This is the Q&A session of Charlie Munger (Trades, Portfolio)'s 2020 Daily Journal Annual Meeting. Read Munger's opening remarks here.
Question: In the past, you've referred to value investors as a group of cod fishermenand suggested that they'd maybe fish in a different pond. Conversely, you've also discussed how over a long enough time frame an investor's realized return would mirror the business's return. So given that many of the highest quality businesses are in the U.S., wouldn't some of our time be best focused on analyzing the quality of the businesses here in the U.S.? I understand that the odds offered on the bet matters a lot so I'd be curious to hear in your mind how you weigh the quality of the horse versus the odds offered on the horse. Thank you.
Charlie Munger (Trades, Portfolio): Well, both are important. But basically, all investment is valueinvestment in the sense that you're always trying to get better prospects than you're paying for.
But you can't look everywhere at once any more than you can run a marathon in twelve different states at once.
So you have to have some system of picking some place to look which is your hunting ground - but you're looking for value in every case.
What is interesting to me is I don't agree with you. I think the strongest companies are not in America. I think the Chinese companies are stronger than ours and they're growing faster.
I have investments in them and you don't. And I'm right and you're wrong.
Well, you can laugh but I just spoke a simple truth.
Li Lu (Trades, Portfolio) is here. I just saw his face in the audience. He's the most successful investor in the whole damn room. Where does he invest? China. And boy was he smart to do that.
Is he good at it? It really helps if you know which hunting ground to look in. In fact, we all do better when we go hunting where the hunting is easy.
I have a friend who's a fisherman. He says: “I have a simple rule for success in fishing. Fish where the fish are.”
You want to fish where the bargains are. It's that simple.
If the fishing is really lousy where you are, you should probably look for another place to fish.
Question: Over the years, you've shared lots of comments about India and China. Iwould love to hear any and all insights you have about your friendly neighbors to the north. Whether it's the Canadian political system, banking system, housing sector, resources industry, health care system - any and all insights and wisdom on Canada would be much appreciated.
Charlie Munger (Trades, Portfolio): Well I'm glad you give me this opportunity. I'm very partial to Canada.I think their socialized medicine system works. I think they're wise to have it. I think they're wise to pay their pharmaceutical prices instead of ours.
And I think it's wonderful that we've gotten along with Canada so well all these years.
I think you should be quite pleased with Canada.
I don't think it helped you to have two different languages spoken. That was an unfortunate accident. But I basically like Canada and I think, in some ways, you do better than we do.
Jerry points out that we have customers in Canada. He's encouraging me.
Question: I have a question regarding investing. With computers and artificialintelligence rapidly getting better at investing than humans, what should analysts, portfolio managers, and the investment management industry do to remain competitive? Thank you.
Charlie Munger (Trades, Portfolio): Well, that's a very good question.
I think what people in the investment management industry ought to do is prepare for tougher times ahead.
I think this indexing thing is going to run and run and run, and I think there are wretched excesses in a lot of well-paid hedge funds and private equity businesses that will in due time result in a lot of troubles that give pain.
Everywhere I see, the endowment managers have the same mantra. They want fewer and better investment managers. That's not going to be good for investment managers. And the rest of the people are indexing.
Now do you want any other cheery news?
The cheery news is that if you think the way we nerds think and keep at it long enough, you'll do all right. But if you go with this crowd, I think there's pain ahead.
Question: In the past, you've recommended index funds for people seeking wealthaccumulation, and in the past, Warren Buffett (Trades, Portfolio) has recommended using this sell-off strategy for income as opposed to chasing dividends. If we synthesize those ideas, it seems like the best course of action for investing over a lifetime is to use index funds for accumulation and the sell-off strategy for income and retirement. Would you agree with that? And if so, what benefits do you see in using that strategy? Thank you.
Charlie Munger (Trades, Portfolio): Well, I think that the reason it's growing is that for most people it doeswork better.
On the other hand, there's a huge proclivity to gamble. It's very interesting to play in a game where the returns are variable. So there's a huge lure that comes to gambling.
In China, the ordinary holding period for the individual investor is short. They love to gamble in stocks. This is really stupid. It's hard to imagine anything dumber than the way the Chinese hold stocks.
They're so good at everything else. It shows how hard it is to be rational.
I think there's lots of troubles coming. It's too much wretched excess.
Question: I have a question regarding the Stoics. It's something I've studied afteryou've mentioned it. Anybody who has read your life, your testament, knows to not be a victim but to be a survivor and it's an attitude that has helped me in my short life so far. Could you perhaps expand on that idea, how it's helped you, and how that it's perhaps one of the greatest ways to live your life - regardless of what happens to you.
