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
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.