1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Grahamites
Grahamites
Articles (292) 

A Conversation With Charlie Munger and Michigan Ross in 2017

Edited transcripts of the interview Charlie Munger did with the Dean of Michigan Ross School of Business

December 23, 2017

Charlie Munger (Trades, Portfolio) joined Michigan Ross Dean Scott DeRue for a conversation about his life, career journey, philanthropic legacy, and his thoughts on a few current global trends. You can imagine how excited I got when I saw this video on Youtube.

In a classic manner, Charlie dispensed knowledge and wisdom in his Mungerism style. Below are my edited transcripts of the part where DeRue interviewed Munger. There were a few places where I didn’t quite catch the words or misunderstood what Munger meant. Please correct me in the comment session if you find one.

Scott DeRue: I’d like to go back to your Early Childhood in Omaha Nebraska. What are some of the moments in your experience in Omaha that you really find memorable that shaped you and who you are today, how you think. Can you talk a little bit about growing up in Omaha?

Charlie Munger (Trades, Portfolio): I really liked Omaha. It was a size where I knew a lot of the people no matter what they did. I wasn't lost in a great metropolis. And I was very fortunate in nature of my parents and my parents’ friends. And I was fortunate in the public schools I attended. (They) were pretty remarkable by the standard at the time. Of course most of my schooling was in great depression but that means I'm one of the very few people still alive who deeply remembers the great depression. And it's been very helpful to me. It was so extreme. People like you have just no idea what the hell was like. That was just nobody had any money, (even) the rich people didn’t have any money. People would come and beg for a meal at the door and we had a hobo jungle not very far from my grandfather's house, and I was forbidden to walk through (the hobo jungle) but I walked through it all the time. And I was safer in that hobo jungle in the depths of the thirties when people are starving practically than I am walking around my neighborhood now in Los Angeles. The world is changed on that. You think the crime would be less but the crime was pretty low on those days.

I had a very unusual bunch of experience to go through civilization in various phases including the greatest recession. I’d say it’s the greatest recession in the 600 hundred years in the English speaking world. It was really something. And it was very interesting to watch and also to watch it fixed. It was fixed by the accidental Keynesianism of World War II. Very interesting. And Hitler had fixed the Great Depression in Germany by the deliberate Keynesianism. But he wasn’t doing it to stimulate the economy. He wanted to get even with all the people he hated. But he borrowed all this money and created all these armaments. Hitler's Germany by 1939 was the strongest in Europe and nobody else was close. So you wouldn't understand that as well as I do (because you) haven’t lived it. You could just see the place gaining traction more and more and more and more and pretty soon it was fixed. And of course in those days there were all kinds of people, most of my family for they believed in hard money based on gold and not much welfare and so on.

I was raised by fairly backward people by modern standards but they were backward in kind of a self-reliant way that I think was helpful. I’ve never regretted that I wasn't raised in a more liberal establishment. I had a liberal aunt, she was my mother’s cousin and she was the second Lady Dean at the University of Chicago. And she has done her thesis on the conditions on the coal mines of course she was a screaming leftist. I would be a screaming leftist the way I observed the way the coal miners of yesteryear were treated. You couldn't be a human being with any decency without feeling it was deeply improper to have the misery that great and have a manipulated for the benefit of the mine owners and so forth. But she sent me all these left-wing bangs books one every Christmas. I always thought she was a little nuts. Which shows sometimes a very vivid extreme acts, you know evidence misleads you on a deeper reality. You’ve got to be on guard against that. All your life. In fact the whole trick in life is to get so that your own brain doesn't mislead you and I have found that was just a lifelong fun game and I can't remember a time I wasn't doing it.

I was not a prodigy or anything like that but I was a prodigy in having adults interests. I was wondering what worked and what didn't the why. And I can see that very eminent people that I love and revered were nuts in some ways and I would say well I certainly like Dr. Davis but he’s a little nutty in one way and I’m not gonna be that way like that. So I was very judgmental and I think that helped me. And (it) also helped me that I kept changing my judgements as I learned, more and more facts came in and that created lifelong habits that were very very useful.

