{"id":373,"date":"2017-02-26T22:14:55","date_gmt":"2017-02-26T22:14:55","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=373"},"modified":"2017-10-25T00:23:55","modified_gmt":"2017-10-25T00:23:55","slug":"31-djco-annual-meeting-2017-part-1-6-lessons-from-the-maestro","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/02\/26\/31-djco-annual-meeting-2017-part-1-6-lessons-from-the-maestro\/","title":{"rendered":"41. DJCO Annual Meeting 2017: Part 1: 6 Lessons From The Maestro"},"content":{"rendered":"

\"\"<\/a>Excellent Book: Charlie Munger For All Seasons<\/a><\/a><\/p>\n

Ref: Adam Blum’s Notes<\/p>\n

https:\/\/www.scribd.com\/document\/339530598\/Munger-Daily-Journal-Annual-Meeting-Notes-by-Adam-Blum-2-15-17#from_embed<\/a><\/p>\n

https:\/\/www.facebook.com\/groups\/charliemungersays\/<\/a><\/p>\n

Lesson 1: The ethos of doing it right is a good ethos. Besides, it\u2019s a pleasure to watch. <\/strong><\/p>\n

Lesson 2: If You Really Want To Invest Outside Your Circle of Competence, Judge Which People Are Capable of Running Those Businesses<\/strong><\/p>\n

Adam Blum\u2019s notes from February 15, 2017 Daily Journal (DJCO) annual meeting.<\/p>\n

This morning in Los Angeles, Charlie Munger spoke for a few minutes and then took questions for just short of two hours. CNBC cameras were there today filming the meeting for the first time. Charlie is in great spirits and looks great for age 93, and it was great to see him, as always. Here are the notes I typed out on my phone \u2013 apologies in advance for any errors.<\/p>\n

-Adam Blum<\/p>\n

AdamBlum@aol.com<\/p>\n

Meeting<\/p>\n

\u201cNice to see you all.\u201d<\/p>\n

\u201cCan you hear me? I need a script. We\u2019re going to follow the procedure of the Berkshire meetings where we go through all the perfunctory stuff very quickly. And then we\u2019ll get to the other stuff for a while for the cult. Many of you have come a long way to be here. We\u2019re happy to be here when instead we should be dead.\u201d<\/p>\n

Gerry [Salzman, DJCO\u2019s CEO with several other listed roles] has so many titles – it\u2019s like a one man show.\u201d<\/p>\n

\u201cWe like our present accountants a lot more than our old ones who made us late.\u201d<\/p>\n

\u201cGerry Salzman – well I won\u2019t go through all his titles – if you haven\u2019t given your proxies, please give them to somebody.\u201d<\/p>\n

\u201cAnd somebody is going to give a report that it\u2019s all been mailed out as it should be? And how many shares are here? Do we have a majority?\u201d<\/p>\n

\u201cHas everyone been elected?\u201d In response to personally getting fewer votes than some of the other directors, \u201cEveryone likes everyone better than me. I must say we\u2019ve improved this place enormously \u2013 the average age<\/p>\n

used to be 90, and now it\u2019s down to 88 – we\u2019ve really gone through a renewal.\u201d<\/p>\n

\u201cAll those opposed? Warren [Buffett] used to say \u2018please leave.\u2019\u201d<\/p>\n

DJCO Commentary<\/strong><\/p>\n

\u201cThe essence of what\u2019s going on here is we have a corporation that was in a branch of the newspaper business, and our branch, like most others, has gone to hell. Almost every other branch is going to hell with no pardon – just disappearing. But we have this computer software business where we are serving the same customers but they\u2019re located all over the country and other places. Our software business is of a type that it\u2019s a long, tough slog. We\u2019re slogging very well, and we love all the people in it – all the coders and them. It\u2019s amazing the things that our happening in our little software business \u2013 it\u2019s a fair amount of fun to watch. The ethos of the place is good in doing it right – it\u2019s a pleasure to people like Rick [JP] Guerin and myself to watch all these people do it when of course we should be dead. A lot of you people came into this because of Berkshire\u2019s or Guerin\u2019s past success, and for some odd reason we accidentally fell into it [software\/technology business]. We don\u2019t do this venture stuff. If there\u2019s \u00a0nything wrong, you\u2019re looking at the man here to blame (pointing at Guerin and laughing); I\u2019ll take credit for the successes. It\u2019s amazing to me we are getting contracts from places like South Australia – I hardly know where that is. I would have never imagined this as a young boy.\u201d<\/p>\n

