{"id":545,"date":"2017-04-13T20:39:50","date_gmt":"2017-04-13T20:39:50","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=545"},"modified":"2017-10-24T23:06:16","modified_gmt":"2017-10-24T23:06:16","slug":"79-wesco-2006-lets-learn-part-5-points-25-30","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/04\/13\/79-wesco-2006-lets-learn-part-5-points-25-30\/","title":{"rendered":"79. Wesco 2006: Let’s Learn – Part 5 – Points 25-30"},"content":{"rendered":"

\"\"<\/a><\/p>\n

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

https:\/\/www.facebook.com\/groups\/charliemungersays\/<\/a>
\nPoint 25. It\u2019s more complicated to make [an investment] decision in a foreign culture. But I think you can discern a great business<\/strong><\/p>\n

Do You Have Difficulty Reading Financial Statements of Foreign Companies?<\/p>\n

We\u2019ve been looking at financial statements for a long time. We feel, in some cases anyway, that we know what a foreign financial statement is telling us. Generally, would we would we feel more confident in our own currencies, etc.? Yes. But we feel that we can understand them [foreign financial statements].<\/p>\n

Difficulty Investing in a Foreign Culture<\/p>\n

Of course it\u2019s more complicated to make a decision in a foreign culture. But I think you can discern a great business in a foreign culture. [But you have to be careful.] I was amused when the dictator of Indonesia said, \u201cWhat look like embezzlement to you people looks like Asian family values to us.\u201d [Laughter]<\/p>\n

Why Doesn\u2019t Berkshire Just Buy 100% of Wesco?<\/p>\n

It\u2019s complicated. You people, because you like the value system, have bid the price of Wesco above the liquidating value of the business, so we can\u2019t merge it into Berkshire. There are a lot of irritating conflicts. But I like you and I don\u2019t feel guilty because you can always sell your stock for more than [Wesco\u2019s] liquidation [value]. It has its disadvantages [but they\u2019re not insurmountable].<\/p>\n

Comments on Berkshire\u2019s Float<\/p>\n

We love having the float at Berkshire. If we didn\u2019t have it, Berkshire would be worth less than it is. It will grow more slowly in the future. There isn\u2019t that much float in the world [for Berkshire to continue growing it at such a high rate] \u2013 it\u2019s not a huge market. Float\u2019s very desirable thing. We don\u2019t think it\u2019s a model that will help you in other investment opportunities.<\/p>\n

Why Haven\u2019t You Invested More in Foreign Stocks?<\/p>\n

We\u2019ve light on foreign stocks for our entire history, but we were still able to get the company [Berkshire] from $10 million [in stock market value] to over $100 billion, so there were worse tragedies that we missed foreign stocks. I don\u2019t know a lot about foreign stocks. I do think that there have been opportunities in some foreign countries that if we\u2019d looked at them closely we would have wanted to invest. But every one that I can think of that looked intriguing was way too small to be of interest for Berkshire \u2013 they weren\u2019t the great big ones.<\/p>\n

Overall, I don\u2019t have many regrets here \u2013 I think the United States has been a better place to be than, say, England for the past 30 years.<\/p>\n

Buffett\u2019s Decision to Sell the South Korean Stocks He Bought<\/p>\n

Warren\u2019s entitled to do whatever he wants with the sell decisions. Anyway, he was more interested in finding an inefficient market than he was in making the money. [Laughter]<\/p>\n

Why Didn\u2019t You Invest in K-Mart or Tyco?<\/p>\n

I didn\u2019t think about K-Mart. As for Tyco, I thought about and I passed, but I don\u2019t want to tell you the reason.<\/p>\n

Impact of Lead Paint Liability?<\/p>\n

Berkshire has one subsidiary, Benjamin Moore, that\u2019s been making paint for a long, long time. But it\u2019s a tiny part of Berkshire and my guess is that this issue is not meaningful.<\/p>\n

The Morality of Investing in PetroChina, Which Is Helping the Government of Sudan, Which is Behind the Genocide in Darfur<\/p>\n

You\u2019ve raised a subject about which I know absolutely nothing. But all major oil companies that work in the Third World run into the problem of having to work with governments that are doing bad things. This is a classic problem.<\/p>\n

