Investment Wisdom

43. DJCO Annual Meeting 2017: Part 3: Lessons 13-18 From The Maestro

Ref: Adam Blum’s Notes – https://www.scribd.com/document/339530598/Munger-Daily-Journal-Annual-Meeting-Notes-by-Adam-Blum-2-15-17#from_embed

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Lesson 13: Most meaningful thing in life: Family and Children

Most meaningful thing in life: “Well, probably family and children. I was not a perfect husband but was lucky to get as much felicity as I got. I started wrong and never quite fixed myself with the fair sex. Here’s something from the cult leader to the cult members: As a high school freshman at Omaha Central, I was a skinny underdeveloped whatever, and I had this blond goddess I took to a dance. I pretended to smoke for some reason, and she was wearing a net dress, and I set her on fire. Being quick-witted, I threw Coca-Cola on her to put out the fire. And that was the last I saw of her.

Later in high school I wanted to get a varsity letter to show the girls. I thought rifle shooting was my best shot. I was so skinny that I could shoot 100 sitting cross-legged. So I got the letter, but I was so skinny it [the letter on his letter jacket] went from one armpit to the other. The girls noticed, alright. ‘How’d a little skinny unattractive runt like that get a letter?’ Then there was Zibby Brewington.

She was a very popular senior. She agreed to go with me to a party at the country club, because she liked one of my hunky friends. I picked her up, and it was sleeting. My 1934 car got stuck in mud, and we had to walk in the sleet most of the way, and that was the last I saw of her. Then I didn’t put antifreeze in, and the block broke, and my father said I was so dumb, I wasn’t getting another car. This is who you’re coming to see at these cult meetings. My life is a litany of mistakes. I ran for student politics in elementary school and came in second place by miles. I know a nerd when I see one – there are a lot here. I hardly succeeded about anything, so there’s hope.

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 [Planck] to answer them (laughter). 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 with us..”

Lesson 14: If you have to buy index funds, try to choose a big one as a small one’s price can shoot up if many people chase it.

Lesson 15:  Why shouldn’t life be hard? (For money managers?)

Index funds: “Is there a point where they can’t work? Of course, if everyone bought nothing but index funds I’d buy big one, because if you buy the small one, and it gets popular, it’s self-defeating. JP Morgan had this Nifty Fifty index of only 50 stocks. Due to all these people buying it, it forced the stocks up to 60x earnings, and they lost everything. You don’t see that when an index is 75% of the whole market. It can’t work perfectly forever, but for a long time it will. The index thing is absolute agony for investment professionals who have almost no chance of beating it. Most people handle that with denial. I understand – I don’t want to think about my own death either. 95% of money managers can’t beat it. Honest, sensible people know that what money managers are selling can’t be delivered. The prices for managing big sums of money are down to 20bps. People who rose in asset management didn’t do it by getting paid 20bps; it’s a huge problem, and it makes your generation of money managers have way more difficulties and causes a lot of worry and fretfulness, and I think the people who are worried and fretful are absolutely right. I would hate to manage a trillion dollars in the big stocks and try to beat the indexes. I don’t think I could do it. At Berkshire,

if you take 100 decisions, a few a year, our success came from ~two decisions a year, total, for 50 years. It’s a hell of a problem for you people who manage money, but why shouldn’t life be hard? It’s what had to happen. With computer algorithms playing same game, returns went down. It’s happening in the whole field, the progress of the sons is making it hard.”

Lesson 16: What to teach your grandchildren: If you’re glued together right and honorable, you will succeed. Get in there and get rid of stupidities and avoid bad people. Try teaching that to your grandchildren. The best way is by example. Fix yourself.

What would he tell his grandchildren about business opportunities? “I don’t spend time telling my grandchildren what business opportunities to look for. There’s not much hope. I have trouble getting them to work at all. It’s not an easy way to handle a problem of how to continue getting better even after financial success. If you’re glued together right and honorable, you will succeed. Get in there and get rid of stupidities and avoid bad people. Try teaching that to your grandchildren. The best way is by example. Fix yourself.

Lesson 17: You may want to read A Man for All Markets by Edward Thorp.

Book recommendations: “You cultists send me so many books, I can scarcely walk into my own library. I skim all of them. The one I like recently is from [Edward] Thorp (A Man for All Markets) who beat dealers in Vegas and then had massive Wall Street trading success. I really liked it. He had a good marriage and was a smart man. He was a mathematician using a high IQ to beat the dealers and succeed in trading. You people may like a buried love story. Nerds here would agree that a guy who made $40 million in a casino and $4 billion in the market – there can’t be many people out there who can do this.”

Lesson 18: Filial Piety is good. Think of how rootless we’d all be with no families, predecessors or descendants. Think what we owe to those in past who made our civilizations work.

On filial piety: “I didn’t quite catch that. Oh, filial piety. I like filial piety. They worship rich old men, my kind of system. Caring about ancestors and traditions is desirable. I admire Confucians for that notion that it’s not a game in just one life and to accept the baton from predecessors. Think of how rootless we’d all be with no families, predecessors or descendants. Think what we owe to those in past who made our civilizations work.”

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