\u201cI\u2019ve never been able to enjoy losses like some people – I\u2019d much rather win.\u201d<\/p>\n

\u201cWe\u2019ve got all these folks in Utah who we really like and all these programmers around here, they\u2019re great.\u201d<\/p>\n

\u201cOur people try to get ahead by doing the work right instead of hiring some politician like a few others. What I learned in my career is that the best business-getter any lawyer has is the work that\u2019s already on his desk. If we just keep doing it right, we won\u2019t have to worry about the future.\u201d<\/p>\n

\u201cGuerin and I know practically nothing about software; we are judging people, because we don\u2019t understand anything about what the people do. That\u2019s what Andrew Carnegie did with steel and what Berkshire does – judge which people are capable of running businesses I know nothing about.\u201d<\/p>\n

\u201cIt\u2019s a long, slow business with RFPs and that. The cycle can be five years. It\u2019s like prospecting for oil in Borneo.\u201d \u00a0\u201cI love when I think we\u2019re taking territory – if it makes sense in the long term, we just don\u2019t \u00a0give a damn what it looks like in the short term. After all, we\u2019re running a cult, not a normal company.\u201d<\/p>\n

\u201cI lived my whole life with people who have deferred gratification, they don\u2019t have fun, but they get wealthy. You end up with a lot of rich dead people \u2013 what good is that? But it does work. Your grave will look nice to outsiders and incite a lot of envy.\u201d<\/p>\n

\u201cWe don\u2019t take salaries or fees – we are a peculiar example – if you\u2019re wealthy and own a share of a company and get to decide what it does and doesn\u2019t do, maybe you shouldn\u2019t try to grab all the money. Carnegie never to took a salary; Cornelius [Vanderbilt] lived on the dividends.\u201d<\/p>\n

General Q&A<\/p>\n

\u201cI don\u2019t see you very well, so Gerry or somebody, point out where they are.\u201d<\/p>\n

On the DJCO revenue decline: \u201cGerry – you take that one – I\u2019ll answer that it\u2019s going fine (laughing).\u201d<\/p>\n

To Gerry: \u201c[Put the microphone] closer to your mouth. It\u2019s high tech.\u201d<\/p>\n

More on DJCO: \u201cOne good thing about what we\u2019re doing is that it\u2019s slow, but once you succeed it\u2019s very sticky business, and the fact that it\u2019s difficult to do means it\u2019s difficult for people to change much – if you slog through, it\u2019s a big market and the people have no option but to charge ahead – the fact that\u2019s it\u2019s so awful to grind through means people may not want to get in.\u201d<\/p>\n

On competitors of DJCO: \u201cIf I were buying software, I\u2019d rather buy ours than theirs [Tyler Technologies]. I like our ethos better.\u201d<\/p>\n

On DJCO lower results: \u201cWe bought a bunch of contracts, and we knew that they were gonna end, and so we are amortizing the cost of those contracts, which was anticipated; the business is so big that there are whole states untapped with courts and public defenders and others – everyone is scrambling in a business that is growing bigger and bigger.\u201d<\/p>\n

Lesson 3: One thing about doing something dumb is that you\u2019re unlikely to do it again.<\/strong><\/p>\n

On Wells Fargo\u2019s scandal: \u201cWells Fargo had a glitch \u2013 the truth of the matter is they made a business judgment that was wrong. I don\u2019t think anything is fundamentally wrong. They got so caught up in cross-selling and incentive systems [that] some people reacted badly and did things they shouldn\u2019t. There\u2019s nothing wrong with the long pull for Wells Fargo. They made a mistake. And it was an easy mistake to make. I don\u2019t regard setting incentives aggressively as a mistake. I think the mistake was, when the bad news came, they didn\u2019t recognize it directly. I don\u2019t think that impairs the future of Wells Fargo. They\u2019ll be better for it. One thing about doing something dumb is that you\u2019re unlikely to do it again. Henry Singleton was smartest man I ever knew. He made the same mistake at Teledyne. His customer was the government, and it\u2019s not hard to cheat the government.<\/p>\n

With aggressive incentives, two or three of Henry\u2019s subsidiaries cheated the government, and he got blindsided. It can happen to anybody. Capitalism is nice in its self-correction – make a mistake like that and pretty soon, you\u2019re gone.\u201d<\/p>\n

More on the competitors of DJCO: \u201cI am not dissatisfied by Tyler\u2019s trouble – I don\u2019t want to criticize them more than I have – one of our customers is having a problem with them. You can see the tears running down my cheeks (laughter).\u201d<\/p>\n

