The quotes were originally posted on 25iq. This article covers Munger's quotes on topics that start with the letter C.
CAPITAL ALLOCATION:
“There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there's never any cash. It reminds me of the guy who looks at all of his equipment and says, ‘There's all of my profit.' We hate that kind of business.”
CAPITALISM:
“When it gets into these spikes, with shortages and uproar and so forth, people go bananas, but that's capitalism.”
“I regard it as very unfair, but capitalism without failure is like religion without hell.”
“Capitalism is a pretty brutal place.”
Charlie Munger (Trades, Portfolio) on the Socialism versus Capitalism Debate, with Warren Buffett (Trades, Portfolio) and Bill Gates (Trades, Portfolio):
CASH:
“Our cash is speaking for itself. If we had a lot of wonderful ideas, we wouldn't have so much cash.”
“There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn't awash in cash —and I don't want to go back.”
CHANGE:
“Those who will not face improvements because they are changes, will face changes that are not improvements”
CHARACTER:
“It's hard to judge the combination of character and intelligence and other things. It's not at all simple, which explains why we have so many divorces. (Laughter) Think about how much people know about the person they marry, yet so many break up. It's not easy, it is in some cases. If people are splashing around with money like Dennis Kozlowski, with vodka at parties coming out of some body part, and if it looks like Sodom and Gomorrah, then maybe this isn't what you're looking for. (Laughter) But beyond that, it's hard. If you have some unfortunate experiences while getting that knowledge, well, welcome to the human race. (Laughter)”
“At Berkshire Hathaway we do not like to compete against Chinese manufacturers.”
CIALDINI:
“Cialdini does a magnificent job at this, and you're all going to be given a copy of Cialdini's book. And if you have half as much sense as I think you do, you will immediately order copies for all of your children and several of your friends. You will never make a better investment.”
CICERO:
“As I continued through Cicero's pages, I found much more material celebrating my way of life … ““Cicero's words also increased my personal satisfaction by supporting my long-standing rejection of a conventional point of view.”
CIRCLE OF COMPETENCE:
“There are a lot of things we pass on. We have three baskets: in, out, and too tough…We have to have a special insight, or we'll put it in the ‘too tough' basket. All of you have to look for a special area of competency and focus on that.”
“If you have competence, you pretty much know its boundaries already. To ask the question [of whether you are past the boundary ] is to answer it.” Poor Charlie's
“We know the edge of our competency better than most.” That's a very worthwhile thing.”
“Warren and I avoid doing anything that someone else at Berkshire can do better.
You don't really have a competency if you don't know the edge of it.”
“Warren and I don't feel like we have any great advantage in the high-tech sector. In fact, we feel like we're at a big disadvantage in trying to understand the nature of technical developments in software, computer chips or what have you. So we tend to avoid that stuff, based on our personal inadequacies. Again, that is a very, very powerful idea. Every person is going to have a circle of competence. And it's going to be very hard to advance that circle. If I had to make my living as a musician…. I can't even think of a level low enough to describe where I would be sorted out to if music were the measuring standard of the civilization. So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any prediction that you can make. You have to figure out where you've got an edge. And you've got to play within your own circle of competence. If you want to be the best tennis player in the world, you may start out trying and soon find out that it's hopeless—that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you. It takes a will. It takes the intelligence. But after a while, you'd gradually know all about the plumbing business in Bemidji and master the art. That is an attainable objective, given enough discipline. And people who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work.”
“Just as a man working with his tools should know its limitations, a man working with his cognitive apparatus must know its limitations”
“When I run into a paradox I think either I'm a total horse's ass to have gotten to this point, or I'm fruitfully near the edge of my discipline. It adds excitement to life to wonder which it is.”
COLLEAGUES:
“You know the cliche that opposites attract? “Well, opposites don't attract. Everybody engaged in complicated work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing.”
COMMITTEES:
“Being controlling owners is key – it would be hard for a committee to make these kinds of decisions.”
COMMODITIES:
“ [Sarcastically]: I think we've demonstrated our expertise in commodities, if you look at our activities in silver. [Laughter] …We didn't get where we are by owning non-interest-bearing commodities.”
“… we've missed the biggest commodity boom in history – and we'll continue to miss things like this! ”
COMMON SENSE:
“Organized common (or uncommon) sense — very basic knowledge — is an enormously powerful tool. There are huge dangers with computers. People calculate too much and think too little.”
“Part of [having uncommon sense] is being able to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don't clutter yourself.”
“In the corporate world, if you have analysts, due diligence, and no horse sense you've just described hell.”
COMPENSATION:
“It isn't enough to buy the right business. You've also have to have compensation system that's satisfactory to the people running them. At Berkshire Hathaway, we have no [single] system; we have different systems. They're very simple and we don't tend to revisit them very often. It's amazing how well it's worked. We wrote a one-page deal with Chuck Huggins when we bought See's and it's never been touched. We have never hired a compensation consultant.”
“I'd rather throw a viper down my shirt front than hire a compensation consultant.
“Carnegie was always proud that he took very little salary. Rockefeller, Vanderbilt were the same. It was a common culture in a different era. All of these people thought of themselves as the founder. I was delighted to get rid of the pressure of getting fees based on performance. If you are highly conscientious and you hate to disappoint, you will feel the pressure to live up to your incentive fee. There was an enormous advantage [to switching away from taking a percentage of the profits to managing Berkshire, in which their interests as shareholders are exactly aligned with other shareholders].”
“CEOs have a duty…to dampen envy and resentment by behaving way more nobly than other people, and way more generously. People should take way less than they are worthy when they are favored by life. People are willing to pay tens of millions of dollars to be U.S. senators. Most of these people would pay to be CEOs….There is a lot to be said for backing off and taking less than their worth.”
