Charlie Munger Wisdom: His Talk at the Daily Journal Corporation Annual Meeting (Feb 2020)

It was a surreal experience attending Charlie Munger’s wisdom-packed talk at the Daily Journal Corp’s annual shareholder meeting in Los Angeles.

Here’s what stood out for me…

Charlie Munger Wisdom: Summary of his Talk

Munger on getting rich in finance:

  • There are so many people who want to be rich by going into finance.

  • Not everyone is going to get rich.

  • 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 [got rich].

  • That will work for the new nerds of the world.

  • The odds are that the people who try to do finance are not going to succeed.

  • You’ll be happier if you reduce your expectations than if you try and satisfy them.

  • This is generally a good idea.

  • 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.

On staying motivated:

  • I’ve been lucky.

  • I have wonderful partners and friends. I have a nice family.

  • I like what I do. My problems are interesting to me.

  • 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 deserve any great credit for having stumped into a reasonable amount of felicity.

  • I do think that trying to be rational helped.

On solving problems:

  • An old professor once gave me this advice: “tell me what your problem is and I’ll try and make it more difficult for you.”

  • And that’s good advice because a problem properly understood is half solved.

Photo by Thomas Waschenfelder

Photo by Thomas Waschenfelder

 

On success:

  • One of the reasons the companies I have been involved with have been successful is that we stayed sane.

  • We are not that smart, but we stayed sane.

  • You come from all over the world, out of some deep hunger.

  • You come here because some fellow nerd managed to succeed in spite of defects and you need a similar result.

  • And you are right! If you can learn some of our tricks, you can get more success out of life than you deserve. That’s what has happened to me.

  • I’ve gotten better life outcomes than I deserve based on energy and intellect.

  • Who doesn’t want to get more out of life than they deserve?

  • Business is about being determinedly rational. It does work.

  • Rationality is something you get slowly and it has a variable result. But it’s better than not having it.

  • It’s harder to stay sane than it is to be crazy.

  • I think about things where I have an advantage over other people.

  • 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.

  • God bless our stupid competitors - they make us rich.

  • You have to know the edge of your own competency.

  • I’m very good at knowing when I can’t handle something.

On being a victim:

  • Some people actually are victims, but it’s very counterproductive to feel like a victim even if you are.

  • The best way is to be cheerful despite everything.

  • Who wants to be a victim instead of a survivor? 

  • If you are feeling like a victim, you can try to improve, but don’t think it’s all everybody else’s fault.

  • Other people don’t want to be around that attitude. 

On mental models:

  • I stumbled on a few mental tricks early in life:

  • 1) Take the high road because it’s less crowded.

  • 2) It’s a moral duty to be as rational as you can make yourself.

  • If you can keep your head when everyone else is losing theirs, that’s a huge advantage.

  • 3) 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 to 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?” The only way to do it was to:

  • 1) Get the planes into icing the planes couldn’t handle, or

  • 2) Get the pilot into a place where he’d run off fuel before he could safely land.

  • I decided to stay miles away [from these scenarios].

  • If somebody hired me to fix India, I would immediately say: “What could I do if I really wanted to hurt India?”

  • Then, I’d figure out how to avoid them.

  • It works better to invert the problem.

  • 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.

  • 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.

  • Our educational system giving [out] advanced degrees don’t give these simple tricks. They’re wrong. They’re just plain wrong.

On changing your mind:

  • Being able to recognize that you are wrong is a godsend.

  • 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 want to be able to change your mind, especially when disconfirming evidence comes through.

  • There’s hardly anything more important than being rational or objective.

On his longevity:

  • I don’t deserve any credit for longevity.

  • There’s no male in my family that ever lived any such age.

  • It’s weird but I can’t help you.

On delayed gratification:

  • Deferred gratifiers do better over the long pull than these impulsive children that have to spend money on Rolex watches and some other folly.

  • Everybody who is adult should save and not be stupidly spending money and defer gratification to get more later.

  • People are kind of born deferred gratifiers or not.

  • Lots of luck [to you] 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.

On being a guru:

  • I am an accidental guru.

  • We didn’t set out to have an audience of people coming in and asking me questions about every damn subject in the world.

  • It just kind of happened by accident and I just went along with it because I think it did more good than harm and I kind of enjoy it as long as I don’t have to do it too often.

  • I love these nerds.

