Nugget 7: I don’t care if somebody makes a lot of money and holds it like a miser. Most people have a vast propensity to spend, helped by spouses and children.
The opportunities were remarkable. They were the type that come along very rarely and they happened to coincide with a time when we were the only undertaker in a town with the plague. Two plus two gave us this chunk of money. If worse comes to worse, the shareholders are not going to go to zero like the shareholders of General Motors did. We may actually pull this thing off, but it isn’t a bit easy.
In the whole history of Berkshire Hathaway (ticker: BRK-A), I can only think of one new business that we started by ourselves at headquarters, and that was the reinsurance department. Now, that is a huge business, and it’s made an enormous amount of money. Berkshire Hathaway, for all its glorious achievement, started one new business. Everything else we bought. On the other hand, you don’t need a whole lot of achievements; you just need a few.
That’s one place where we’re different from everybody else. Imagine somebody who thinks he ought to be paid big sums for telling people they ought to divide their business into 200 individual pieces. There are grown-ups who think they ought to be paid for giving that advice. It’s weird. There is more dementia about finance than there is about sex. It’s a hard subject to be rational about.
Nugget 8: Generally speaking, in a world of free trade, where corporations are mobile, you pay a big penalty for trying to have a corporate tax system where your taxes are way higher than the taxes in the rest of the world.
Nugget 9: The truth of the matter is, if you stay rational yourself, the stupidity of the world helps you.
Q: What do you think about tax inversions and how they should be addressed?
Munger: Take the one that we’re in headlines about at Berkshire. Tim Horton’s (ticker: THI) is bigger than Burger King (ticker: BKW). We merge it and the bigger company with the most income gets the headquarters, and it’s Canada, which is practically part of the United States. Anyone who thinks this is a great tragedy or great injustice is stark raving mad. Berkshire’s taxes go up a lot. But once the press goes off on something that’s complicated they go berserk.
Generally speaking, in a world of free trade, where corporations are mobile, you pay a big penalty for trying to have a corporate tax system where your taxes are way higher than the taxes in the rest of the world. If I were running the world I would have low corporate taxes, and get at the yearning for equality some other way, like consumption taxes. I don’t care if somebody makes a lot of money and holds it like a miser. Most people have a vast propensity to spend, helped by spouses and children.
If you take the places in the world where the citizens have done the best – Singapore, low tax rate, Hong Kong, low tax rate – you’re fighting against reality with a lot of left-wing envy. I think envy is destructive. I try to drive it out of my own system, and I’m pretty good at it, too. I wish my fellow citizens were less consumed by it, particularly the politicians. I don’t think our problems are caused by inequality, although I do think it’s a mistake to let a lot of people get rich out of legalized gambling, although they call themselves money managers and derivatives traders and so on. If I were running the world, I would whittle that class down by about 90%. It would take me a week to write the laws. It would totally change the real estate market in New York.
Another thing: if the rest of the world weren’t so stupid and bureaucratic, we wouldn’t be rich, and you [the people in the room] wouldn’t be rich either. This room is full of people whose comfort has come from the stupidity of other people. The same people, when they see the stupidity acting counter-productively, want to keep all the benefits and have the stupidity go away. You’re asking too much. The truth of the matter is, if you stay rational yourself, the stupidity of the world helps you. As long as they don’t blunder into World War or something – there are limits.
Nugget 10: How To Combat Envy? Well, you just don’t care if somebody else does better.
Q: How do you combat envy?
Munger: Well, you just don’t care if somebody else does better. It’s one of the deadly sins out of which you can never have any fun. It’s a total loser: bad for the country and bad for you. The Jews were right to put those things in the Old Testament: don’t envy thy neighbor’s donkey, his wife…they kept laying it on because they knew it was important even for a bunch of herdsmen. They were right. It’s a pernicious thing. I see in professional firms, where everybody is overpaid by 150%, and some guy gets $10,000 more than somebody else in one year, and the guy who doesn’t get it goes berserk. Is this rational, when you’re overpaid by 150% and somebody gets 1/3 of 1% more? But it happens.
Nugget 11: Being Honest Is Profitable. There’s Money In Being Trusted.
Q: Given your investments in big money center banks, what do you think of the big fines the government is extracting from them?
Munger: Two parts. Part one was their terrible, abusive behavior as mortgage lenders. It was like deliberately building a bridge they knew was going to collapse and kill people. It was morality on that scale. The people who did it thought they were perfect. As Maimodides once said, “Every man is straight in his own eyes.” They did these terrible things and thought they were nobly serving capitalism and ought to be paid even more than they were. That was very, very regrettable.
I think if behavior is bad enough, as it was at [Enron’s accounting firm] Arthur Anderson, even though the individual members of Arthur Anderson were very unfairly treated, I think you have to have some failure. The way it has worked out, very few individuals have been punished for ghastly behavior, and their companies have paid penalties that are very substantial. Whether that’s exactly right is a very interesting question.
Mortgage lending became a dirty way to make money. You take people that can’t handle credit and try to make very high returns by abusing and encouraging their stupidity – that’s not the way I want to make money in banking. You should try to make money by selling people things that are good for the customer. You’ll never see Berkshire buy a gambling casino. Even though it’s profitable and legal we’re just not going to go there. There ought to be a big standard in corporate America of things that are perfectly legal but we don’t do because they are beneath us. The standard that prevails is, “How low can we make our ethos and still not get in trouble? We don’t want our competitor to be making money in some way that we are left out of.” That’s a huge mistake.
By the way, has it hurt Charlie Munger to have these ideas? Do I need more money gotten in some scroungy way? [DJCO Board Member] Peter Kaufman says something very smart: “If all these crooks and promoters knew how much money there was in being honest, there’d be more people who did it.”
Nugget 12. You don’t need a whole lot of achievements; you just need a few.
Take Berkshire. There have been eight large portfolio reinsurance transactions of over a billion dollars in the history of the world. We’ve done all eight of them. That’s because people trust us. They think we’ll do what we say thirty years ahead. There’s money in being trusted. It’s such a simple idea, and yet everybody rushes into every scummy activity that seems to work.
Our politicians want to solve their financial problems by bringing in legalized gambling. In Cass Lake, MN, they have an Indian Casino. When I was young there was no pawn shop in Cass Lake. Now there are five. All these people on pensions, they’ve got one chair and one television set, and they go in and lose 100% every month of everything they have above heating money.
Or the advertisements on television: imagine teaching ordinary people the way to get ahead in life is to trade securities actively on a daily basis. Is that an honest product? It’s a legal product, but is it honorable? Would you want your son-in-law to do it? Well, maybe some of them are already doing it…it’s a big crowd.