Another thing that really helped me is, particularly on my father's side of the family. My paternal grandfather was the only federal judge in Lincoln Nebraska, capital city of Nebraska and he's been there forever and he stayed there forever after that I think when he left he was the longest-serving federal judge in the country. And he was a brilliant man and he's risen from nothing. He was the child of two impoverished school teachers and when he was raised in a little town in Nebraska, they gave him a nickel to buy the meat. And he’d go to the butcher shop and he would buy the parts of the animal nobody else would eat. And that's what two school teachers lived on in those days and the very indignity of it bothered him so much that he just determined to get out of poverty and never go back. And he did. He got ahead like Abe Lincoln, educated himself in lawyer's offices and so on. He had to leave college because he couldn't pay the tuition anymore. But he educated himself and since he was utterly brilliant it wasn't all that hard and he had an attitude that was pretty damn extreme. I would say his attitude was that you have a moral duty to make yourself as an un-ignorant and un-stupid as you possibly can. And that it was pretty much your highest moral duty maybe taking care of your family came first but in the ranks of moral obligation quasi-related. But he was conventionally religious so it may have been a religious duty to him. But he really believes that rationality was a moral duty and he worked at it and he scorned people who didn’t do it. On the other hand as a judge he started with the idea of why would anybody rob a train or whatever a federal crime in those days. And he was pretty hard on people who did it. And I noticed as he got older and older and older, he was willing to call a man a good man on easier terms than when he started out with and I think that was a correct development. By the way, when he relaxed a little he was still pretty tough. But he did relax a little, which I thought was appropriate.

But influence by such people and when the thirties came, one son in law was a musician of course he couldn’t make a living so my grandfather, who didn't have that much money sent him to the pharmacy school carefully picking a provision that couldn't fail and found him a bankrupt Pharmacy to buy a loan him the money. And my uncle's soon prosperous and remained prosperous the rest of his life. My other uncle had a bank in Stromsburg Nebraska, there were 968 people in Stromsburg and there were two national Banks. And the capitalization of my uncle's Bank was $25,000 and of course he was a lovely man, but he was an optimist and a banker should not be an optimist. And when they close the banks in 1933 the banking examiners came in and said you can't reopen and it was the only business he had. Well judge Munger always saved this money and he had a lot of good first mortgages on homes occupied by teetotaling German butchers and people he’d carefully pitch. Of course he never had a default, I was in the right neighborhood, the people were sober and hardworking and so what my grandmother did is take 1/3 of his good mortgages which is all he had and put them in the bank and took all the lousy assets out of the bank. So he saved two out of three of his children and I thought it was a pretty good thing to do and he actually got most of his money back 10 or 15 years later out of all the lousy asses of the bank when World War II (happened). And that was a good lesson.

My grandfather, on the other side, his main business had gone broke in 1922 with all the other wholesale dry goods houses and what he did. His son in law went broke he cut his house in half and move that family in. And the other family, the guy was an honors graduate of the Harvard School of Architecture and he was very prosperous in the twenties in Omaha and had a wonderful life. And the thirties came and the total building permits in Omaha was 19-25 thousand dollars a month and that was for furnace repair or something. There was just no work. None, zero. So he moved to California and he lived for several years. He finally got the County of Los Angeles to hire this great Harvard architect and he got $108.08 a month after deductions. And they had him do drafting work but they classify them as a laundryman to save money and he could actually rent a house for $25 and feed himself under an old car. He could live on $109 a month. It’s amazing how poor everybody was and what happened to that grandfather’s alone came the FHA and they had a competitive civil service examination and he was a very brilliant man. Of course he was first in the exam and that made him the chief architect for the FHA in Los Angeles where he spent the rest of his life. But I watched all this family coping with all this difficulty and I'll say this, it sounds awful but they weren't all that unhappy.

You can cope pretty well ‘cause you get used to it. That's a nice thing about the human condition. When you get my age you got a lot of horrible things to get used to. Just one new indignity all the time. A friend of mine says a good day when you're old is when you wake up in the morning and nothing new hurts. That’s my experience in Omaha but that back ground, of all these people educated and civilized and generous and decent and a lot of them had good sense of humor. It was a pretty damn good place to grow up in. And my memory is of being surrounded by a lot of very fine people. And I'd I think the whole thing was privileged. I look at my background as absolutely privileged. I'm proud of being an Omaha boy. I sometimes use the old saying they got the boy out of the Omaha but they never got Omaha out of the boy. And so all those old - fashioned values - family comes first, be in a position so you can help others when troubles come, prudence, sense of a moral duty to be reasonable more important than anything else. More important than being rich, more important than being important. An absolute moral duty because none of my intelligent relatives suffered terribly because he didn't advance higher.