Charlie Munger (Trades, Portfolio): Well, of course.
Some people are victimized by other people and if it weren't for the indignation that that causes we wouldn't have reforms that we need.
But that truth is mixed with another. It's very counterintuitive for an individual to feel like a victim even if he is. The best attitude is to he cheerful about everything and keep plugging along.
And therefore, I don't like politicians who get ahead by trying to make everybody else feel like a victim. They make my flesh crawl. I just don't believe in it.
Who wants to be a victim instead of a survivor?
You can recognize your position as bad and try and improve it - that's okay. But to have a deep feeling of it's all somebody else's fault is a very counterproductive way to think. People don't even like being around it. It's really stupid.
And yet our politicians build on it and try to make their careers work by doing something that's very bad for all the people they're talking to. And they think they're doing the world's work.
It's crazy. It's absolutely crazy.
Question: Daily Journal and Berkshire own a lot of the very large banks. I suspectmany people in this room do - I know I do. It's kind of tailgating you and Mr. Buffett. My question is concerning some of the Fintech technologies coming up. Your position on crypto is very clear, but regarding some of the other Fintech technologies, my question is: Do you see them as being a threat to the long-term profitability of those large banks.
Charlie Munger (Trades, Portfolio): Well, I don't know much about crypto technologies except to avoidthem.
By the way, I have a lot of things in what I call the “too hard” pile. And if you fit into my too hard pile, I throw you into my too hard pile and think about it.
Now, every once in a while, I take something on or drift into something really difficult and then I continue doing it just because I'm perverse.
The Daily Journal was basically a ridiculous enterprise. It's really difficult. I'm enormously rich and I'm 96 years old, yet I care terribly how it works out.
It's a little insane. I wonder why you would come here and talk to a nutcase like me.
I hate things like bitcoin. I hate things that are intrinsically anti-social. Of course we need real currencies.
One of the interesting things about the current conditions is that we Americans have created, by accident, the reserve currency of the world. And the world needs a reserve currency.
I don't sense any sense of trusteeship among my fellow Americans for behaving very well in our responsibilities to the rest of the world with our own currency. Our attitude is we'll do what pleases us. That's not my view.
I think once you get a big responsibility to other people that are depending on you, you ought to think about them too.
Question: We have record budget deficits, record unemployment, and recordexpansion of the balance sheet. Why do you think we don't have inflation? And secondly, could you recommend some good books you've read the last year?
Charlie Munger (Trades, Portfolio): Well, regarding inflation: You know, the economists of the worldthought they knew a lot more than they did.
What has happened is weird. In response to the Great Recession, all the nations in the world have printed money like crazy and have bought all kinds of investment assets. They've done things that nobody in the economics profession would have recommended on this scale, even five or so years ago.
And yet, the inflation has been very low.
I think we all have a lot of things to be modest about when we talk about economics.
Lyndon Johnson said that giving a talk on economics was a lot like pissing down your leg.
It feels hot to you but it doesn't influence anybody else very much.
And I'm afraid I can't do much better than Lyndon Johnson could.
On books: People send me books more than I can read, so I skim a lot of them very rapidly.
And so I'm not sure I'm the right one anymore to ask.
Books have been so important to me all my life. I used to read fewer books and read them better than I do now. And of course, I don't see very well. So maybe you should talk to some younger man about your books.
Question: My question is about your outlook for global markets and economiesespecially given the slowdown in the global economy driven by the Chinese economy, and also the rising political risk. So what's your take on the market and economy going forward? Thank you.
Charlie Munger (Trades, Portfolio): Well, I'm mildly optimistic about China for a variety of reasons.Nobody has ever taken a big nation ahead as fast as China has come ahead. And I think they've done a lot right. So I'm a big admirer of what's happened there.
If you stop to think about it, they were in a Malthusian trap, and they prevented 500,000 babies from being born. They did it by methods that we wouldn't like in the United States. But I think they were doing the world a favor and I think that what they did was admirable. So basically, I don't have this hostility toward China. I really admire what the Chinese people have achieved and I think, considering that they started as communists, their leaders are pretty good.
It's amazing. Imagine a communist country creating this enormous period of growth and prosperity - and lifting 800 million people out of poverty.
I like what is happening in China and I think the United States ought to get along with China and China ought to get along with the United States.
Regarding the global situation, it's so peculiar to have negative interest rates.
