Charlie Munger answered questions at the Daily Journal annual meeting this week. There’s always something to learn from the 98-year-old investor.
Though, one of the few downsides of these meetings is the repetitiveness from year to year. Thankfully, the questions were moderated. That helped mix things up a bit. Which led to better answers.
While the entire Q&A session is worth watching (linked below), I highlighted a few of those lessons below.
On Excess Speculation
The idea of getting more value than you pay for that’s what an investment is. If you want to be successful, you have to get more value than you pay for. And so it’s never going to be obsolete.
Now you can get a whole body of people that don’t even know what they’re buying. They’re just quotations on the ticker… Think of the past crazy booms and how they worked out. The South Seas bubble, the bubble in the late twenties, so on and so on. We’ve had this since the dawn of capitalism. We’ve had crazy bubbles.
On Beating the Market
The Mungers have Berkshire stock, Costco stock, Chinese stocks through Li Lu, a little bit of Daily Journal stock, and a bunch of apartment houses. Do I think that’s perfect? No. Do I think it’s okay? Yes. I think the great lesson from the Mungers is you don’t need all this damn diversification and that’s plenty. You’re lucky if you’ve got four good assets.
I think the finance professors that sell the idea that perfect diversification is professional investment… If you’re trying to do better than average, you’re lucky if you have four things to buy. And to ask for 20 is really asking for egg in your beer. Very few people have enough brains to get 20 good investments.
On Predicting Market Swings
If you stop to think about it, my way in life was not predicting little short-term differences between the Russell index and the Standard & Poor’s index. I don’t have any opinion about which index is better at any given time. I never even think about it. I’m always just looking for something that’s good enough to put Munger money in or Berkshire money in or Daily Journal money in.
And I figure that I want to swim as well as I can against the tides. I’m not trying to predict the tides.
If you’re going to invest in stocks for the long-term or real estate. Of course, they’re going to be periods when there’s a lot of agony and other periods when there’s a boom. And I think you just have to learn to live through them.
As Kipling said, “Treat those two imposters just the same.” You have to deal with daylight and night. Does that bother you very much? No. Sometimes it’s night and sometimes it’s daylight. Sometimes it’s a boom. Sometimes there’s a bust. I believe in doing as well as you can and keep going as long as they let you.
On Market Timing
In my whole adult life, I’ve never hoarded cash waiting for better conditions. I’ve just invested in the best thing, I guess, I could find. And I don’t think I’m going to change now. And the Daily Journal’s used up its cash.
Now Berkshire has excess cash. Quite a bit of excess cash. But it’s not doing that because it knows how to time investments. He just can’t find anything he can stand buying.
On One-Size-Fits-All Strategies
I don’t think I have a one size fits all investment. I think some people are gifted enough that they can invest in hard to value difficult things. Other people, I think, would be very wise to have more modest ambitions in terms of what they choose to deal with.
So I think you have to figure out your level of skill or the level of skill your advisor has and that should enter the equation. But to everyone who finds the current investment, climate hard and difficult and somewhat confusing, I would say welcome to adult life. And you’re thinking the right way. Of course, it is hard.
On Technological Progress and Envy
You have to be optimistic about the competency of our technical civilization. But there again, it’s an interesting thing. If you take the last hundred years, 1922 to 2022. Most of modernity came in in that hundred years. And the previous hundred years, that got another big chunk of modernity.
And before that, things were pretty much the same for the previous thousands of years. Life was pretty brutal and short and limited, what have you. No printing press. No air conditioning. No modern medicine.
I don’t think we’re going to get things that what I call the real human needs. Think of what it meant to get, say, first you got the steam engine, the steamship, the railroad, and a little bit of improvement in farming, and a little bit of improvement in plumbing. That’s what you got in the hundred years that ended in 1922.
The next hundred years gave us widely distributed electricity, modern medicine, the automobile, the airplane, the records, the movies, the air conditioning in the south.
