Nugget 37: If Your Job Allows You To Approach Reality The Way It Is, It’s A Big Plus.
Some of you will get imprisoned. I would hate to be in a place where I had to pretend to believe all the things I don’t believe in order to handle my daily work and discussions. I just described the working lives of practically everybody. But not Warren, not Charlie. Sure, there are a few subjects we’d consider taboo, but mostly we can approach reality the way it is. If you work for some big company there are catechisms, there are all kinds of behaviors that are forbidden. If you’re in academia there are all kinds of things constraining you.
Q: I went through One Santa Fe today [a new real estate development close to the Daily Journal HQ], and I’m curious whether you might turn this into a development site .
Munger: We already developed all the property we own. I think we bought these parcels fairly cheaply and we built these very nice, efficient buildings, and we have more than we need. Our business is shrinking. The last thing we’re thinking about is developing. If you’d like to rent what we have, contact Gerry after the meeting. (laughter)
Nugget 38: Businesses can be adversely affected by rapid technological obsolescence. Berkshire Tries To Avoid Them.
Q: I’m interested in your thoughts about how you think about Berkshire’s intrinsic value relative to its book value?
Munger: I think Warren’s ideas are pretty coherent and pretty right for Berkshire. I’ve got no disagreement with Warren on that. At a certain price, of course, we’d buy. But as long as we’re doing as well as we are, we don’t mind buying other things. We don’t mind all these bolt-on acquisitions we have. If you ask me how much Berkshire’s going to be able to spend intelligently, in just its utility business over the next fifteen years, it’s a perfectly enormous amount of money. The chance we won’t have a good return on that business is about zero. I think two years from now we will be the biggest utility company in the United States.
We’ll deal with our assets at least as well as most people, probably better. We’ll have huge opportunities. I like it. The fact that in one state, when we were young and poor, we could find things that paid 12%, and now we may have to make utility investments at 9% or 10%, probably with float that cost us nothing, that’s okay. We’re slowing down a little. (laughter) We’ve very favored to have these opportunities when interest rates are approximately zero. The idea to create more power and transmission and so on and get a guaranteed return on the investment is quite a favorable one to have.
Q: How did the advances in technology affect the natural course of competition?
Munger: Berkshire, of course, has consciously avoided rapid technological obsolescence. We own a railroad, we own a bunch of utilities, we own big insurance companies. Obsolescence is what’s happened to the Daily Journal. We had a gold mine here for years. The advance sheets that lawyers need were published six weeks after the decisions were made. We had a big printing press. We could publish those daily, and the lawyers all had to subscribe, and we raised the subscription prices every year, substantially. It was wonderful. We looked like geniuses. Then, the technology changed. Now the lawyers get their stuff over the internet. It’s way worse, and that’s just the way the world is. So we don’t like these technological changes. But at Berkshire we have tried to avoid them as much as we can.
Even where we look highly technical, like in carbide cutting tools [Iscar], we’re one of the leaders in the whole world, and it’s complicated. It’s a good business, and I don’t mind the technological complexity where we totally dominate, or pretty close to it. We don’t solve the problem of technological obsolescence, we avoid it. I’ve failed you here at the Daily Journal. I’m sorry.
Nugget 39: Look for gold where you have to step over little puddles rather than jump over seven-foot fences. (On Investing?)
And, of course, Berkshire’s failed in a lot of places. There are all kinds of things that happened to us. We couldn’t fix the textile companies in New England. Our jewelry stores are not going to set any records: there are too many jewelry stores, it’s just too tough. We haven’t found some miracle exemption from the laws of nature. We have ducked a lot of the problems other people have willingly taken on.
Warren said, “We have not learned to jump over seven-foot fences. We found a way to step over little mud puddles and seize chunks of gold on the other side.” You see, there aren’t enough mud puddles with gold on the other side, but there have been just enough for us. We work at it.
Nugget 40: The secret of human felicity is low expectations.
Q: Why did you feel comfortable grabbing Wells Fargo (ticker: WFC) in the depths of the downturn?
Munger: It was too cheap and we had the money. As a matter of fact, we bought it within one day of the bottom tick, so that was remarkable. You can say I was a little lucky on that. But, it wasn’t hard to realize that something was cheap.
Q: . You’re going to have a hard time convincing us that you failed at Daily Journal.
Munger: That’s an interesting story. We bought Daily Journal for 2 million 7. We took the 2 million 7 back about three or four years later. Everything that’s here now is profit. In that sense it’s a good record, but it’s a not record like Berkshire. It’s pretty good for a failing business. (laughter)
Q: How does having low expectations help?
Munger: It’s much more fun constantly exceeding your expectations instead of being disappointed. The secret of human felicity is not vast ambition, it’s low expectations. Where you really need it is in a spouse. (laughter)
On that comment I’m going to end. (applause)