Scott DeRue: One of the things I'm fascinated by this was in the twenties and thirties in the level of detail that you recall about their experiences and how that shaping your experiences naturally.

Charlie Munger (Trades, Portfolio): I’m trying to give people a flavor of something that nobody else can remember.

Scott DeRue: You're a student of the people that are experiencing. So you grew up in Omaha Nebraska and you find yourself in Ann Arbor Michigan. How does that happen?

Charlie Munger (Trades, Portfolio): Very simple. I wanted to go to Stanford and my father said to me Charlie, I was the only son to two sisters. He said I’ve got two daughters. They educated right after you. I don’t have unlimited money. I will send you to Stanford if it really means a great deal to you but I'd rather you pick a university in the Midwest much better than mine, which is the University Nebraska and that was obviously going to be Michigan. What was I gonna say? Well screw you, send me to Stanford. Well I didn’t say that. I went to Michigan. I have never regretted that I went to Michigan at all. At Stanford, people came to Stanford in the thirties with their string of Polo ponies and it was a very upscale fraternity sorority culture. I used to call it the co-educational Princeton of the West. And people loved it and so forth. But literally you call it Stanford with a string of polo ponies? Just saying I’m bringing back to you young people, time you can’t remember, was it you ever know in college that came with a string of polo ponies. They’d be in the ROTC but they had their own string of polo ponies. You could win better if you have your own string.

Scott DeRue: So you come to Michigan and you study math for a year.

Charlie Munger (Trades, Portfolio): Yes but I don't get credit for that. When I was young I could get an A in any mathematical course without doing any work at all. So I always took math because it meant I never didn’t do any problems. I just did the math. And I should not get credit as some budding mathematician. I was choosing what for me was the easiest way to think about what I want to do instead of what somebody else want me to do. That has paid some dividends. This will interest you. In this world where people have all these algorithms and computer science and fancy math and so forth. Neither Warren nor I ever used any fancy math in business neither did Ben Graham who taught Warren. Everything I've ever done in business could be done with the simplest algebra and geometry, and addition and multiplication and so forth. I never used calculus for any practical work in my whole damn life. I was a perfect whiz at it when they taught it to me. And by the way since I’ve never touched calculus, not one after I was 19 years old, I've lost it. The symbols would mystify me. But I think you'll find if you really know the basic stuff, it's enormously useful and only a very few people are gonna need calculus.

Scott DeRue: So you studied study math at Michigan and the war comes calling. You moved to California and you studied meteorology

Charlie Munger (Trades, Portfolio): Well that was because I was too dumb to do what I should have done. With my background I should have gone to the naval ROTC ‘cause I hated infantry ROTC, which I had done four years in high school, rising to be a second lieutenant, which is a very low rank. And course I was about 5 ft 2. I got my growth late so I was not your ideal of a manly soldier in high school.

Scott DeRue: So why Harvard Law School?

Charlie Munger (Trades, Portfolio): My grandfather and father had been lawyers. And I knew I didn’t want to do anything else. It’s very simple. I didn’t want to be a doctor. I didn’t want all the blood and misery and so forth and the repetitive work. I know I didn't want to go to the bottom of a big organization and crawl my way up. I'm a natural contrarian and that was not going to work for me. And I found that people could tell me when I thought they were idiots and that is not a way to ride in a big organization. So I couldn't do that and so now I'm left with law. I admired my father and grandfather and a good life for them so I naturally drift into it. I think people are still going to law school for that reason. It's the least bad of options considering their interests and ability. I guess now people go to business school (for that reason). Many people in this room are gonna go to business school because (it is) the least bad option. And all I can say is that that’s the way it worked and it will probably work for you. I had to leave the profession. I was a dumb profession for me.