There's another thing I admire, and this will strike you as very peculiar: There's one modern nation which has had like 25 years of stasis. How can anybody admire 25 years of stasis? I think the Japanese have handled 25 years of stasis with magnificent skill and philosophy. Japan is not going to hell. They don't like 25 years of stasis but they take it like men and they aren't bitching and wailing and they don't act like victims.
So I really admire the way the Japanese have handled their adversity and I don't think the adversity came from a lot of mistakes. They were an export powerhouse and up came China and Korea. Of course, they had some troubles. We'd all have trouble if we had way tougher competition.
So I don't think that Japan's stasis was Japan's fault. I think it just happened. I think they bear up magnificently well in order to be greatly admired. And of course, they got into this defect three manufacturing ethos in a big way and led the world in it.
So, I think the United States has a lot to learn from Asians.
Think about how everything's clean in Japan. You don't see any homeless sleeping and defecating in the street either. There's a lot to be said for Japan.
Question: I was hoping that you might share with us some examples of how you usedisconfirming evidence to change some of your important, determinedly held beliefs.
Charlie Munger (Trades, Portfolio): Well, of course being able to recognize when you're wrong is agodsend.
A good bit of the Munger fortune came from liquidating things we originally purchased because we were wrong. Of course you have to learn to change your mind when you're wrong.
I actually work at trying to discard beliefs. Most people just try and cherish whatever idiotic notion they already have because they think it's their notion that must be good. Of course you must be reexamining what you previously thought particularly when disconfirming evidence comes through.
There's hardly anything more important than being rational or objective. Just think of all the dumb things you can do in life.
Think of the brilliant people who are just utterly brilliant who do some of the dumbest things. You won't have any trouble thinking of examples.
In fact, most of us can think of our own accident the last year or two and we can all pull up an example or two. It's hard to be rational.
Question: I recently watched a documentary that introduced the economic masters,Keynes and Hayek. I would like to know your comments on both on them and which economic theory you would prefer. And to take a step further, if applied to personal goal-setting, which model would you advise us to follow between planning and flexibility? Thank you very much.
Charlie Munger (Trades, Portfolio): Well, Keynes, of course, was a very interesting man.
He probably had more influence on the economics profession than anybody - maybe excepting Adam Smith.
I lived in the Great Depression and his ideas were exactly right for fixing the Great Depression. What happened was we got out of it finally because accidental Keynesianism came in courtesy of Adolf Hitler in World War II. So I don't see how you could study economics without Keynes.
Hayek is more complicated and I don't think I'm the world's best understander of Hayek.
I've read him and I rather admire him but I'm not sure I totally agree with him.
Question: I want to ask you about Tesla. The company has a market capitalization ofabout a $140 billion. It traded last week about $200 billion in stock and traded about $500 billion in options. The stock moved about 20% a day, meanwhile Mr. Musk seems thrilled to stoke this volatility. I want to know what your thoughts are on this situation and particularly what your thoughts are on Mr. Musk's behavior.
Charlie Munger (Trades, Portfolio): My thoughts are two: I would never buy it, and I would never sell itshort.
I have a third comment. Howard Amundsen once said something that I've taken to heart:
“Never underestimate the man who overestimates himself.”
I think Elon Musk is peculiar and he may overestimate himself but he may not be wrong all the time.
Question: I have two questions. 1) What do you think of value investing in the next 50or 100 years, and 2) do you have any advise on industrial research and industrial investments. Thank you.
Charlie Munger (Trades, Portfolio): Well, I don't think I've got any wonderful comments to make aboutindustrial investments.
I do have the feeling that the world may change and there are two changes that I think are possible. I think they may extend average life duration by fancy tricks and I think they may reduce cancer deaths by fancy mounts.
Think about what's already happened in technology. Imagine the whole internet developing, whole different things, all those old companies, such as daily newspapers dying, and the total change in manufacturing processes. There's been a lot of change and, of course, this has caused a lot of loss to people that own stocks.
I do have the feeling that all that was really important has probably already happened, it's going to happen from this point forward. How much better can it be once you have enough to eat? What is extra money going to do for you?
So I do think that my generation had the best of all this technical change. Our children stopped dying, living standards are way up, air-conditioning came, medicine greatly improved, they could replace your achy joint when it caused agony. I don't think we're going to get as much improvement in the future because we've gotten so much already.
Question: Early in the meeting you mentioned the benefits of taking the high road,treating the customers the right way, etc. There's a sense, which may or may not be true, that in China there's more moral flexibility in business, less respect for the rule of law, and less transparency than there is in the west. Do you share that concern?
Charlie Munger (Trades, Portfolio): Well, I'm naturally more comfortable in my own country with itstraditions than I am in what's evolved out of Chinese communism.
