I had the pleasure of attending Daily Journal’s annual shareholder meeting for the fifth consecutive year and listened to almost two hours of spectacular Mungerism.
It’s absolutely amazing that Charlie Munger, at the age of 94, is still so sharp. This year’s meeting was held at a venue with much higher capacity than the previous ones. But the amount of attending groupies also vastly outnumbered that of the previous meetings. Therefore, many groupies had to either stand for two hours or watch the meeting from the overflow areas outside of the conference hall. Still, compared to the number of shareholders who attend Berkshire’s annual meetings, the number of Munger groupies is very small.
The quality of questions this year, while still decent, paled in comparison to that of last year. Many of the questions have been asked in previous meetings.
My biggest takeaway this year was, ironically, not from Munger, but from Peter Kauffman, who shared his five “Aces” list for the best money managers, which were:
- Total integrity.
- Deep fluency in whatever areas the manger operates in.
- Compete in a less crowded market.
- A fair and rational fee structure that absolutely aligns the interest of the money manager with the interest of the investors.
- A long run way.
Of course both Li Lu and Mohnish Pabrai (Trades, Portfolio), who were both present at the meeting, check all five boxes. A groupie asked about Lu, and Munger said that Lu is very smart and has a good temperament. He’s aggressive but also patient. Money managers like Lu are rare and very hard to find. That’s why Munger has given money only to one manager and it that is Lu.
A groupie asked whether Munger or Kauffman could elaborate on what a fair and rational fee structure is. Of course, Munger said the Buffett Partnership fee structure – 0% management, 25% performance fee after clearing the 6% hurdle with a high watermark – is the ideal fee structure. Everybody wants to scrape it off the top, but you have to suffer on the downside with investors. Pabrai went 10 years without taking anything from the top. There aren’t many Pabrais out there.
Another interesting point was the BYD position. Not only did Berkshire Hathaway (BRK.A)(BRK.B) invest in BYD, but the Munger family also invested. Although BYD was already a public company, Munger considered it a venture capital investment back then. BYD started off as a cell phone battery company with a $300,000 loan from the bank. But Wang Chuan Fu turned it into an extraordinary businesses over time – BYD now make all kinds of batteries and they are selling monorails and electric buses like you can’t believe. Munger also complimented the permitting system in Shenzhen – if you want to do it then just do it.
I thought Munger’s comments on Wells Fargo (WFC, Financial) was also very interesting. Wells Fargo had an incentive system that was too strong in the wrong direction (particularly in the consumer banking division). And it reacted too slowly to the mistake. But Munger thinks that Wells Fargo will be better off having made those mistakes, unlike what the news headlines suggest. And he thinks that the regulators should let up on Wells Fargo because it's learned its lesson.
Munger also made interesting comments on advertising companies who make a lot of money sifting through data using algorithms – algorithms can take too much money and become self-defeating. Thank God for it. I think this comment may not have caught on with the groupies but it’s an enormously interesting comment. Google (GOOGL, Financial) and Facebook (FB, Financial) all have algorithm-based ads models. If Munger’s right, what are the implications for the big tech companies? It’s a question worth further pursuit.
That’s it. Above are the interesting points from this year’s Daily Journal meeting for me. It was a little disappointing that not many top questions came up this year, but I still totally enjoyed the experience. I’ll end the article with a new Munger zinger, which made all of us laugh hard:
“I’m used to groupies but standing up for two hours? I mean I wouldn’t stand up for two hours to listen to Issac Newton if he came back to life. The meeting is adjourned. I certainly wish you all well. You are my kind of people."
