Charlie Munger (Trades, Portfolio) and Li Lu (Trades, Portfolio) are two of the greatest investors of all time. In a rare interview together in 2018 with Chinese TV show “Weekly in Stocks,” the two investors got together to answer questions on investing in China and how to live a happy life. The original interview was over an hour long.
This is part two of my summary of the interview. The first part, which you can find here, focuses on investing strategies. This second part gets a little more personal, focusing on how to live a happy life and investing in the Chinese market.
How to live a meaningful life
Munger is immensely wise and is often asked profound questions such as “How do you live a meaningful life?" In this particular interview, Munger responded to this question with, “Live one day at a time and do the best you can every day and pretty soon you will have had a good life.”
This is incredibly simple but also profound advice. We can only live in the present, as the future doesn’t exist yet and the past is already gone. Thus it makes sense to plan for the future, yet mindfully live in the present, as that is really the only place we can live.
Munger states this approach is "like quitting alcoholism." Alcoholics say they're going to go “one more day without drinking” until they are no longer alcoholics. When trying to be a better person, Munger believes you should say “I'm going to do one more day of being a better person, and "pretty soon, you are a better person." We know Munger is a fan of compound interest, and I like to think of this strategy as a compounded way of living a fulfilled life.
How many books does Munger read per week?
Munger has often stated that a key to success in both life and investing is to become a “continuous learning machine." Thus, it's no surprise that this question came up again in this interview. Munger said he reads or skims through “20 books per week." He focuses mainly on biographies and reads almost no fiction.
It was interesting that Munger noted he doesn’t read much fiction. I believe this is so he can stay firmly grounded in reality and this helps his to make more rational decisions.
How often do Buffett and Munger see each other?
Munger was asked how often he sees Buffett. They are lifelong friends and business partners, but as Munger is living in Los Angeles and Buffett is in Omaha, they “don’t meet up so much anymore” but still “talk on the phone,” though not as much they used to.
Does being a long-term value investor help you live longer?
Munger is a staggering 98 years old and Buffett is 91 years old. When asked as to whether there is a relationship between living long and being a long-term value investor, Munger replied:
“If you analyze who lives a long life, judges, professors, value investors. Who lives a short life, journalists, hard drinkers and smokers, it’s not very hard, you know what to avoid.”
Munger believes those who work under a lot of stress are more likely to die young. He uses the example of trial lawyers dying younger than judges, and jokes, “Traders are the worst of all, the short-term stock traders die the quickest.”
Investing in China
Munger believes the Chinese market will create a lot of wealth in the long-term. He uses the comparison of the successful Hong Kong market, which has Chinese people “encapsulated in a capitalistic setup.”
He believes China’s security markets and investing practices will get better. “More achievement, more respectability, equals higher prices." Munger believes there is “more value” if you buy the best companies in China. He believes there are some “awfully strong companies selling at reasonable prices.”
This is where Li really begins to provide his input in the interview. His replies are in Chinese, which I have translated to English:
“China is going through a transition period, after 40 years of rapid growth everyone has some psychological anxiety about the future, but I believe China will benefit.”
China is known as a manufacturing powerhouse, but Li believes it will “transition from manufacturing and exports to more of a service and consumption-based economy," as we have seen in the West. For example, the U.K. was a manufacturing powerhouse during the industrial revolution but now is primarily a service-based consumption economy. Later, the industrial manufacturing center shifted to the U.S. and then on to China.
Technology is continually improving and the whole financial market has “gradually transformed from traditional financing using debt to direct financing from equities."
On investing, Li points out that the “composition of the players in the market is gradually changing.” Traditionally the Chinese market has been based on the “retail trader market” and individual investors. But now we see “more institutional investors with more patience start to enter the market. More experienced overseas investors will also start to enter the market.”
This kind of change happened in the U.S. in the 1970s, where the “gambling style” Munger referred to was prevalent. An important change in the mid-1970s was the “compulsory pension” for every employee. These compulsory savings propelled the institutional investment industry.
Munger added, “China is opening up more to foreign investors and its markets are getting strong and stronger.”
Unique structure of Berkshire
Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) is the world's largest investment conglomerate with a $650 billion market cap, but it only had 30 people at its head office in 2018 according to Munger.
This is due to Berkshire's unique decentralized structure with no middle management layers. Munger often calls this a model for an effective organization but was partially driven by a style that suited both Buffett and Munger.
Popularity of Munger in China
In China, Buffett and Munger are extremely popular figures. Munger thinks this is “partly due to his book ['Poor Charlie's Almanack.']" He believes the book “sounds Confucian,” and China has a deep Confucian ethos.
For some background, Confucianism is an ancient Chinese belief system which focuses on personal ethics and morality. Munger goes on to explain what the Chinese want from a Confucian lens:
“They want people to act modestly even though rich and powerful, they want people to constantly keep learning, they want people to behave with dignity and reason.”
By sheer coincidence, both Buffett and Munger act like two people who take Confucianism very seriously.
Munger spoke highly of the Chinese people, especially those who immigrated to the U.S.. In a generalistic manner, Munger stated the Chinese immigrants "Have rapidly become doctors, lawyers, professors, businessmen and so forth and succeeded."
Both Munger and Li are incredible investors and role models on how to live a meaningful life. Although the Chinese market has undergone more changes recently due to the big tech crackdown, the secular trends that Li and Munger outlined are still prevalent. Munger suggests that living a great life starts with “one day at a time” and aiming to improve each day.
I hope readers find this summary valuable, and I wish you health, wealth and happiness in the future.