Considering where they were, mired in this Malthusian poverty and also mired in some ignorance. That leader who said: “I don't care if the cat is black or white. I want to know if it catches mice.” That was one smart leader. I think that leader of yesteryear has other leaders now who are smart. I think they are going to keep improving.
I even think that the Chinese may get over their crazy love of gambling.
Question: Any secret of longevity and how many hours do you work per day? How doyou stay so current with all the information?
Charlie Munger (Trades, Portfolio): I don't think I deserve any credit for longevity. It just happened.
There's no male in my family that ever lived any such age. It's weird but I can't help you.
Question: You mentioned earlier that some mental tricks have been helpful to you. Onewas taking the high road, the other being perfectly rational. What other mental tricks have been helpful to you during your life? And also, you touched on excesses, whether it's in venture capital, private equity, political sphere, I guess also government debt. What other excesses do you see in the system right now?
Charlie Munger (Trades, Portfolio): I don't think the wide use of opioids have helped us either.
There's always some miserable excess. It's a very complicated subject.
You remember how the Chinese emperor got rid of opioid addiction by one male or eight or something. You didn't have to kill very many people. He just said death penalty for users, no exceptions. And away went his addiction problem.
I think somebody may try some of that stuff sooner of later if things get awful enough. It may not be the worst way to handle it.
On that cheery note, I'll go to the next question.
Question: What would you recommend to teach children on how to be successful in life.
Charlie Munger (Trades, Portfolio): I think the best thing any parent can do is be a good example.
Preaching doesn't work worth a damn.
Question: There are over $10 trillion around the world with negative yield and by thepresident's Twitter feed it seems he wants to bring negative interest rates to the United States. Are you for negative interest rates or against them?
Charlie Munger (Trades, Portfolio): Negative interest rates make me very nervous. However, I don't thinkthe authorities had much choice. It's politically impossible to do big stimulus rapidly and the only weapon they had in a crisis was to print money and change interest rates. I think it was probably the right thing we've done.
Of course, it makes me nervous. I think having worked once, people will overdo it. That's the nature of government people and of course that makes me nervous.
I don't know what to do about this.
Question: My question is about the effects of low interest rates on insurance. Lowerreturns on float maybe cause a tighter supply of insurance. For example, there used to be three main underwriters ensuing all the taxicabs in Southern California. Now, it is heading towards just one underwriter who will have a monopoly on all commercial taxi insurance in Southern California. You have access to CEOs of Geico and Wesco and a rolodex that we can only dream of. So do you see 10 years of low interest rates posing a systemic risk to the supply of insurance?
Charlie Munger (Trades, Portfolio): I am made uncomfortable with the idea of extremely low interestrates, or negative interest rates even more extreme, lasting a long time. I don't think anybody knows how those will work.
If you are a little uneasy, welcome to the club. I think it's dangerous and peculiar. But I think we had to do what we did.
In other words, I don't have any good solution for you. I think you're right to be worried about it.
Question: With the deficits so high, are interest rates more in a bubble situation? AndI remember back in the ‘70s we had the Nifty Fifties. Are technology stocks in the same criteria as it is now? It feels like there's 10- 15 stocks that everybody's investing in, the value situation has been down for the last four or five years. I was also looking at a couple of stocks that you own, like Kraft Heinz. With your 26% in the company, would it make sense for Berkshire Hathaway to buy out Kraft Heinz completely and take advantage of a low price?
Charlie Munger (Trades, Portfolio): Well, I don't think I can comment of what Berkshire Hathaway mightdo next at what price.
Nifty Fifty is an interesting question. At the heights of the Nifty Fifty craziness, which was created by the Morgan bank of all places, it had a home-sewing company that was trading at 50 times earnings. Home-sewing, great god.
We are not that crazy yet. So a lot of what's happened is not that crazy. I think a lot of these companies are very valuable, though they may be selling at too high prices.
But home-sewing was sure to fail. I don't think our leading tech companies are at all sure to fail. The current situation is not nearly as crazy. Nifty Fifty was absolute dementia.
Question: Many of my classmates are considering careers in private equity andventure capital. You yourself mentioned that some of your family members are in private equity. You also mentioned that you see a lot excess in that sphere. What advise do you give to your family starting careers in private equity and what advice would you give to young people as a whole, starting careers in those sectors? Thank you.
Charlie Munger (Trades, Portfolio): My family is not very interested in what I think about their careerchoices. I respect their disinterest.
But I do think we have way too much wretched excess. Any time you have any new names to sort of mislead people, like adjusted EBITDA, think of the basic intellectual dishonesty that comes with it. You're almost announcing you're a flake.