On the future:

  • The world may change in two ways: 

  • 1) They may extend average life duration by fancy tricks, and

  • 2) They may reduce cancer deaths by fancy mounts.

  • There’s been a lot of change [already] and this has caused a lot of loss to people that own stocks.

  • All that was really important has probably already happened.

  • How much better can it be once you have enough to eat? What is extra money going to do for you?

  • My generation had the best of all this technical change. Our children stopped dying. Medicine greatly improved.

  • I don’t think we’re going to get as much improvement in the future because we’ve gotten so much already.

On raising children:

  • I think the best thing any parent can do is be a good example.

  • Preaching doesn’t work worth a damn.

  • My children seem to do pretty much what they please.

  • I’m happier if I just do the best I can by my children and take the results as they fall.

On the state of Daily Journal:

  • DJCO used to make regular & substantial profits by running niche legal newspapers.

  • This was a simple and easy business model.

  • Technology has changed everything and is destroying newspapers, including ours.

  • Nothing can be done with good management to save them.

  • Revenue decreases but the expenses remain.

  • We are losing newspapers in exchange for opinion services, like Rush Limbaugh.

  • DJCO is not going to disappear though, because if all fails, we have marketable securities.

On the software business and Journal Technologies:

  • We also have a second business: Journal Technologies.

  • This is a computer software business that caters to courts, prosecutors, public defenders, probation and other justice agencies.

  • This is a very tough business.

  • The teacher and accounting software is a gold mine because it’s standard. You make it once and everyone uses it.

  • But we service many different government departments with special requirements. It’s bureaucratic and political.

  • We need armies of people to build this software and it takes forever to do. It’s very difficult.

  • You have to keep a good nature and have huge patience and huge talent and keep rolling and money comes in slowly.

  • Google and Microsoft don’t even want this business because it’s so hard.

  • Everyone on our board is very old and we’ve done very well, but it’s not easy or fast.

  • Part of the reason we are successful is that our competitors are so awful.

  • We don’t bill hours. We don’t collect invoices until the thing works.

  • (Story) When I was young, a lot of the earth moving was done with contractors who ran teams of mules (not tractors).

  • There was one contractor in particular who had a bunch of mules. When the war came, a builder approached the contractor and tells him he’s got a cost + percentage of cost contract with the government, and he’s going to give the contractor cost +.

  • The contractor says I can’t do it. I got into business because I’m efficient, and when I take a cost + contract, even my mules seem to know it and they go all to hell.

  • We try to be like that contractor.

  • Peter Kaufman (board member & editor of Poor Charlie’s Almanack) likes it difficult if he thinks he’ll keep it forever once he gets it.

  • In America, software has grown enormously and in venture capital (VC) it’s the biggest investment.

  • People are paying very high prices for these businesses. There will be a lot of casualties.

  • But it reflects an underlying development: software is changing the technology of the world.

On broken moats:

  • Moats have been breached time after time.

  • Look at 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.

  • The moats are disappearing rapidly.

  • It’s a natural part of the modern economic system; old moats stop working.

  • Let me know what your problem is and I’ll try to make it more difficult for you.

On doing right by the customer:

  • What we do is a very good thing. The world needs what we do.

  • When it comes to customers, I try to be as close to Costco as I can.

  • I love the success that occurs by doing right by the customer.

  • I hate success by cheating people with things that aren’t good for them (like gambling in Los Vegas).

  • There’s something to be said if you have the option to sell stuff that’s good for them instead of selling stuff that tricks them -> Sell something that’s good.

  • I would choose that even if make less money because you make more money in the long run.

  • It reminds me of Buffett’s favorite saying: “I like to take the high road. It’s less crowded.”

On Canada:

  • They are wise to have a socialized medicine system, and to pay their pharmaceutical prices instead of ours.

  • Their two different languages (English and French) doesn’t help them.

  • I like Canada. In some ways, they do better than we do. 

On the state of politics:

  • Politics are weirdly awful because of the excess of hatred we see everywhere.

  • People on the extreme left and the extreme right kick all the moderates out.

  • Individuals hate each other.

  • It’s a crazy way to be governed, and there’s no solution.

  • TV clowns are very good at misleading us.

  • They can mislead us to see what’s not happening, and not see what’s actually happening.

  • It’s hard to stay rational and stay sane.

  • One of my favorite actors was a British actor named Cedric Hardwicke.

