Charlie Munger's 3 Categories of Investment: In, Out & Too Tough Investment Wisdom

102. Wesco Annual Meeting 2008 – Part 6 – Tutelage 31-36

2008 Wesco Annual Meeting –  Notes courtesy of Peter Boodell
http://valueinvestingresource.blogspot.com/2008/05/2008-wesco-shareholder-meetingdetailed.html
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Tutelage 31. Our bullies are similar to past eras.

Q28: Boston. Swiss Re transaction. Could you add some color? Long tail insurance?

It will be long tail. It won’t be a bonanza. It ought to be reasonable, we like Swiss Re.

Q29: I’m curious, you are student of history. Does today remind you of any time in past, and why?

I punched premium channel in hotel in Tokyo, and out came exercise in pornography. I would argue Soddom and Gomorah is still around. I think Athens of Pericles is still around today. Our bullies are similar to past eras.

Q30: LA. How will meltdown affect Brazil and China. Will you invest there?

We have [economic] system which is interdependent. [A slowdown here] would have repercussions elsewhere. Will Brazil have troubles? No. Brazil is favorably located now. If I could get equivalent business prospects I would prefer USA. That iron mine that Brazil owns, you only need small knowledge to know that it is one of best in world. Agriculture – they are in a very strong position. We are not invested there at the moment. We have a small position in Brazilian Real.

Q31: CA. Health insurance?

The health insurance industry gets bad press it doesn’t deserve. When medical care fails, they say that characterizes it. But they also prevent a lot of interventions too. But Hollywood assumes everything is bad about health care. I don’t know what will happen. I think single payer could happen, and might not be too far in future. In fact it probably would happen, maybe 50% likely if Democrats win both houses.

Q32: LA. Absurd leverage in banking system. Large mess. Only response is that government has taken toxic portion and thrown it onto their books.

Not at all clear what will happen. If government intelligently spent $500bil dollars, it wouldn’t be that bad. But now they do it unintelligently. I am not shocked that we all have to pony up $500b. We did it in savings and loan crisis, $150bil.

Q33: CA. Hyperinflation. Real estate and gold?

I don’t have a good opinion on that subject. We have not been good at taking advantage of inflation. Net inflation at Costco was zero for ten years. Even Costco is starting to feel it. Not desirable. The previous situation was too good to continue. If it can’t go on forever, it will eventually stop.

Tutelage 32. Success tends to make most people pretty pompous. Someone once suggested in a public setting, ‘Don’t you think financial success is making Munger pompous?’ An old friend of mine stood up and responded, “No, that is unfair criticism, I knew him when he was young and poor and he was still pompous.”

Q34: Germany. Many managers typically would be carried away by all the success. Is it genes or is it still to come?

Very flattering. Success tends to make most people pretty pompous. Someone once suggested in a public setting, ‘Don’t you think financial success is making Munger pompous?’ An old friend of mine stood up and responded, “No, that is unfair criticism, I knew him when he was young and poor and he was still pompous.”

Tutelage 33. On Investment Jobs: If doing it again, I’d find someone I really liked being associated with, and I’d serve little time in a pompous place doing a lousy job. But most of jobs are in lousy places. My Harvard law professor used to say – ‘tell me what your problem is and I’ll try to make it more difficult.’

Q35: Beverly Hills. Berkshire has history of acquiring operating companies. Wesco has been less active. Will you get more active?

Berkshire will be better at stuff than we are. We have not bought our last operating business at Wesco, so, stay tuned.

Q36: Auz. Wells Fargo, how did you get comfortable with their derivative positions?

They will not be exempt, but we believe they will have less than their share of troubles. I think they have a better culture.

Q37: CA. Common stock returns going forward? Should we go overseas? So much less transparency… hard to satisfy conservativeness.

P&G and Coca-Cola is in developing world. We have exposure there. For a great many investors, the best way to do it may be to own Coca-cola. We’ve thought about these things. We do not lack participation in the rest of the world. And we may get more.

Q38: LA. If you were younger, what asset management type would you join?

If doing it again, I’d find someone I really liked being associated with, and I’d serve little time in a pompous place doing a lousy job. But most of jobs are in lousy places. My Harvard law professor used to say – ‘tell me what your problem is and I’ll try to make it more difficult.’

Tutelage 35. Risk of self fulfilling prophecies: like an autocatalytic reaction in chemistry.

Q39: Germany. Insurance accounting: Cost or market, or lower of cost or market? Was this good move for accountants of insurance companies 30 yrs ago?

Very tough question. Generally speaking, lower of cost or market (standard for inventories) – but various financial types wanted to get away from this. There is a risk of self fulfilling prophecies, like an autocatalytic reaction in chemistry. Conservative insurance companies marking common stocks to market is not a bad thing. If we had lower of cost or market in derivative books, they would have worked better. All intelligent people find it so. You are to be complimented for being bothered by it.

Tutelage 36. All intelligent investing is value investing. Calling something a value fund doesn’t absolve it. You can call yourself a ballet dancer if you dance like me, but it is not a good thing.

Q40: CA. Average investor should invest in index funds.

All intelligent investing is value investing. Calling something a value fund doesn’t absolve it. You can call yourself a ballet dancer if you dance like me, but it is not a good thing. I wouldn’t recommend people broadly invest with any value fund. I would avoid funds that have 100% turnover per year. It is a ridiculous way for an ordinary index fund to behave. It is imperfect, but best outcome for most know-nothings, in order to avoid being misled by fools and liars.