And yet our respectable people talk that way and charge fees for talking that way. It's ridiculous. So I don't like this wretched excess.
I don't like all these transactions where one private equity group sells to another and the guys who really own it are just sort of raising the fees higher and higher over owning the same in the intellectual mix. It's a lot that's financed by its nature. The temptations are too great. It goes to wretched excess.
Of course, I don't like it. I don't think it's good for the country. I would argue that the wretched excess that led to the Great Depression, which led to the rise of Hitler - I think we pay a big price eventually for wretched excess, stupidity, greed, and so forth.
I'm all for staying in control. In other words, I'm all for behaving a lot more like Confucius.
Question: Mr. Munger, it is well known that you are an avid and voracious reader. Doyou ever reread books that you've already read before, and if so, what books do you reread?
Charlie Munger (Trades, Portfolio): Yeah, I do. Let me give you an example of something that I want toreread that I haven't reread yet.
The other day I was musing over the current situation. It popped into my head that I had read a poem about 80 years ago by George Sand. George Sand was a female writer but to get ahead in those days you sometimes use men's names. George Sand wrote a poem and it was an ode to the goddess of poverty.
She said: “Hail to the goddess of poverty, a wonderful goddess of poverty. She tells the fields, she mines the mines", and so on. And I remember toward the end of the goddess of poverty she said: “You try and banish me, you'll live to want me back.”
I kind of agreed to this poem and I'd like to see it again.
I don't know how to punch nodes on the internet and get George Sand's poem to me so if somebody would send me the poem I would very much like it.
I'm telling you this because it's an antidote to our politicians who want to tell us they're going to abolish all poverty. It's a stupid idea. It's like saying we'll all be riches in a modern civilization. It's status what we want but we need more means.
The tow of reaching for status is that the bottom 90% are always going to contain exactly 90% of the people no matter how hard we work or how much we succeed.
We actually need some tough incentives in a civilization to make it work. In other words, George Sand was right. The goddess of poverty is not all bad. She's partly good. And of course I like thoughts that I have that are different from anybody else.
I think a billionaire who talks about the glories of the goddess of poverty is making a contribution. But only a bunch of nerds like you will appreciate it.
Question: Just wanted to ask you a quick question about the fact that you were anearly proponent of electric vehicles, specifically your investment in BYD. I wonder if from your perspective from today other technologies, like hydrogen, fuel cells, or others that may come to mind, are equally important in terms of their emerging capabilities and what sort of impact they may have.
Charlie Munger (Trades, Portfolio): Well, I think electric vehicles will be more popular than hydrogen andfuel cells.
Getting the sun's energy transferred into electricity and into the vehicles is basically a good idea for the long pull. And I think all the technology is going to work. Some of it's actually improving.
We may get a lithium battery that's actually quite safe and more energetic than most we have now. I think that's all to the good.
When I came to California, we had Petroleum Club, and we had wildcatters. A little like Texas. I don't think we found any new oil to speak of in California in decades. I think it's dangerous to rely on hydrocarbons for energy. Of course, we've got to take more directly from the sun.
I think that Texas will eventually get to be like California.
Question: Do you think it's necessary for America to recover a positive trade balanceto keep its prosperity in the next century?
Charlie Munger (Trades, Portfolio): The answer is no.
Question: How do you nudge your kids and grandkids to hold on to their shares for aslong as possible?
Charlie Munger (Trades, Portfolio): I don't think I have a good model for you. My children seem to dopretty much what they please.
I find that I'm happier if I just do the best I can by my children and take the results as they fall.
I wouldn't sweat too much about how your children hold the stock you know.
Question: What keeps you going and how do you still have the motivation? Thank you.
Charlie Munger (Trades, Portfolio): Well, maybe I've been lucky. I like what I do. I have wonderfulpartners and friends. I have a nice family. My problems are interesting to me.
I have been a very fortunate may and I don't know how to make everybody else lucky.
I could have had a different hand and been some miserable alcoholic throwing up in the gutter. I don't think I deserve any great credit for having stumped into a reasonable amount of felicity.
I do think that trying to be rational helped. That's the only thing you've got if you're a fellow nerd.
If you're not going to be sex object, you have to rely on your rationality.
Question: There's a lot of talk these days about the climate and the environment andfunds divesting fossil fuels, and countries trying to figure out how to generate electricity without polluting the environment. Could you give us your thoughts on nuclear power? I know that Bill Gates (Trades, Portfolio) has been a very vocal supporter of it. And I know that Warren Buffett (Trades, Portfolio) used to invest in Uranium back in the ‘50s and, you know, he more recently helped fund a uranium bank in Central Asia.