  • Towards the end of his life, he said: "I have been a great actor for so long that I no longer know what I truly think on any subject.

  • That’s what has happened to our politics, but our politicians don’t know it! Their heads are like cabbage.

  • It’s a big mistake to pretend to become anything because you become what you pretend to be.

  • It changes you to say something repeatedly.

  • Your own mind tricks you. It’s best to be more cautious about your views.

On weighing the quality of a company vs. the odds:

  • Both are important. 

  • All investment is value. You are always trying to get better prospects than you’re paying for.

  • But you can’t look everywhere at once. You need a system for someplace to look.

  • You are looking for value in any case.

  • The strongest companies are in China, not the USA. And they are growing faster.

  • I have investments in them and you don’t, I’m right and you’re wrong.

  • The most successful investor in the whole room, Li Lu, invests in China. 

  • It really helps if you know which hunting ground to look in.

  • There’s a simple rule: fish where the fish are.

  • Fish where the bargains are.

On Robo-advising:

  • People in the investment advisement industry ought to prepare for tougher times ahead.

  • Indexing is going to run and run, and there are a lot of wretched excesses.

  • Endowment managers want fewer and better investment managers. That’s not good for those investment managers.

  • And everyone else is indexing.

  • If you go with the crowd, I think there’s pain ahead.

On indexing and selling for income in retirement:

  • For most people, this does work best.

  • On the other hand, there’s a huge proclivity to gamble.

  • Whenever returns are variable, there’s a huge lure to gambling.

  • In China, the ordinary holding period for an individual holding is short. This is stupid.

  • [The Chinese] are so good at everything else, this shows how hard it is to be rational.

  • There is lots of trouble coming.

On fintech as a threat to large banks

  • I don’t know much about cryptocurrencies except to avoid them.

  • I have a too hard pile. If I put it in the too hard pile, I don’t think about it.

  • I hate things like bitcoin. I hate things that are intrinsically antisocial.

  • The world needs a reserve currency (which just by accident is the U.S. dollar).

On poverty:

  • The other day I was musing over the current situation. I read a poem about 80 years ago by George Sand that 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.

  • I remember toward the end she said: “You try and banish me, you’ll live to want me back.”

  • This is an antidote to our politicians who want to tell us they’re going to abolish all poverty.

  • That’s a stupid idea.

  • The bottom 90% is 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 civilization to make it work.

  • The goddess of poverty is not all bad. She’s partly good.

  • I like thoughts that I have that are different from anybody else.

  • If you did enough of universal basic income, you’d totally ruin everything.

  • What the exact mix is will be determining for the political process forever.

On China:

  • I’m mildly optimistic about China for a variety of reasons.

  • They’ve done a lot right and I’m a big admirer of what’s happened there.

  • China was in a Malthusian trap and prevented 500,000 babies from being born and it was doing the world a favor…

  • It did it with methods the U.S. would not like.

  • They’ve had huge growth and prosperity.

  • They lifted 800 million people out of poverty.

  • The US ought to get along with China and vice versa.

On negative interest rates:

  • It’s peculiar to have negative interest rates. It makes me very nervous.

  • But the authorities didn’t have much choice [in 2008].

  • 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.

  • Having worked once, people will overdo it. That’s the nature of government people.

  • There’s one modern nation that has had 25 years of stasis - Japan.

  • They have handled it with magnificent skill and philosophy.

  • This stagnation didn’t come from a lot of mistakes. They were an export powerhouse and up came China and Korea. Of course, they had some trouble.

  • They got into this defect-free manufacturing ethos in a big way and led the world in it.

On Tesla & Electric Energy:

  • I would never buy [Tesla] and I would never sell short.

  • Howard Amundsen once said something that I’ve taken to heart: “Never underestimate the man who overestimates himself.”

  • Elon Musk is peculiar and he may overestimate himself but he may not be wrong all the time.

  • Electric cars will be more popular than hydrogen and fuel cells.

  • Turning the sun’s energy into electricity and into vehicles is good for the long run.

  • The technology is going to work. It’s actually improving.

  • It’s dangerous to rely on hydrocarbons for energy.

  • The problem with [nuclear power] is how much material do you want a bunch of crazy humans to have?

  • 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.

Thank you, Charlie Munger, for always speaking your truth.

Here’s the full video of his address if you’d like to watch it:

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You can find a complete transcript of the annual meeting here.