Scott DeRue: So that’s actually what I wanted to ask you. So you moved to California and you actually started a law firm and then practiced law for some period of time

Charlie Munger (Trades, Portfolio): I had no alternative. I had an army of children almost immediately. I painted myself in quite a corner.

Scott DeRue: Zero choice is pretty powerful

Charlie Munger (Trades, Portfolio): For sure of course.

Scott DeRue: So you practice law and then you leave law in the firm that you helped found and move over to Investments.

Charlie Munger (Trades, Portfolio): Well but that sounds miraculous. In fact, it was rather interesting. I probably got paid about $350,000 in my first 13 years of law practice total. And I had an army of children. No capital to start with. When I chose this alternative career I had over $300,000 in liquid instruments. And that was 10 years of living expenses so I was not a courageous venturesome admirable man. I was a cautious little squirrel saving up more nuts than I really needed and not going very deep into my pile of nuts. And so that it wasn't that courageous. I kept one foot in the law firm while I tried my capitalist career but as soon as the capitalist career succeeded I intended to lift that second foot because I recognized that the potential of law practice as I saw then. I didn't anticipate the boom that came to the big firms. I just saw this being more difficult and I wanted more independence. Thought I was going to have (independence?) as a lawyer. I hated sending other people invoices and needing money from richer people. I thought it was undignified. I wanted my own money not because I love either social prestige. I wanted the independence.

Scott DeRue: So when you founded Wheeler Munger and Company and it was the investment firm.

Charlie Munger (Trades, Portfolio): And five real estate projects. I did both side by side for a few years. And in a very few years I had three or four million dollars.

Scott DeRue: And for a number of years you outperformed the market 2x 3x and so why did you then leave Wheeler Munger and Company and then move to now what you're doing.

Charlie Munger (Trades, Portfolio): Well I had three or four million dollars which is a lot of money then. And I also knew how to handle that three or four million dollars very well by that time and so I knew I didn't need to get fees and an override some other investors. And I found that when you got into the 74-75 crunch, which is the worst since the thirties. I didn't suffer. I knew everything was going to work out, but the quoted prices of these things really went down to ridiculous levels. And some of my investors I knew were suffering. You know I needed the money and of course I have enough of a fiduciary gene that pained me greatly. My grandfather, once they asked him how he felt when my aunt divorced my uncle and he said I feel just the way I did when they lanced my carbuncle and that's the way (I felt about the investment business). I had a carbuncle and my fiduciary chain was giving me pain. So I lanced my carbuncle. I just lived on my own money. No fees, no overrides, no salary. Just seemed more manly to do and I know it would work.

Scott DeRue: So at what point did you meet Warren

Charlie Munger (Trades, Portfolio): 1959.

Scott DeRue: And so where did Berkshire Hathaway come from in terms of this partnership that you all have now had for decades.

Charlie Munger (Trades, Portfolio): Well, Warren had been taught by Ben Graham to buy things for less than they were worth no matter how lousy the business was. You can’t imagine a more lousy business than the New England textile mills because textile is a congealed electricity and the electricity rates in New England were about 60% higher than TVA rates. So it was absolute inevitable certain liquidation. Now Warren should have known better than to buy into a totally doomed enterprise. It was so damn cheap. It was a big discount from liquidating value. So he bought a big giant chunk of the business. But the business was going to die so the only way to go forward from there was to wring enough money out of this declining textile business to have more money than he paid to get in and use it to buy something else. That's a very indirect way to proceed and I would not recommend it to any of you just because we did some dumb thing that you don't have to repeat our path of course. We eventually learn to not to buy these cigar butts when they're cheap and do these painful liquidations. And instead buy better businesses. That's the main secret of Berkshire. The reason that Berkshire has been successful was a big conglomerate, more successful than any other big conglomerate so far as I know. Any other big conglomerate in the world. The reason it's been successful is as we try and buy things that aren't going to require much managerial talent at headquarters. Everybody else thinks they've got lot of managerial talent at headquarters. That's a lot of hubris. If a business is lousy enough and it gets a wonderful manager, the business has a lousy reputation and the manager has a good reputation. It's the reputation of the business that’s going to remain intact. You can't fix these really lousy businesses. You can wring the money out whatever comes the liquidation and do something else with it but most lousy businesses can't be fixed.

