{"id":520,"date":"2017-04-05T20:49:40","date_gmt":"2017-04-05T20:49:40","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=520"},"modified":"2017-10-24T23:10:47","modified_gmt":"2017-10-24T23:10:47","slug":"73-wesco-financial-annual-meeting-2005-lessons-learned-part-6-points-31-36","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/04\/05\/73-wesco-financial-annual-meeting-2005-lessons-learned-part-6-points-31-36\/","title":{"rendered":"73. Wesco Financial Annual Meeting 2005: Lessons Learned – Part 6 – Points 31-36"},"content":{"rendered":"

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

Point 31. McDonald\u2019s Is a Great Educator. I think a lot of what goes on there is better than at Harvard.<\/strong><\/p>\n

I get flack for saying [when I visit a college and give a speech], \u201cThis is a nice college, but the really great educator is McDonald\u2019s.\u201d They hate me for saying this and think I\u2019m a slimy creature. But McDonald\u2019s hires people with bad work habits, trains them, and teaches them to come to work on time and have good work habits. I think a lot of what goes on there is better than at Harvard.<\/p>\n

I\u2019ve never examined AIG in great detail. AIG was run by a truly brilliant, dominant personality for a long, long time and had a fabulous record. I don\u2019t think we\u2019re going to find a fraud like Enron. Rather, a good company with a chieftain that maybe gilded the lily. I think he thought it was his duty to help along the reputation of AIG. I think he thought it deserved a better reputation than it had. I agree. I think every corporate chieftain feels the same way. I don\u2019t think it\u2019s blue smoke and mirrors.<\/p>\n

I will miss Hank Greenberg dearly in areas like tort reform. He was always honest with us. He invited us or we invited him in the deal to buy the assets of Long Term Capital Management. There\u2019s a lot that was strong and good at AIG.<\/p>\n

AIG, GE Credit and the Risks of the Carry Trade<\/p>\n

That said, it\u2019s a lot like GE. It is a fabulously successful insurance operator, and with success it morphed into a massive carry business: borrowing a lot of money at one price and investing it at another price. AIG was a big operator that was a lot like GE Credit We never owned either because even the best and wisest people make us nervous in great big credit operations with swollen balance sheets. It just makes me nervous, that many people borrowing so many billions.<\/p>\n

Point 32. What\u2019s wrong with someone getting a little richer than you? It\u2019s crazy to worry about this.<\/strong><\/p>\n

As you can tell in our operations, we are much more conservative. We borrow less, on more favorable terms. We\u2019re happier with less leverage. They\u2019ve been successful, but we\u2019re too chicken to join them. You could argue that we\u2019ve been wrong, and that it\u2019s cost us a fortune, but that doesn\u2019t bother us. Missing out on some opportunity never bothers us. What\u2019s wrong with someone getting a little richer than you? It\u2019s crazy to worry about this.<\/p>\n

There\u2019s a lot of leverage in those carry-trade games. Other people are more certain than I am that aircraft can always be leased.<\/p>\n

Point 33. A small leak can sink a great ship.<\/strong><\/p>\n

Point 34. We would do some very unpleasant things to prevent something that would have very bad consequences far into the future.<\/strong><\/p>\n

I would never short a company that was doing $180 billion [in sales] per year with a market cap of $15 billion that was such an iconic part of America. I would never dream of making that short. What happened was that a lot of very decent people running GM basically blew it. They were facing a very serious competitive challenge and they set up a [lifetime healthcare and pension] system that will grow and grow and grow and they are paying one hell of a penalty.<\/p>\n

Employees have 5-6 times the value in their pension plan than all of the stockholders combined. [At the time, GM had a market cap slightly above $15 billion vs. approximately $90 billion set aside for pension liabilities.] GM gave all of the value of the company to employees and left shareholders with almost nothing. They didn\u2019t observe the maxim that a small leak can sink a great ship. They never should have allowed the unions to bargain with each company and shut one company down and let the other two take share. They should have bargained as a unit. The result today is a combination of what they gave away one year at a time.<\/p>\n