“Everywhere there is a large commission, there is a high probability of a rip-off.”
It is easy to have fair compensation systems, but about half of companies have grossly unfair systems in which the top people get paid too much.
COMPETITION:
“We may well have a competitive advantage buying decent businesses at decent prices. But they won't be fabulous businesses and fabulous prices. There's too much competition and money out there, with many buyout specialists.”
“Many markets get down to two or three big competitors—or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well. Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, and in other markets, there's destructive competition that destroys shareholder wealth. If it's a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world—safe travel, greater experience, time with your loved ones, you name it. Yet, the net amount of money that's been made by the shareholders of airlines since Kitty Hawk, is now a negative figure—a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business. Yet, in other fields—like cereals, for example—almost all the big boys make out. If you're some kind of a medium grade cereal maker, you might make 15% on your capital. And if you're really good, you might make 40%. But why are cereals so profitable—despite the fact that it looks to me like they're competing like crazy with promotions, coupons and everything else? I don't fully understand it. Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the main factor that accounts for it.
And maybe the cereal makers by and large have learned to be less crazy about fighting for market share—because if you get even one person who's hell-bent on gaining market share…. For example, if I were Kellogg and I decided that I had to have 60% of the market, I think I could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do it.
“Even bright people are going to have limited, really valuable insights in a very competitive world when they're fighting against other very bright, hardworking people. And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times.”
COMPLEXITY:
“A rough rule in life is that an organization foolish in one way in dealing with a complex system is all too likely to be foolish in another.”
COMPOUNDING:
“Understanding both the power of compound return and the difficulty of getting it is the heart and soul of understanding a lot of things.”
“Never interrupt it unnecessarily”
“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things”
“We're not crying wolf at how hard it is to compound at the old rates—it can't be done. Look how tough it is to earn $100 million pretax doing anything; few ever accomplish it. Then $1 billion, the $5 billion, then $10 billion….”
CONFIDENCE:
“I have a black belt in chutzpah. I was born with it. Some people, like some of the women I know, have a black belt in spending. They were born with that. But what they gave me was a black belt in chutzpah.”
CONFIRMATION BIAS:
“Most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact. They become people of whom Philip Wylie observed: “You couldn't squeeze a dime between what they already know and what they will never learn.”
“The great example of Charles Darwin is he avoided confirmation bias. Darwin probably changed my life because I'm a biography nut, and when I found out the way he always paid extra attention to the disconfirming evidence and all these little psychological tricks. I also found out that he wasn't very smart by the ordinary standards of human acuity, yet there he is buried in Westminster Abbey. That's not where I'm going, I'll tell you.”
“The human mind is a lot like the human egg, and the human egg has a shut-off device. When one sperm gets in, it shuts down so the next one can't get in. … And of course, if you make a public disclosure of your conclusion, you're pounding it into your own head.
“This is why organizations solicit public pledges. Hell, it's the reason for the marriage ceremony.”
CONSULTANTS:
“I have never seen a management consultant's report in my long life that didn't end with the following paragraph: “What this situation really needs is more management consulting.” Never once. I always turn to the last page. Of course Berkshire doesn't hire them, so I only do this on sort of a voyeuristic basis. Sometimes I'm at a non-profit where some idiot hires one. [Laughter] ”
CONTRARIAN:
“We have a history when things are really horrible of wading in when no one else will.”
CORPORATE GOVERNANCE:
“The system has deteriorated, and the reputation of the system has deteriorated even more than the system,” he said, noting that “a lot of people are mad at corporate governance,” including the kind of white-bread Republicans who should be the system's biggest supporters. “When even they are mad at Corporate America, “Corporate America has a serious problem.”
COSTCO:
”I admired the place so much,” Munger says, “that I violated my rules (against sitting on outside boards). It's hard to think of people who've done more in my lifetime to change the world of retailing for good, for added human happiness to the customer.”
Charlie Munger (Trades, Portfolio) Comments on Costco: "An Absolute Titan on the Internet", from the Daily Journal 2022 Shareholder Meeting
Source: Yahoo Finance
COSTS:
“We don't have an isolated group [of senior managers] surrounded by servants. Berkshire's headquarters is a tiny little suite. We just came back from Berkshire's board meeting; it had moved up to the board room of the Kiewit company and [it was so large and luxurious that] I felt uncomfortable.”
COST OF CAPITAL:
“Obviously, consideration of costs is key, including opportunity costs. Of course capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a 100% return on capital, then you shouldn't invest in something that generates an 80% return on capital. It's crazy.”
CRIME:
“A few public hangings will really change behavior. One of our Presidents said if he could execute three people each year for no cause, it would make it a lot easier to govern. When someone said that's not enough, he said, “Oh yes it is, because I'd publish the list of people under consideration.” (Laughter)
CROWD FOLLY:
“'Crowd folly', the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior — like investment management practices of many foundations represented here today. It is sad that today each institutional investor apparently fears most of all that its investment practices will be different from practices of the rest of the crowd.”
CULTURE:
“For many of our shareholders, our stock is all they own, and we're acutely aware of that. Our culture [of conservatism] runs pretty
deep.”
“I think the foundation at Berkshire [Buffett's stake in Berkshire will pass to the Buffett Foundation upon his death] will be a plus because there will be a continuation of the culture. We'd still take in fine businesses run by people who love them.”
Our culture is very old-fashioned, like Ben Franklin or Andrew Carnegie. Can you imagine Andrew Carnegie hiring consultants?! It's amazing how well this approach still works. A lot of the businesses we buy are kind of cranky and old-fashioned like us.”
“If Warren has kept the faith until he's 75 years old, do you really think he'll blow the job of passing that culture along? What could be more important? You all have a lot more things to worry about than the candle at Berkshire going out because some people eventually die.”