Scott DeRue: But at the time Warren was, that's what he was doing and so how did you convince him out of it?

Charlie Munger (Trades, Portfolio): I helped him. He bought a windmill company in a little town in Nebraska and Warren didn’t know anything about running a windmill company. He bought it because it was cheap. He said what do you do? Why can’t you fix my windmill company? Who can you get to help me? I said I've got just the man for you and so one of my old colleagues from a transformer business who was an accountant. I said he will fix your windmill company and Warren was desperate and he hired him on the spot. And Harry walked in the first day in this little town of this big collection of windmills and so forth and a whistle blew and the whole plant stopped for 15 minutes. And he said what the hell is this is and well it’s a respect for the time it has a funeral, we blow this whistle and stop for 15 minutes and Harry said that’ll be the last time. And he just approached everything that way. He cut away all of fat that he didn’t need and then he found there were certain parts where we’re the sole supply. And he raised all the price of those parts. You can see what a business genius we are.

Scott DeRue: How did you convince Warren to stop buying the bad apples and start buying the Good Apples?

Charlie Munger (Trades, Portfolio): Warren gives me credit for this but he was going to learn it anyway. He just made so much money in this other stuff and he’d been taught by Ben Graham. It was hard for him to quit when he was just cleaning money. But he saw the side and you couldn't scale that business. And it was kind of scroungy and unpleasant. You are firing people. Who the hell wanted to do that? So we just wrung all the money out and bought better businesses. And we’ve been doing it ever since. Coming to business not as business school graduates but as people who would own portfolios of securities, we thought like capitalists because we were always in a shelter mindset. A lot of people running the business think like careerists and believe me you gotta think like a careerist to some extent if you are in a career. But also helps to look at the business strategy problems as though you're an owner. So my advice to you is you never get to be a career so much that you don't see it from the owners point of view. That’s what General Motors did. They had a bunch of careerists and an owner would have seen immediately that the situation was hopeless. And they just romped through it with a lot of denial and stupidity and pomposity and of course they went bankrupt. The mightiest company in the world went bankrupt. None of those hotshot executives, thought like an owner. They would have seen that it was hopeless.

Scott DeRue: With Berkshire in the way that you all manage both headquarters and the businesses that you own. You are putting talent in place who think like shareholders, not career. How do you evaluate talent to see are they going to think more like a shareholder?

Charlie Munger (Trades, Portfolio): Private Equity frequently buy a business where the founder is going to leave then they go out and hire talent to run it. That is a tough way to make a buck and I don't like it. We generally buy with the talent in place. Not maybe some guy in the number two place and we put him in the number one place. I can't think of any place where we bought something and put somebody and after Harry Bottle. And no we don't do that. And it's amazing how long we have some of those people stay. Warren always says we can we can't teach the new dogs the old tricks.

Scott DeRue: What’s the implication of not being able to teach the old dogs new tricks or new tricks to old dogs? When if we look at what's happening in business today what we see is exactly…

Charlie Munger (Trades, Portfolio): We can’t teach the old tricks to the young dogs. That’s what we found. So we keep the old dogs in place.

Scott DeRue: But that's not that's not the norm, right? If we look around the normal life

Charlie Munger (Trades, Portfolio): No it’s the norm in life but It may not be our practices may not be the norm. But normally it's very hard to get the (old dog to change?). You got a wise old dog and getting a young dog that can match him that's hard. By definition he's survived a big culling process. I mean he’s unique, he’s got a record to prove it. And by the way, everybody thinks you can judge people by the interview. And of course we know who you like you know who you don’t like. But everybody overestimates how much you can tell in prediction by meeting somebody. We all like to think that we have that capacity but it's vastly stupid type of overconfidence. The paper record has about three times the predictive value of your impression in an interview. And of course we're buying great paper records. It's so simple.

Scott DeRue: It is fascinating to me, if we look around business generally, the movement of people across firms and there's always new dogs and you taking a contrarian position to that and manage Berkshire differently.

