a good partner, be a good partner. It’s a very simple system. … And also, get rid of the bureaucracy. If you deal with good people you trust—expense, trouble, lawyers checking… We’re always closing something with no audit. We, basically, are a very old fashioned.” -Charlie Munger
On MLPs: https://youtu.be/RpzrHPYWojY?t=1h43m56s
“To some extent, the master limited partnerships pretend that the cash is really free when a lot of it really isn’t. They’re taking out money the business is going to need to replace what it’s doing. In that sense, it’s sort of a mildly immoral way of doing things and they’re doing it because they can get by with it.” -Charlie Munger
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