Lesson 4:\u00a0 Software revenue is recurring versus non-recurring and it\u2019s complicated.<\/strong><\/p>\n

On software revenue that\u2019s recurring versus non-recurring: That is so complicated that I am not even going to try. To answer in substance, there\u2019s a lot that\u2019s recurring if we stay in there (chuckle). Our financials confuse us a little bit \u2013 they\u2019re very complicated with all these RFPs and such.\u201d<\/p>\n

Why is the building in Logan, Utah used by the tech business owned by the traditional business and not the tech business? \u201cGerry – I give you that one – that\u2019s some quirk of accounting – it doesn\u2019t really matter.\u201d<\/p>\n

More on Wells Fargo and aggressive incentives: \u201cHow do you know they\u2019re aggressive until you try?<\/p>\n

Incentives. They didn\u2019t react enough to the bad news fast enough. It\u2019s dangerous to do but doesn\u2019t impair their [Wells Fargo\u2019s] future. They will be better, that\u2019s the nice thing about doing something dumb – you won\u2019t do it again.\u201d<\/p>\n

Lesson 5: In terms of picking what to do, in my whole life I\u2019ve never succeeded much in something I wasn\u2019t interested in. It\u2019s too much to expect of human nature that you\u2019re gonna be good at something you dislike.<\/strong><\/p>\n

Choosing what to do in life: \u201cIn terms of picking what to do, in my whole life I\u2019ve never succeeded much in something I wasn\u2019t interested in. It\u2019s too much to expect of human nature that you\u2019re gonna be good at something you dislike. Play in a game where you\u2019ve got unusual talents, not basketball when you\u2019re 5\u20191 going up against someone who is 8\u20193. Of course you want to be ethical, but you can\u2019t be dreaming of how you think the world should be run and think it\u2019s too dirty to get near it and get so consumed by ideological notions polluting you from left-wing universities that you\u2019re just not working and smoking a little pot. My hero is Maimonides [Jewish scholar in the 1100s]. He did all his writing after working ten hours a day as a doctor. \u2013 I recommend the engaged life. Maimonides lived and worked with the people in the real world, which informed his philosophy and work. Be more like him and less like Bernie Sanders.\u201d<\/p>\n

Lesson 6: If You Can Predict Right Now What American Express and IBM Will Be Like, Are you Clever? You are probably in some state of delusion.<\/strong><\/p>\n

On confusion about American Express\u2019 future: \u201cI am going to give you an answer that will be very helpful \u2013 I am confused too – if you think you know what\u2019s going to happen to payment systems ten years out, you\u2019re probably under some state of delusion. If you\u2019re confused, welcome to the club; I don\u2019t know if IBM is going to sell that much of Watson either. If you keep trying to do the right thing and playing hard, chances are better, but these things are not knowable.\u201d<\/p>\n

On domestic gas production: \u201cI have a different feeling than the rest of America. I wish we weren\u2019t producing all this natural gas. I\u2019d be delighted to just have it lie there untapped for decades in the future and pay extra once Arabs use up their oil. Our reserves not going away are like retaining the topsoil of Iowa. You wouldn\u2019t ship the topsoil to Greenland. There\u2019s not enough deferred gratification to sell our oil. Same for chemical feedstocks – use them slowly. I am sure I am right and the other 99% of the people are wrong. Nobody else in America seems to feel my way, but I believe in deferred gratification. I don\u2019t think hastening to use our oil and gas is a good idea. I don\u2019t see any advantage. People who succeed in most other businesses do more volume, but Exxon Mobil does less volume, yet the price of oil grows faster than the volume drop, so they do better. It\u2019s very peculiar. If I were a benign despot, I wouldn\u2019t ship any gas outside of the US.\u201d<\/p>\n

https:\/\/www.facebook.com\/groups\/charliemungersays\/<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons Ref: Adam Blum’s Notes https:\/\/www.scribd.com\/document\/339530598\/Munger-Daily-Journal-Annual-Meeting-Notes-by-Adam-Blum-2-15-17#from_embed https:\/\/www.facebook.com\/groups\/charliemungersays\/ Lesson 1: The ethos of doing it<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"footnotes":""},"categories":[3,4],"tags":[],"class_list":["post-373","post","type-post","status-publish","format-standard","hentry","category-investment","category-wisdom"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/373","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/comments?post=373"}],"version-history":[{"count":3,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/373\/revisions"}],"predecessor-version":[{"id":894,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/373\/revisions\/894"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=373"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=373"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=373"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}