I think it would be very hard to invest in oil at all without encountering some of these issues. Under those circumstances, what do you do if you\u2019re the company? Not go in? Or if you\u2019re already in, pull out?<\/p>\n

I don\u2019t think, by and large, that passive shareholders of companies need to have fits if a company they\u2019re invested in is doing something somewhere that you and I wouldn\u2019t approve of.<\/p>\n

USG<\/p>\n

USG of course was a great success story. It benefited greatly from the great construction boom, and it worked out deal to deal with its asbestos agony. They now have a plan to exit bankruptcy. I think management has done a hell of a job.<\/p>\n

Point 26. Making your way as a professional poker player in Las Vegas \u2013 it pays the bills but is not a great moral beacon.<\/strong><\/p>\n

Do You Think One Has Lived a Better Life If One Builds Wealth By Owning Businesses Rather Than Buying Stocks?<\/p>\n

The answer is HELL YES! If all you do is make yourself rich through buying passive stakes, [you haven\u2019t lived much of a life]. Making your way as a professional poker player in Las Vegas \u2013 it pays the bills but is not a great moral beacon.<\/p>\n

Obviously we think the pattern and life [of owning businesses] is better. Gin rummy behavior [of rapidly swapping] colleagues and businesses changing. No one admires that with wives and many of us spend more time with our businesses than wives. So constantly changing businesses [is nuts]. I don\u2019t consider this as good a life as the one we\u2019re living. Maybe [our behavior] is just serving our personal idiosyncrasies, but I say we\u2019re entitled. [Laughter]<\/p>\n

But You Sold US Airways<\/p>\n

Yes, but US Airways was not a subsidiary. We had some representation on the board, but did not control it. [That being said,] had we controlled it, we still would have sold it. It was out of control. But the sales we\u2019ve made over the years are tiny and few.<\/p>\n

Macro- and Micro-economic Considerations When Buying Companies<\/p>\n

Point 27. We buy things below intrinsic value. We\u2019re not making microeconomic forecasts. We predict they\u2019ll swim better while not betting on the tide.<\/strong><\/p>\n

We simply try buy things for less than they\u2019re worth. We\u2019re not making microeconomic decisions or forecasts. We predict they [the companies we buy] will swim better, but we\u2019re not betting on the tide.<\/p>\n

If we found a good business tomorrow, we\u2019d buy it. We\u2019ve been doing that all along. I\u2019m not good at predicting macro things.<\/p>\n

Since Size Hinders High Investment Returns, Why Don\u2019t You Focus on Managing Your Own Assets, Rather Than Berkshire Hathaway\u2019s?<\/p>\n

Since my own assets are in Berkshire, so I don\u2019t have much choice, do I? [Laughter]<\/p>\n

Is Your Salary of only $100,000 Per Year Fair?<\/p>\n

Yeah, it\u2019s fair. I like to think that it\u2019s more than fair, but what the hell. [Laughter]<\/p>\n

Pont 28. Someone confused Charlie Munger for Warren Buffett \u2013 Ha Ha <\/strong><\/p>\n

Berkshire\u2019s Influence as a Role Model<\/p>\n

[The questioner addressed him as \u201cMr. Buffett,\u201d to which Munger replied, \u201cMy name is Munger. [Laughter]]<\/p>\n

Obviously, with the annual meetings and writing what we write, we\u2019re trying to have some influence on other people. But in terms on changing other people, I think the influence is tiny. It\u2019s very hard to change people when the incentives are in the opposite direction. I know many people who\u2019ve bought lots of copies of Poor Charlie\u2019s Almanack and given it to their children and grandchildren in the hope of influencing them [but I don\u2019t think it\u2019s had much impact]. If that worked, there\u2019d be a line from here to Denver [to attend the Wesco meeting]. [Laughter]<\/p>\n