I regard GM as such a marvel of human achievement, but also an example of massive management failure. I can\u2019t be criticized if I eventually die \u2013 I delayed it as long as I could. GM delayed it as long as they could. They had a very tough hand to play, but I would argue that they blew it.<\/p>\n

I don\u2019t think Berkshire Hathaway will blow its hand in this way. It would never do that. We would do some very unpleasant things to prevent something that would have very bad consequences far into the future.<\/p>\n

Nuclear weapons are a very serious problem. [It\u2019s so awful to contemplate that] people use gallows humor. What would you do if you were told a nuclear bomb would be detonated over Pasadena right now? The answer: you\u2019d crawl under the table and kiss your ass goodbye. (Nervous laughter)<\/p>\n

Point 34: Sometimes You\u2019ve Got To Say \u201cInclude me out.\u201d<\/strong><\/p>\n

We regard the Leucadia people as very smart. Is it conceivable that the Leucadia people could have one outcome that didn\u2019t work very well?<\/p>\n

Sure, it\u2019s possible. I look at telecom and all the change and my reaction is that of Samuel Goldman: \u201cInclude me out.\u201d I\u2019m just not suited for this; I don\u2019t know how to predict those outcomes, so I leave it to other people.<\/p>\n

Point 35. Extending high-cost credit to the least able people is possible in a free market but that doesn\u2019t mean it\u2019s honorable.<\/strong><\/p>\n

It is weird the way that capital occurs. We have monetized houses in this country in a way that\u2019s never occurred before. Ask Joe how he bought a new Cadillac [and he\u2019ll say] from borrowing on his house. We are awash in capital.<\/p>\n

[Being] awash is leading to very terrible behavior by credit cards and subprime lenders -a very dirty business, luring people into a disadvantageous position. It\u2019s a new way of getting serfs, and it\u2019s a dirty business. We have financial institutions, including those with big names, extending high-cost credit to the least able people. I find a lot of it revolting. Just because it\u2019s a free market doesn\u2019t mean it\u2019s honorable.<\/p>\n

Point 36. Social Security Is Amazing<\/strong><\/p>\n

I\u2019m not so sure that common stocks will do wonders. In England, where they tried to create a scheme like this, they let the brokers and salespeople loose on the people and it was a disaster. So they [those in the U.S. who are pushing to allow people to invest their Social Security savings themselves] said, \u201cWe won\u2019t do that. We\u2019ll just package them in index funds.\u201d But the way it\u2019s set up, it\u2019s like an arbitrage. A guy gives up the promise of Social Security to take the promise of an index fund.<\/p>\n

Social Security is amazing how we\u2019ve run it. It\u2019s inflation protected. It\u2019s easy to sneer at it, but it\u2019s one of the most successful government programs ever. It\u2019s low cost and encourages work.<\/p>\n

People say if you never change the revenue base, it\u2019ll run out of money. But if 10 years from now, the country is 30-40% richer, why not use a higher percentage of GDP to pay people? Young people benefit too \u2013 the money is paid to people who might be moving in with them. (Laughter) Everybody\u2019s going to get older, but also richer, so why wouldn\u2019t you spend a higher percentage of GDP on them? Why is that so unthinkable? I\u2019ll tell you what\u2019s unthinkable: that so many people are that stupid! (Laughter)<\/p>\n

http:\/\/www.valuewalk.com\/wp-content\/uploads\/2014\/05\/Charlie-Munger-2005-2013-minus-Harvard-Westlake.pdf<\/p>\n

Notes from 2005 Wesco Financial Annual Meeting – May 4, 2005 – By Whitney Tilson <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons Point 31. McDonald\u2019s Is a Great Educator. I think a lot of what<\/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":[1],"tags":[],"class_list":["post-520","post","type-post","status-publish","format-standard","hentry","category-charlie-mungers-3-categories-of-investment-in-out-too-tough"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/520","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=520"}],"version-history":[{"count":3,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/520\/revisions"}],"predecessor-version":[{"id":862,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/520\/revisions\/862"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=520"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=520"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=520"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}