Charlie Munger’s reputation has continued to grow over the years as more people realize the value of his rationality and acerbic wit. The billionaire became famous for being the long-time Vice Chairman of Berkshire Hathaway and Warren Buffett’s closest associate. Before entering the business world, Munger was an Attorney and co-founder of the Los Angeles law firm Munger, Tolles & Olson but in part due to Buffett’s own advice he left the law firm to become an asset manager.
Munger has become a favorite of many Berkshire-acolytes not only for his sense of humor but his unique and wise approach to life. He advocates taking a broad, liberal arts approach to understanding the complex problems of life and to look at situations using multiple mental models rather than a single one. Although he did not originate the quote, he often says, “to the man with a hammer, the whole world looks like a nail.” He has also given other problem-solving advice over the years, such as inverting problems in your mind to come up with a solution. For example, in trying to find the traits that will lead to a good life, rather than simply asking yourself what qualities are essential to a good life it is important to also ask yourself where it is that most people ultimately fail. “All I want to know is where I’m going to die so that I never go there,” Munger often says.
For many years, admirers had the opportunity to travel to Pasadena, CA for the Wesco Corporation annual shareholders meeting in order to directly hear Mr. Munger share his viewpoints and answer questions. Wesco was 80% owned by Berkshire Hathaway and Mr. Munger was its CEO, but in 2011 Berkshire Hathaway acquired the remaining 20% and Wesco ceased to be an independent company. Now, the faithful travel the The Daily Journal Corporation’s annual meeting in Los Angeles where Mr. Munger is still the Chairman. The Daily Journal Corporation has published legal newspapers for many years and now also owns a software division that helps courts and public agencies manage case workflow.
The most recent annual meeting for The Daily Journal Corporation took place on February 15th and after briefly discussing Daily Journal and its prospects, Mr. Munger did not disappoint in sharing valuable nuggets of wisdom for the remaining two hours that he spoke. Here’s some of the topics he covered.
Wells Fargo is among the nation’s biggest banks and for years has also enjoyed a sterling reputation. This past year, the company was enmeshed in a scandal that cost the CEO, John Stumpf, his job. The bank has placed a high value on cross-selling in its branches and set challenging incentive goals for its employees to meet. This involves trying to sell a credit card, as an example, to a customer that may only have a checking account. Some employees, mostly in the Los Angeles area, were caught fictitiously opening accounts in order to game the incentives. The question is not merely academic. Berkshire Hathaway is Wells Fargo’s largest shareholder and The Daily Journal Corporation loaded up on Wells Fargo stock during the financial crisis.
“Wells Fargo had a glitch – the truth of the matter is that they made a business judgment that was wrong…They got so caught up in the cross-selling and incentive systems. Some people reacted badly and did things they shouldn’t….I think the mistake was, when the bad news came they didn’t recognize it directly. I don’t think that impairs the future of Wells Fargo. They’ll be better for it.”
The credit card issuer is another company that Berkshire Hathaway has long held a large stake in, which is currently more than 16% of the company. Munger does not think it’s possible for anyone to accurately predict the next ten years for the payment systems industry.
He said: “If you think you know what is going to happen in payment systems ten years out, you’re probably under some state of delusion.”
Life and Choosing a Career
Many of the questions that came in during the meeting were related to making important life choices, finding your circle of competence, and choosing a profession.
“In terms of picking what to do, in my whole life I’ve never succeeded in anything I wasn’t interested in…Play in a game where you have unusual talents…Of course you want to be ethical, but you can’t be dreaming of how you think the world should be run and think it’s too dirty to get near.”
“Operating over many disciplines as I do is not a good idea for most people. It was a wonderful path for me, but the correct path for others is to specialize and get good at something society rewards, but spend 10%-20% of your time on the big ideas.”
“[The most meaningful thing in life] is probably family and children.”
“We look smart because we pick wonderful people…To get wonderful people is like marriage. The best way to get a good spouse is to deserve one.”
“Be intelligent in improving yourself…The problem in front of you is solvable if you reach outside your discipline over the fence into other disciplines.”
“When I learned about the talking snake in the Garden of Eden, I knew it was fake….I just don’t need a talking snake to behave well.”
“Don’t use your body by being stupid in handling it. Same for your money. The only way to win is to work a long time where it doesn’t come easily.”
For some time now, Munger has advocated greater and not lesser energy imports and stated that it is irrational to use up the countries’ energy reserves. Instead, he’d rather pay other countries to use up their reserves.
“I wish we weren’t producing all this natural gas. I’d be delighted to just have it lie there untapped for decades in the future…Nobody else in America seems to agree with me.”
Learning as you Age
Commenting on the evolution of Warren Buffett’s investing style:
“If you’re in a game and learning more and honing skills, of course you do better over time.”
Munger had previously said that Trump was morally unqualified for President, in part, because of ownership of casinos. He softened his stance somewhat.
“He’s not wrong on everything, and just because he isn’t like us, roll with it.”
Munger was asked whether or not the popularity of index funds is a long-term market concern.
“Is there a point where they can’t work? Of course….the index thing is absolute agony for investment professionals who have almost no chance of beating it.”
India and Li Kwan Yew
Li Kwan Yew was almost single-handedly responsible for modern day Singapore and his philosophy and methods were then imported into China. Munger was asked if India has the opportunity to experience the same kind of rapid growth that China and Singapore have.
“The caste system, the overcrowding. It’s very hard to get anything done, and they have taken the worst aspects of democracy that Yew avoided. India has fabulous people, but the system of poverty and corruption…it mires them.”
As always, Munger told several humorous stories to illustrate his points. Here are a few of them.
“It’s like the story of the man who goes to see Mozart and says that people think the man is too young to compose symphonies, and the man is asking Mozart for help because Mozart composed symphonies at age 20. Mozart says ‘but I wasn’t running around asking others how to do it.”
“Max Planck gave lectures around Germany when he won the Nobel Prize. It was an incredibly boring speech, and his chauffeur soon memorized it. One time the chauffeur gave the talk instead of Planck and got questions from all these physics professors. The chauffeur said that he was surprised that, in an advanced city like Munich, he was getting ‘elementary questions’ like that and so he announced that since the questions were so insulting, he was going to ask his chauffeur to answer them.
“Have you heard the one about the plane flying over the Mediterranean losing both engines? The pilot tells the people to open the door fast enough for people to get out and for folks who can swim, get on the right wing and for those who can’t swim to get on the left wing. ‘For those on the right, swim 2 miles to the nearby island, and you’ll be fine. For those on the left, thank you for flying Air Italia.’”
Munger admirers won’t have to wait very long to once again hear his thoughts. He’ll answer questions with Warren Buffett at the Berkshire Hathaway annual meeting in April.
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