Charlie Munger (Trades, Portfolio): Well, I admire Bill Gates (Trades, Portfolio) who feels a duty to throw money at stuffthat's unpopular elsewhere and it might possibly work.
I think it's an admirable charitable effort by Bill Gates (Trades, Portfolio) for which he's very well suited.
I don't know whether we're going to get safe little atom plants or something but I think it's certainly worth thinking about.
The problem with it, of course, is how much material do you want a bunch of crazy humans to have? I don't know the answer to that question.
Regarding energy, of course we're going to have to get more from the sun directly and so forth. It's all to the good that everybody's going into that in a big way.
By the way, if there was no global warming problem, I'd be in favor of substituting getting power directly from the sun for fossil fuels starting today. I think it's a good idea to conserve hydrocarbons and use more solar energy. That is not the normal attitude of a lot of people. But I'm right and they're all wrong.
Question: My question is about universal basic income. What is your opinion on a planlike this? Thank you.
Charlie Munger (Trades, Portfolio): Well, if you did enough of it, you'd totally ruin everything. Little of itwe can afford. What the exact mix is will be determining for the political process forever.
Question: You talked frequently about having the moral imperative to be rational andyet as humans we're constantly bearing this evolutional baggage which just get in the way of us thinking rationally. Are there any tools or behaviors you embrace to facilitate your rational thinking?
Charlie Munger (Trades, Portfolio): The answer is: Of course. I hardly do anything else.
One of my favorite tricks is the inversion process. Let me give an example.
When I was a meteorologist in World War II, they told me how draw weather maps and predict the weather. What I was actually doing was clearing pilots to take flights. I said: “Suppose I want to kill a lot of pilots. What would be the easy way to do it?” I concluded that the only way to do it was to get the planes into icing the planes couldn't handle or to get the pilot into a place where he'd run off fuel before he could safely land.
So I decided I was going to stay miles away from killing pilots by either icing or getting them sucked into conditions where they couldn't land.
I think that helped me be a better meteorologist in World War II. I just reversed the problem.
If somebody hired me to fix India, I would immediately say: “What could I do if I really wanted to hurt India?” I would figure out all the things that would most easily hurt India and then I'd figure out how to avoid them. It works better to invert the problem.
If you're a meteorologist, it really helps if you really know how to avoid something which is the only think that's going to kill your pilots.
You can help India the best if you really know what will hurt India the easiest and worst. Algebra works the same way. Every great algebraist inverts all the time because the problems are solved easier. Human beings should do the same thing in the ordinary walks of life. Just constantly invert. You don't think about what you want. You think about what you want to avoid. When you think about what you want to avoid, you also think about what you want. You just go back and forth all the time.
Peter Kaufman, who's here today, really likes the idea that you want to know how the world looks from the top looking down and you want to know what it looks like from the bottom looking up.
If you don't have both points, your reality recognition is lousy. Peter is right and inversion is the same thing.
It's just a simple trick to think about how it looks from the people above me and how it looks from the people beneath me. How can I hurt these people I'm trying to help? All these things help you think it through. And it's just such simple tricks.
Like the lever, they really help. And yet, our educational system giving advanced degrees don't give these simple tricks. They're wrong. They're just plain wrong.
Question: If you were researching a new company that you've never heard of, howwould you approach the research process and how much time would you spend? If you perform the intrinsic value estimate and the company was expensive, would you still continue following the company closely and continue researching it or do kind of try to get to evaluation pretty quickly and, if it's not cheap, kind of move on? How do you balance the time you spend on companies?
Charlie Munger (Trades, Portfolio): Well, if it's complicated technology I tend to leave it to others. I mayget occasional variation in that but basically I just don't do it.
I want to think about things where I have an advantage over other people. I don't want to play a game where the other people have an advantage over me.
So if you have a pharmaceutical company and you're trying to guess what new drug is going to be invented, I've got no advantage. Other people are better at that than I am.
I don't play in a game where the other people are wise and I'm stupid. I look for a place where I'm wise and they're stupid. And believe me, it works better.
God bless our stupid competitors. They make us rich.
That's my philosophy. You have to know the edge of your own competency. You have to kind of know if it's too tough for you. I'm very good at knowing when I can't handle something.
Question: My question is about electric vehicles and BYD. Why are electric vehicle salesat BYD down 50% to 70% while Tesla is growing 50% and what does the future hold for BYD?