Charlie Munger (Trades, Portfolio): Of course we're still hiring young dogs at the end of these businesses. But it’s amazing how much of the record of Berkshire has come from the old dogs who are in the business when we buy them. You can't believe how good those people have been. There's one huge exception in the new dog department. I almost despise the business of executive search because I find that they really want to sell you the best that's available even if he’s no damn good and I don't like that. But the best single expense that Berkshire ever had as we paid an executive recruiting firm to find Ajit Jain to come in our little tiny insurance operation. He doesn’t have any experience with insurance at all. He was an honors graduate of the main technical institute in India. He was a very smart man. He came in and create (our reinsurance business). And that's the only big business we created from scratch and Ajit created the whole damn thing. And of course he talked with Warren every night. And so it’s like father and son. This is a very Confucian company and that was unbelievable. So we hired an executive recruiter and he brings us an Indian with no experience at all in insurance. He talks to the old man every night, and it's now by far the biggest reinsurance business in the world. That's been a gold mine. There’s at least 60 billion dollars in Berkshire of net worth that Ajit has created that we would not have credit without him. And the value was way more than just liquid net worth but the value of the business is way more than 60 billion.

Scott DeRue: We are gonna turn to a few questions from the audience as we as we start to wrap up. Probably half my questions here are about Bitcoin and cryptocurrency.

Charlie Munger (Trades, Portfolio): I can answer those very quickly. I think it's perfectly asinine even pause to think about them. You know it's one thing to think that gold has some marvelous store of value because man has no way of inventing more gold or getting it very easily so it has the advantage of rarity. Believe me man is capable of somehow creating more Bitcoin. They tell you they are not gonna do it but they mean they’re not gonna do it unless they want to. That's what they mean when they say they're not going to do it. If you hear their rules (which say) they can’t do it. Don’t believe them. When there’s enough incentive bad things will happen. It's bad people, crazy bubble, bad idea, luring people into the concept of the easy wealth without much insider work. It’s the last thing on earth you should think about it and even if it worked would work it would be bad for you because you could try to do it again. It's totally insane and by the way I just laid out a wonderful life lesson for you. Give a whole lot of things a wide berth, they don't exist. Crooks, crazies, egomaniacs. People full of resentment. People full of self-pity. People who feel like victims. There’s a whole lot of things that aren't going to work for you. Figure out what they are and avoid them like the plague and one of them is Bitcoin. And the worst thing would happen if you won because then you’d do it again. It’s totally insanity. And it’s so easy to simplify life from just all these things that are beneath you. I don’t even know people are crowding Bitcoin I don’t even want them to know my address.

Scott DeRue: Charlie, what I hear you saying is you're not going to be investing in Bitcoin is that that's fair?

Charlie Munger (Trades, Portfolio): It’s fair.

Scott DeRue: So let me move to a similarly maybe controversial topic but there's a lot of tax policy conversation going on both here in California and nationally as well what's your thoughts on where this ends up in terms of the policy?

Charlie Munger (Trades, Portfolio): I think that we will get a tax bill. I think they will squeak it through and they’ll make whatever adjustments they have to do to get the last few votes. I don't think it's a bit crazy to give this extra $2000 a year to all those people that make $70,000 a year and have a lot of children. That strikes me as good politics and probably good policy. I also do not think it is crazy to reduce the corporate income tax on the C corporation. If you look at the world a lot of the places that work best including Singapore and so forth, have that policy and may even have good macroeconomic consequences. A lot of the people are screaming about it. And are so sure it won't work.
They may not be right it may actually work pretty well. It causes the capital values of the companies to come up and there's a wealth effect from the increased market value of all the companies. Everybody recognizes there's an effect but some people say it's small and some people say it's going to be large and I'll tell you what they all have in common. None of them knows. It is not totally inconceivable that it would work pretty well and with so much of the world doing well with similar tax policy. And of course, the Democrats go berserk on the subject. I think they're wrong. It may actually help them. I'm not sure it'll work. It may not but it's not totally crazy.

Scott DeRue: It reminds me of a piece of advice that you’ve offered and given to me, which is what people often have a point of view and the danger in having that point of view as you start to assume with certainty that you're right.

Charlie Munger (Trades, Portfolio): Absolutely, totally crazy.

Scott DeRue: And I think what your point of view is you need to have a point of view.

