Cool Book – Charlie Munger For All Seasons: http://charliemungersays.com/index.php/books/
Perspicacity 19. When it comes to adversity, you have just to soldier through. Being too frightened leads to contempt. Coping with adversity brings opportunities. Don’t panic or go crazy. People will always remember the person who could keep his or her cool.
Q6: What recommendations do you have for successfully raising a family and dealing with adversity?
Munger: When it comes to adversity, you have just to soldier through. Being too frightened leads to contempt. Coping with adversity brings opportunities. Don’t panic or go crazy. People will always remember the person who could keep his or her cool. When Bobby Kennedy was dying and the entire Kennedy family was falling apart, Jackie Kennedy was the only person who kept her head. Who do we remember? We remember Jackie Kennedy.
Perspicacity 20. Likely To Have Inflation Over 50-100 year period. Inflation has not halted the success of our civilization.
Q7: Given the fall in the share price, does BYD’s stock represent is a major opportunity right now? What percentage of his money would he put in BYD shares?
Munger: He doesn’t want to tout one security—especially when he has avoided early stage companies for most of his life. BYD is a high technology company trying to make lithium batteries that do not blow up. They have 20,000 engineers to cope with these very difficult issues. He will hold his BYD stock to the bitter end because he loves the people. But, he can’t say what other people should do with their money. He has very little experience in early stage venture capital (implying that the purchase of BYD shares was similar to a venture capital investment); he is investing in the company because he wants to improve his mind.
Q8: Regarding inflation, what are his thoughts given all of the money printing? Is more inflation ahead? If the US was a corporation and each dollar represented a share of stock, would he buy, sell or hold? (The questioner mentioned that the dollar has lost 95% of its value since the early 1900s)
Munger: He said it is pretty likely that we will have inflation over a 50-100 year period. But, contrary to people’s fears, inflation has not halted the success of our civilization. We have had growth of 2% in GDP per person for decades despite the inflation we have had. The questioner suggested that the inflation in the pipeline would represent failure. However, failure is way worse than that. In fact, the situation the questioner described is hog heaven even though the dollar has lost 95% of its value. Charlie said he went to a hotel in Italy and paid his bill in billions. So, what the questioner described with horror is the top of success in Charlie’s mind.
If every person in this room had to live with a real investment return of 0%, after tax, he thinks we all should be reasonably happy. A lot of people would not be happy though—look at Greece for example. In Greece, they don’t want jobs: they want to sit on their asses as the money comes in. A job is a burden; it wastes 8 hours a day. If he were running the European Union (EU) he would not have let Greece in. He said that we should have an EU, but not for basket cases. When you get into a mess like Europe is in, you have to draw a line somewhere. In his mind, they can’t let the depositors of their major banks get wiped out. They can let the shareholders of the banks fail but not the depositors. He knew that the Euro wouldn’t work and at some point the EU will have to face the music.
We drew the line pretty well in this country with Lehman Brothers. But, after Lehman failed, we had to intervene to a major degree. He feels good about the way that Hank Paulson, both parties and George Bush handled the Great Recession. The massive intervention was successful. If you assume things will be really tough but you can bear it, you just smile and go on. And if the world is so tough that the Munger’s fortune loses purchasing power, so what? Such great wealth may not be good for the family anyway.
Perspicacity 21. If all he ever did was figure out what securities would go up in price and sat on his ass, then that is not much of a contribution. The only difference is that he is ashamed of it so he has added all of these other activities—like his masochism with property development in Brentwood.
Q9: In the US engineering cultures are important. Are there historical precedents of what happens to companies that the market currently thinks are deteriorating (the questioner mentioned Google, Intel and Apple)?
Munger: This is something that he does not know enough about. He does not know how you displace Google but a lot of the other companies will have competitive troubles.
Q10: Munger has been very critical of the financial activities of others. However, in his financial activities, has he added value to society?
Munger: If all he ever did was figure out what securities would go up in price and sat on his ass, then that is not much of a contribution. The only difference is that he is ashamed of it so he has added all of these other activities—like his masochism with property development in Brentwood. He then said that we may think we were at this event due to some nobility in his nature. However, in fact, hosting an event like this is nothing more than atonement.
Perspicacity 22. Rich people who don’t help their children out at all end up having children who hate them. Also, rich children may not be as motivated as people who had to struggle
Q11: He seems like he was very strict as a father. What is his relationship with his children now that they are older? Has he helped his children financially?
Munger: Of course he has helped them financially. Rich people who don’t help their children out at all end up having children who hate them. He was lucky in a sense that he was not always rich. He probably raised his earliest children better than the later ones. Will rich children ever be as motivated as people who had to struggle? No. You won’t get people to be willing to suffer and provide “wonderful” hardships for their family. Thus, the answer is that rich people should lose graciously. But, this does not include providing artificial hardships for children—it is just not practical.
Perspicacity 23. Blessing In Disguise. If You Had Oil Reserves But Couldn’t Get It Out Fast Enough & Oil Prices Suddenly Boom
Q12: Which economic entities in history were most similar to BRK? What are BYDs competitive advantages?
Munger: If you go back to 1911 and look at the top ten companies of the time, many of them are gone. The 2 main ones that remain are General Electric and Standard Oil. Of all of the big companies of today, Standard Oil stands all by itself. It succeeded because of its engineering culture and from being in the right place. Everything was working for the company. When oil was seeping out of the ground, you didn’t have to be that smart. You just had to be early rich and have the ability to buy oil-rich properties. The nature of the game was that as energy supplies got shorter and shorter, oil prices went higher and higher. In fact, Paul Getty became very rich precisely because he had oil reserves that he couldn’t pull out of the ground quickly enough and then, while the oil was still underground, the price appreciated enormously.
What is the Standard Oil of today? He doesn’t know. There were 13 Standard Oil companies when it got broken up and they were all huge successes. He has no idea what the next Standard Oil is.
Regarding BYD, he likes the fact that they are tackling tough engineering problems. He likes that they put their heads down when they fail and keep trying. He has gotten so old that he would rather make money thinking about people he admires than dealing with other people he doesn’t care as much for. Luckily, he admires BRK so he doesn’t have to worry about his money.
Perspicacity 24. On Activist Shareholders – He doesn’t really like people who run around like vultures raising hell. However, he also doesn’t like entrenched managers who are not good and who are over-indulgent.
Q13: Chuck Gillman of Boston Avenue Family Office- Would you like to see more value investors run proxy battles at under-performing companies?
Munger: Charlie said he is conflicted about this subject. He doesn’t really like people who run around like vultures raising hell. However, he also doesn’t like entrenched managers who are not good and who are over-indulgent. In the end, he does not want more corporate raiding though. He would rather endure the evils we already have.
The Inoculated Investor http://inoculatedinvestor.blogspot.com/