Charlie Munger (Trades, Portfolio): Well, I'm not very sure I'm the world's expert on the future of electricvehicles, except I think they're coming generally and somebody's going to make them. BYD's sales went down because the Chinese reduced the incentives they were giving to buyers of electric cars.
Tesla's sales went up because Elon has convinced people that he can cure cancer.
Question: One of the more surprising opinions I've heard this year is that we neverreally had journalistic ethics - that the news has always been colored yellow with the voice of their proprietors. With 9 decades of observation under your belt, does that ring true?
Charlie Munger (Trades, Portfolio): No I think that the sole proprietors, the people that owned thenetwork news and Time magazine, and Newsweek, and the monopoly newspapers, were pretty good. And this current bunch is deliberately lying because it sells better.
I like the old products of nepotism and monopoly. It was better for us than these new guys. These guys are so good at marshaling hatreds.
You know, politics was once called by some famous English politician the art of marshaling hatreds. We now have news outlets that we all follow and they're good at marshaling hatreds.
Well, some hatred might have some constructive use, but they're overdoing it. Hatred is too intense. It's cabbaging up the minds of the broadcasters and now cabbaging up the minds of the people who watch.
Question: There is this common sentiment that technology is both accelerating the paceof change and its impact broadening across most industries usurping traditional moats. So given your long career, I'm wondering if you think the traditionally moaty industries are being undermined at a pace that's different from what's been happening in the past.
Charlie Munger (Trades, Portfolio): Yeah, I think the moats have been breached time after time.
Imagine the Eastman Chemical Company going broke. Imagine all these great department stores being on the edge of extinction. Imagine all those monopoly newspapers going down. Look at the strength of the American auto industry compared to what it was, say in 1950.
I think the moats are disappearing rapidly. I mean the old classical moats. I think it's probably a natural part of the modern economic system, as in old moats stop working. Let me know what your problem is and I'll try to make it more difficult for you.
Question: What would you say is the best possible way for someone to exposethemselves and expand their understanding of workings in the business world which without actually currently being involved it in? And how can I maximize my potential value to a corporation in the future by what I do right now?
Charlie Munger (Trades, Portfolio): That's a good question. There are so many of you now who want to berich by going into finance. At multitude, not all is going to get rich.
Of course, 99% will be in the bottom 99%. That's just the way it's going to work.
If I look at people in my generation, the nerds who were patient and rational eventually did well. Those who lived within their income, worked at being sensible, and when they saw an opportunity grabbed it very fiercely, and so forth. I think that will work for the new nerds of the world.
For the people who get ahead because they're star salesmen or charismatic personalities, I'm not one of those, so I don't know how to do that. So if you're not a nerd, I can't help you.
I think that the odds are that the people who try to do finance are not going to succeed. There's a lot of wretched excess in it because easy money will always attract wretched excess. It's just the nature. It's like a bunch of animals feeding on like carcass in Africa. By the way, that's an image I chose on purpose.
I don't think it's so pretty and I don't think that modern finance is so wonderful.
In my day, a lot in the finance field were more like engineers. They were so chastened by the Great Depression and all the wretched failure, that they really tried to make everything super safe. And it was a very different plotting place. The people weren't trying to be rich, they were trying to be safe.
This modern world is radically different. I'm not sure if I was starting out in your world how well I would do. It would be a lot harder than it was to get ahead in the world than what it was when I came up.
I think you'll be happier if you reduce your expectations and if you try and satisfy them, By the way, I think that's generally a good idea. It sounds silly but it's so obvious.
You know how many of us are fairly content with pretty moderate success? That is worth knowing because that's what most of us are going to get.
Question: I would like to know your thoughts on the engineering and businessgenerally at Boeing and how you've been thinking about that as it's unfolded recently.
Charlie Munger (Trades, Portfolio): Well, I don't like to jump on Boeing.
Boeing is a great company that had one of the great success rates in safety records of the world. They lost their way, they made some dumb mistakes. I think that's generally the way of things too if you're trying to do something very complicated with hundreds of thousands of people. Occasionally, there will be slip-up.
In most places, if you actually look at them, they have some near-misses. Boeing had a near-miss a few years ago when the rudder stuff failed and they had a few crashes. I was on the Safety Committee at US Air when that happened and nobody could figure it out for months. Something in the rudder was not working, and it caused three crashes. It took them something like six months to figure it out and they must've put an army on it.
Well they survived that one and they'll no doubt survive this one but it's really expensive to make a big safety mistake. Of course, they should be avoided.