Charlie Munger (Trades, Portfolio): Here’s a very important subject. I’ve been thinking about it all my life. You ask for my opinion. I don't really know how well it’s going to work. I don’t think anybody else does either. I think it will work to some extent. But how much I don't know. Well is it unfair? Well, the corporations are buy and large owned by a bunch of charitable endowments and by a bunch of pension plans. And the whole world is going into a world where they're trying to have the business interest of the company support their huge pension obligations, which get bigger all the time. China is trying to do exactly what the Republicans are doing. China wants to have the main businesses in China owned more by the pension plans and the stocks to do well. I don't think China's crazy to have that. I don’t think the Republicans are crazy either. It could work pretty well. It's not just some evil thing that people are cooking up. It’s disagreement between people and both sides who have violent hatreds and contempt for the other side. They're wrong. It’s a disagreement on policy that ought to be civilized. When I see Congress on my television set and the degree of hatred they have, utter contempt. I mean really serious way more than as usual. It's evil to hate that much. It's a mistake to hate that much. It’s always been true as anger comes in reason leaves. It’s a truism. So do you want to adopt a political point of view or you are angry all the time. If you do, welcome to the house of misery. And pretty lowly worldly to boot. So that's what you want to do. I found out how to do it (is to) behave like those people you see on the television.

Scott DeRue: Well the other thing is true going back to one of the earlier comments is the difference between a careerist mindset and a service or shareholder mindset, where in politics we have the emergence of a careerist mindset that is shaping how people behave because they're trying to survive.

Charlie Munger (Trades, Portfolio): Not only that. They have a group think just as the Moonies go crazy because they because they hand around together. So do our politicians. And do you want to go crazy? Is that what your ambition in life is? You start with some advantage, just make yourself a violent believing politician on either side. You’ll turn your brian into cabbage. You only got one brain. Why would you want to turn it into cabbage?

Scott DeRue: I've got a question here. What's the new amazing technology that you're most excited about.

Charlie Munger (Trades, Portfolio): Well I tend not get very excited about (technology). I think that technology changes the world. That reminds me of a thing. If I asked you what was the worst single in the work of Adam Smith. You know I know I don't see everybody’s big eyes lighting up. The biggest mistake in the work of Adam Smith (is that) he was totally right about markets and so on and the advantages of trade division of labor and so forth. What he missed was how much the steady advance of technology would advance wealth and standards of living.
He in the 1700s was living not too much differently than the way they lived in the Roman Empire.
And he just missed it. But there are in fact had been huge improvements in technology but he just missed it. He wasn’t very technically minded. And it was really stupid.

Now I ask you harder question - what was the worst mistake David Ricardo made. I'll bet the Dean can’t answer this question. I'm not going to ask you to try. I'll tell you the answer. David Ricardo got the first order consequences of trade perfectly right, and it was not an obvious insight. And it was a great achievement. But he didn't think about the second order consequences. He wasn't mathematical enough to see any (second order consequences). He wasn't mathematical to think what would happen in one country which had way higher living standards than another. Like Adam Smith, he messed up my main issue. In a place like the United States. If you have an advanced nation and some other nation which is numerous but the people of any are better on average than yours in terms of their innate quality, which I think is roughly true of China. And they are in poverty living in caves and they are caught in the Malthusian trap. And you got an advanced economy. You suddenly go into free trade. What is going to happen is Ricardo proved it - both sides are going to live better, right? But the people here that are assimilating all great economies of the world like China, they are going to grow faster. So you go up 2% a year and hey go up 12% and pretty soon they are the dominant nation in the world and you aren’t. Well are you really better off and the answer is no.