ADVICE ON INVESTING<\/p>\n

Lessons from Losing Money in the Munger Partnership in 1973-74<\/p>\n

That is a very good question. When I operated a partnership, I got hit in 1973 and 1974, which was the worst collapse since the 1930s. So I got hit with a once-in-50-years-type event. It didn\u2019t bother me with my own money, but it made me suffer the tortures of hell as I thought through the loss of morale of the limited partners who had trusted me. And the agony was compounded because I knew that these assets were sure to rise because they could be liquidated for more than I\u2019d bought them for in due course. But the individual securities were traded in liquid markets so I couldn\u2019t mark them up from the trading price because the opportunity cost for my partners was set by the trading price. I would say that was pure agony. The lesson from that for all of you is that you can have your period of pure agony and live through is for many decades. It\u2019s a test of character an endurance.<\/p>\n

I don\u2019t think any fully engaged young man wouldn\u2019t have gotten into the pain that I did in 73-74. If you weren\u2019t aggressive enough and buying on the way down and having some agony at the bottom, then you weren\u2019t living a proper investment life. I wouldn\u2019t quarrel with anyone who was more cautious and less aggressive than I was. But what got me into the agony was buying things for far less than what I was sure I could liquidate them for in due course. I don\u2019t think it was wrong, but it was agony.<\/p>\n

Point 27. Generally speaking, shareholder activism is naturally going to be done by a group that many of you won\u2019t admire.<\/strong><\/p>\n

More Comments on Activist Investors<\/p>\n

Enormous blocks of stocks are held by employee pension plans with an ax to grind. Other groups of activists [have their own agendas]. It would be nice if the people who would be natural activists would be the type of people we\u2019d want [to act on behalf of all shareholders, but they\u2019re not]. I think the world is better when the Predators\u2019 Ball days waned. Generally speaking, shareholder activism is naturally going to be done by a group that many of you won\u2019t admire.<\/p>\n

Point 28. Diversion Of Our Best Minds Going Into Hedge Funds Is Not A Good Thing<\/strong><\/p>\n

Somehow we\u2019ve created a perverse system of incentives. At Samsung, their meeting of engineers is at 11pm. Our meetings of engineers [meaning our smartest citizens] are also at 11pm, but they\u2019re working to price derivatives. I think it\u2019s crazy to have incentives that drive your most intelligent people into a very sophisticated gaming system.<\/p>\n

A rich system can endure a lot. If 10% of our people over age 60 want to spend X hours per week playing Texas Hold Em, we can afford it. But it\u2019s not good. But do we want our auto industry to just crumble away and somebody else\u2019s to take over because they do it better? I don\u2019t think it\u2019s a good outcome. I don\u2019t think we can stand a diversion of our best minds to hedge funds.<\/p>\n

Point 29. (On Choosing A Good Money Manager) I always prefer a system in which people are eating their own cooking, so look for a money manager who has almost all of his net worth alongside yours in his fund. Avoid High Commissions.<\/strong><\/p>\n

There are a lot of honorable people out there and a lot of charlatans. If you don\u2019t have expertise in the field, it\u2019s hard to do \u2013 I don\u2019t have a one-sentence formula for doing that. I always prefer a system in which people are eating their own cooking, so look for a money manager who has almost all of his net worth alongside yours in his fund. This was Warren Buffett\u2019s rule when he ran the Buffett Partnership. Another rule is to avoid things with a high commission: avoid anything sold by anyone on a high commission!<\/p>\n

Point 30. Value Investing – Just try to get more value than you\u2019re paying for.<\/strong><\/p>\n

Some people come to our annual meetings to figure out how to many money. We\u2019ve always believed in value investing \u2013 just try to get more value than you\u2019re paying for. There are a lot of ways to do this \u2013 it could even be investing in another manager. Or you could invest and hold for 30 years.<\/p>\n

But nobody could make a living if that\u2019s all they practiced. You need some mumbo jumbo if you\u2019re going to be a witch doctor. You need some song and dance. [Laughter]<\/p>\n

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

Notes from 2006 Wesco Financial Annual Meeting – By Whitney Tilson<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons https:\/\/www.facebook.com\/groups\/charliemungersays\/ Point 25. It\u2019s more complicated to make [an investment] decision in a<\/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-545","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\/545","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=545"}],"version-history":[{"count":4,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/545\/revisions"}],"predecessor-version":[{"id":856,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/545\/revisions\/856"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=545"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=545"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=545"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}