Question: It's been a while since you've had “The Psychology of Human Misjudgment”as a talk and I was wondering if there were any additions you would have that you've seen more recently. And the second part is, you've talked about how important being rational is throughout your life. Can you walk us through, aside from the tricks and tips that you have, what steps we can take to become more rational?
Charlie Munger (Trades, Portfolio): Well, it's a long process. I don't think anybody just flashes into it. It'snot like somebody's going to tell you to run down to the front of the revival meeting and shout out and you get a wonderful hereafter.
Rationality is something you get slowly and it has a variable result. But it's better than not having it.
You can just see how awful it is when people get into these furies of resentment and anger and being sure they're right about everything. It's hard to know exactly how human civilization ought to be organized.
In my own life, I've often reflected about how well the system has worked. What I concluded was the social safety network has just come up enormously as the world has gotten more prosperous. That was a very desirable thing, and the Republicans who always opposed it were wrong.
The Democrats have always tried to push the social welfare too far ahead as they did for a while with the welfare program. That was also wrong.
By and large, what we have is about right. We wouldn't have gotten it from either party alone. If either party had been in total control of a one-party government, we wouldn't have had the result that we have. It's just close to right.
I think power does corrupt. Part of the genius of the American system is no one person gets too much power. If either party had all the power, I don't think American civilization would have worked as well as it had with this ebb and flow.
I don't know what the exact right safety net is. I don't think it matters that much. I think the United States would be about as happy if it had 5% more or 5% less safety net.
Question: Could you elaborate a little bit on project Haven. What are you specificallydoing to improve health care, lower the costs, and improve quality and access?
Charlie Munger (Trades, Portfolio): That's a very interesting subject. If you take American healthcare, inmany cases it's the best in the whole world. We have more brains in our medical schools and our pharmaceutical companies than the rest of the world per capita. We may have as much brains as the rest of the world together.
On the other hand, if you actually went into American hospital's doctor's offices, you would find a huge amount of totally counterproductive, unnecessary activity that costs a lot, does no good, and actually does harm.
And you'd find that some people are not doing that. Well, if they don't have the incentives to make money by doing it, you don't get a lot of counterproductive medical care.
Kaiser, here in California, does not do a lot of unnecessary, stupid medical care for a long death to make more money and do all the evil things that other people do.
Other people, as the hospitals and doctors get under pressure, introduce a lot of waste and folly, and some of the pharmaceutical companies' behavior is totally outrageous.
Have some basic diabetes drug and try and charge someone ten thousand a month or something is ridiculous. And I even go further, I think it's evil. I think that the system should be changed and I think it will be changed. I think there's too much wretched excess in the medical system.
The really sad part of it is that the people who are doing it have no conscious malevolence. They're not people who decided to do murders and maimings to make money. They think it's good for the patients what they're doing.
If you do an unnecessary back operation on somebody, it's a major evil but the guy that's doing it really think it's good for the patient. In other words, he's turned his brain into cabbage. That's not a good thing. I think you have to change the incentives.
I think there are places in America that are very admirable that don't a lot of unnecessary stuff, and other places that do. I think we're going to have to change the system.
If you take the medical system of Singapore, it costs 20% what ours cost, and it has better statistics. It's not opaque, it's open.
We have a whole industry that try to make things payment things opaque so they can try and take advantage of people. And they think it's free enterprise. I think it's stealing.
Question: One of the things that has surprised me is how many of my peers in thefinancial industry have sat out the market over the last five years holding cash in anticipation of a market downturn. I would think, given that we're in our late 20s, we've accumulated savings, and have what's hopefully a multi-decade runway ahead of us, the right thing to do was be to start investing now. So my question is whether you would agree with this assessment, and if so, how would you convince your friends to start investing? Thank you.
Charlie Munger (Trades, Portfolio): Well, it's obvious that deferred gratifiers do better over the long pullthan these impulsive children that have to spend money on Rolex watches and some other folly. Not that I'm picking Rolex any worse than a Phillipe or something.
But I think everybody who is adult should save and not be stupidly spending money and defer gratification to get more later and all those good things that we were taught by Benjamin Franklin - three of them so forth.
The odd thing about it is that people are kind of born deferred gratifiers or not. They've done recent psychological work on that subject. Lots of luck if you're an impulsive person who has to be gratified immediately. You're probably not going to have a very good life and we can't fix you.
But if you have a slight tendency to deferred gratification and you can feed that tendency, then you're on your way to prosperity and happiness.
That demand for immediate gratification is the way to ruin. It may also give you syphilis.
Conclusion
Evidently, they have a saying: “Give him the hook”. My friend Guerin has just given me the hook.
I am an accidental guru. We didn't set out to have an audience of