And think what a blessing it was. If you wanted three children, you had to have six because three died in infancy. That was our ancestors. Think of the agony of watching half your children die. It’s amazing how much achievement there’s been on civilization in these last 200 years. And most of it in the last hundred years.
Now, the trouble with that is, is that the basic needs are pretty well filled… And what happens is, it’s really interesting, is with all this enormous increase in living standards and freedom and diminishment of racial inequities and all the huge progress that has come, people are less happy about the state of affairs than they were when things were way tougher.
And that has a very simple explanation. The world is not driven by greed. It’s driven by envy. And so the fact that everybody’s five times better off than they used to be, they take it for granted. All they think about is somebody else has more now, and it’s not fair that he should have it and they don’t.
That’s the reason that God came down and told Moses that you couldn’t envy your neighbor’s wife or even his donkey… And so it’s built into the nature of things. It’s weird for somebody my age, because I was in the middle of the Great Depression and the hardship was unbelievable…
I have no way of doing anything about it. I can’t change the fact that a lot of people are very unhappy and feel very abused, after everything’s improved by about 600%, because there’s still somebody else who has more.
I have conquered envy in my own life. I don’t envy anybody. I don’t give a damn what somebody else has. But other people are driven crazy by it. And other people play to the envy, in order to advance their own political careers. And we have whole networks now that they want to pour gasoline on the flames of envy… I liked the people who were against envy, not the people who were trying to profit from it.
Think of the pretentious expenditures of the rich. Who in the hell needs a real Rolex watch so you can get mugged for it, you know. Yet everybody wants to have a pretentious expenditure and that helps drive demand in our modern capitalist society. My advice to young people is don’t go there. The hell with the pretentious expenditure. I don’t think there’s much happiness in it. But it does drive the civilization we actually have and drives the dissatisfaction.
Steve Pinker of Harvard is one of our smart, modern academics. He constantly points out everything’s gotten way, way better, but the general feeling about how fair it is has gotten way more hostile. And as it gets better and better, people are less and less satisfied.
That is weird, but that’s what’s happened.
On His Best Investment and Creative Destruction
One of the investments that nobody ever talks about at Berkshire is the World Book Encyclopedia. I grew up on it. You know, they used to sell it door to door.
They had every word in the English language graded for comprehension and a vast amount of editorial input. So it was easy for a child, who wasn’t necessarily a brilliant student, to understand that encyclopedia. It was more understandable. And Berkshire made $50 million a year pre-tax out of that business for years and years and years.
And I was always so proud of it because I grew up with it and it helped me and so forth. And of course, I liked the 50 million a year.
And then a man named Bill Gates came along and he decided he’s gonna give away a free encyclopedia with every damn bit of software in his personal computer software. And away went our $50 million a year.
Now we still sell the encyclopedia to libraries. Maybe we make a few million a year doing that, but most of the wealth just went away and all that wonderful constructive product. And it’s still a marvelous product. And it wasn’t good that we lost what World Book was doing for the civilization. And I was so proud of World Book… But now it’s just, it’s pretty well gone away in terms of its worldly significance and the money went with it.
That’s just the way capitalism works. It has destruction. And some of the things you lose, you’re really gonna miss and you’re not going to replace them.
Charlie Munger Speaks at the Daily Journal Annual Meeting (starts @ 24:47)
- The Trouble With a Bubble – J. Zweig
- How Do Investors Fail? – Of Dollars and Data
- Stock Tips From Your Buddy? They Really Aren’t Good – Klement on Investing
- The Inflation Hedges Haven’t Hedged – J. Rekenthaler
- Funny Money: Speculative Investing When the Stakes Are Low – B. Johnson
- A History of Systematic Serendipity and Grand Slams – Neckar
- Navigating No-Win Decision-Making with Baruch Fischhoff – Behavioral Scientist
- How a Young Couple Failed to Launder Billions in Stolen Bitcoin – New Yorker
- How Zillow’s Homebuying Scheme lost $881 Million – Full Stack Economics