Ricardo never figured out any of that stuff. So I'm telling you that so that you can fix your inadequate knowledge of Ricardo. And one of the interesting questions of that is you can’t understand Ricardo properly and thinking about the United States vis-à-vis free trade with China without thinking about the tragedy of the commons. Because if we had the only nation in the world except for china we could say we won’t trade with them. We’ll just leave them in their damn agricultural poverty. And we could probably have done that but with the whole rest of the world (which will trade with China) they’ll rise anyway. So we don’t have any power to hold back the rise of China by not trading with them. So we had to do what we did. And once you do that, now they are going to be a greater power than we are. And the two of us are going to be big enough so we can accomplish anything we both want to do. So we have to be friendly with China. So you can imagine how I like Donald Trump complaining about the Chinese. It's really stupid. It's a compulsory friendship. You’d be out of your mind to do anything else. Why wouldn't you want to have an intimate friendly relationship with the biggest other power in the whole damn world, particularly when they got a few atom bombs. It's just nutty. We have no alternative but to do this and when that happens you're going to get a certain amount of misery at the people who are competing with the Chinese as they rise from poverty with trades and so forth. That was inevitable it's not the fault of your evil Republicans who love the poor. That is just total balderdash. It just happened and we didn't have all these choices.

Scott DeRue: So Charlie in wrapping up we've got, I don't know, roughly 250 or 300 people in the room tonight and many of them looking at their futures, their careers with many decades ahead of them.

Charlie Munger (Trades, Portfolio): I’d trade some large numbers if I could just buy some life expectancy.

Scott DeRue: As you look back on your life experience. What's the most important piece of advice that you would offer everyone in the room tonight as they look forward in their futures?

Charlie Munger (Trades, Portfolio): Well there are a few obvious ones. They are all ancient. Marriage is the most important decision you have to make, not your business career. It will do more for you, good or bad than anything else. Ben Franklin have the best advice ever given on marriage. He said keep your eyes wide open before marriage and half shut thereafter. It's amazing how if you just get up every morning, and keep plugging and have some discipline, keep learning. And it's amazing how it works out okay. I don't think it's wise to have an ambition to be President of United States or a billionaire or something like that because the odds are too much against you. Much better to aim low. I did not intend to get rich. I wanted to get independent. I just over shot. And by the way while you're clapping, some of the overshooting was accidental. You can be very deserving and very intelligent and very disciplined. But there's also a factor of luck that comes into this thing and the people will get the good outcomes that seem extraordinary. Those are people who have discipline and intelligent and good virtues plus a hell of a lot of luck. Why wouldn't the world work like that? So you shouldn't give credit for the unusual. A friend of mine said about a colleague of his in his fraternity. He says old George was a duck sitting on a pond and they raise the level of a pond. There are a lot of people would just luck into the right place and rise and then there are a lot of very eminent people who have many advantages and they got one little flaw or one bit of bad luck. And they are mired in misery all their lives. But that makes it interesting to have all this variation.

Scott DeRue: Charlie, on behalf of everyone here, thank you! Your wisdom. I often say as an educational institution we not only can provide people with knowledge but the most important thing we can do is give them wisdom, and judgment. And your comments, I know for me, and I expect for everyone in this room tonight, have added to our wisdom and our judgment and also inspiring at the same time. Thank you very much.

About the author:

Grahamites
A global value investor constantly seeking to acquire worldly wisdom. My investment philosophy has been inspired by Warren Buffett, Charlie Munger, Howard Marks, Chuck Akre, Li Lu, Zhang Lei and Peter Lynch.

Rating: 5.0/5 (11 votes)

Voters:

Comments

ganeshrpl
Ganeshrpl - 7 months ago    Report SPAM

Thank you for the transcript !!

seedsmex
Seedsmex - 7 months ago    Report SPAM

Agree. I'm glad to have read it.

ravt94
Ravt94 - 2 months ago    Report SPAM

If you are looking for cards game to play online so you can play online free solitaire klondike games which are of ultimate version of solitaire games. You can play these games alone online as these games amazing games.

Sivaram
Sivaram - 2 months ago    Report SPAM

Appreciate your work in posting the transcript. We don't hear/read much from Munger (other than his stuff from decades ago) so it's good to see some of his final words of wisdom.

Please leave your comment:


Performances of the stocks mentioned by Grahamites


User Generated Screeners


adachlamaCurrent_AP_3
pbarker46Hist. high yield
Antonello13
Praveen ChawlaPoland
Antonello12
frsahfrr & fcf/ev
frsahrevenue & EBITDA wachstum D
adachlamaCurrent_AP_2
adachlamaCurrent_AP
daftheaderUsa cannibals
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat

{{numOfNotice}}
FEEDBACK