Investment Wisdom

108. Wesco Annual Meeting 2009 – Part 5 – Pearls of Wisdom: 15-20

Pearls of Wisdom 15. I don’t have a system to avoid downmarkets.

Q12: Are shareholders being robbed, or is it a misperception?

CM: It is in nature of stockmarkets that they go down. So people suffer then. Conservative investing and steady saving without expecting miracles is the way to go. Some people in this room can figure out how to average twice the rate of return. I can’t teach everyone else to do it. It is pretty difficult.

Q13: Charlie, [Gurustocks.com]. Lots of investors lost 30% last year. What should we do to avoid those losses in future, or should we live with it?

CM: I don’t have a system to avoid downmarkets. If anyone told me he could skip the downmarkets and catch the upmarkets, I’d throw him out. If you aren’t suffering a little right now, you haven’t lived your life right.

Q14: Paul Larsen, Morningstar. Investment books you would recommend? We didn’t get any books on Saturday.

Pearls of Wisdom 16. Book Recommendation: Outliers by Malcolm Gladwell. Solid examples that guide reason well.

CM: Outliers, by Malcolm Gladwell. It is a terrific book, a bestseller. There is a reason why it is a best seller. The guy has a way of picking out examples that guide reason well. I tend not to read self-help investment books. Like soap operas, I know the plots.

Pearls of Wisdom 17. Inflation Does Not Necessarily Ruin Investment Opportunities

Q15: Kim Voss, Berkshire shareholder. Inflation is coming. How to hedge?

CM: I remember 2c stamps, 5c hamburgers, and the minimum wage of 30c / hr. In 80 yrs since those prices, there has been lots of inflation. Did it ruin investment opportunities? No. It isn’t easy, there are always huge risks, and of course there will be inflation. It was a miracle between 1860 and 1910 there was no inflation. For a long time the country got ahead without inflation. That world is not coming back.

Pearls of Wisdom 18. Some people are more teachable than others, and the same is true of dogs. I wish you lots of luck if trying to win the prize with an unteachable dog, or human.

Pearls of Wisdom 19.  Operate in field of competency, you can do very well. It is the overreaching, the crazy overconfidence that does in so many people.

Q16: Melbourne, AU. Is Berkshire doing anything to protect against inflation?

CM: Berkshire is aware that inflation is the long term way of the world. We try to do the best we can. We bought utility bonds to yield 9 or 10%. What about inflation, you might ask? Well, government bonds are yielding 3%, so 9% isn’t bad. We don’t have one size fits all.

Q17: NYC. You have spoken out against Wall Street and executive compensation. How do you justify your investment in Goldman Sachs?

CM: We thought their merits outweighed their defects. We don’t expect perfection.

Q18: Vinesh, CA. What about the commercial real estate disruption and GE Capital?

CM: They will lose some money.

Q19: Palo Alto, CA. Coca-Cola company. Neville Isdell and Mukthar Kent appear successful right now. Why?

CM: I think current CEO will likely to be an exceptionally gifted CEO. Coke has a strong position in the world, and when run by a strong CEO the results will be good.

Q20: How will WFC business model look different going forward?

CM: I think they are pretty well located. I think their culture is well-adapted. I think WFC has bright prospects. I wouldn’t be surprised if we had more regulation. I think raising people’sinterest rates on credit cards – well, that infuriates people. Banks will have to behave better, and should not be totally unregulated.

Q21: Berkshire. Executive leadership – can you teach great qualities in leaders, or is it innate?

CM: Some people are more teachable than others, and the same is true of dogs. I wish you lots of luck if trying to win the prize with an unteachable dog, or human. Capitalism filters out people who don’t do well, and replaces them. Think of golf, it is a tough meritocracy. I like it that way, think of the talent we get to watch! I first look for trust, regardless of talent. First you need trust and then good judgment. Warren talks about IQ130, that they have all they need. But if people have enough sense to operate in field of competency, you can do very well. It is the overreaching, the crazy overconfidence that does in so many people. And salesmen are very sophisticated. I saw a REIT prospectus recently — I don’t see how anyone could read the prospectus and buy it. But there was a big commission for the salesman. Throw it in wastebasket. You don’t have to smart to do this.

Q22. CA. Renewable energy lessons, thank you. India and china – how is the long term investment climate in India vs China?

CM: I think Wang Chuanfu will do amazingly well in China. He has the right discipline and personal attributes. I wouldn’t personally choose to spend my life competing with Wang Chuanfu — there must be easier people to compete with. I think he wants to make a contribution to civilization. I wish I could live longer so I could watch, as he is almost sure to succeed. I may be wrong, we will see. I think he will succeed because he deserves to succeed.

Q23: I always have tough time balancing short term and long term decisions. Right now I will take any customer and investor – because I am starting a new business.

CM: I don’t try to back start-up businesses. There were already huge achievements at BYD by time I decided to back them. I don’t do startups because I have found a way that is easier for me.

Q24: Why is growth so important. Everyone is obsessed, are there any limits?

Pearls of Wisdom 20. There are limits to growth, you can’t have infinite growth of finite goods.

CM: There are limits to growth, you can’t have infinite growth of finite goods.

Source: http://www.valueplays.net/wp-content/uploads/The-Best-of-Charlie-Munger-1994-2011.pdf