{"id":571,"date":"2017-04-21T05:24:58","date_gmt":"2017-04-21T05:24:58","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=571"},"modified":"2017-10-24T23:02:11","modified_gmt":"2017-10-24T23:02:11","slug":"85-wesco-2007-lets-learn-some-more-part-3-points-13-18","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/04\/21\/85-wesco-2007-lets-learn-some-more-part-3-points-13-18\/","title":{"rendered":"85. Wesco 2007: Let’s Learn Some More- Part 3- Points 13-18"},"content":{"rendered":"

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

Lesson 13.\u00a0 By specializing in a particular area, you are more likely to do well. It\u2019s like a specialist in an ecosystem: it occupies a tiny niche and does it well.<\/strong><\/p>\n

Why did you buy stock in Tesco and J&J?<\/p>\n

Ordinarily we don\u2019t go into reasons for buying things. Obviously, we think they\u2019re very respectable enterprises. One is the dominant grocery retailer in England and J&J has one of the great long-term records in its field.<\/p>\n

These are just portfolio securities. We expect to moderately outperform the market with these securities.<\/p>\n

Wesco\u2019s surety insurance subsidiary<\/p>\n

Wesco\u2019s surety insurance subsidiary [Kansas Bankers Surety] insures small banks. That is a wonderful business because it knows what it knows and knows what it doesn\u2019t know.<\/p>\n

By specializing in a particular area, it does well. It\u2019s like a specialist in an ecosystem: it occupies a tiny niche and does it well. You just have to look at the numbers \u2013 underwriting profits year after year \u2013 to know it\u2019s a very good business. We\u2019re capable of making those decisions.<\/p>\n

Lesson 14. Increase in value investing practitioners means more competition.<\/strong><\/p>\n

ADVICE ON INVESTING<\/p>\n

Is value investing becoming more widespread?<\/p>\n

I think our way of looking at things will become more popular. In fact, it already is a lot more popular than it was decades ago. I used to look out at this group and it was 20 people. The increased popularity of the investment style will not make it easier for all of you to make a lot of money. All these smart people competing will make it harder, but that\u2019s not all a bad thing: maybe some of you will have to make money less the way we did and more the way some engineer does.<\/p>\n

Lesson 15. Take Efficient Market Hypothesis With A Pinch Of Salt<\/strong><\/p>\n

Efficient markets<\/p>\n

If markets were efficient, this tent wouldn\u2019t be so full. Some business schools are teaching properly, but the world grew up amidst a different fashion, encouraged by academics of the era. What we believe is simple, and many avoid it because of that simplicity. They want to be experts. And how can you be an expert if it\u2019s simple?<\/p>\n

Also, execution is difficult \u2013 and people don\u2019t like to fail.<\/p>\n

The whole institutional reward system encourages different behavior and thought. If you went to work at a big firm, you\u2019d grind your way up. It\u2019s a hierarchy. Nobody cares about how to do it better. And by the time you\u2019d been there 10-15 years, you\u2019d be thinking their way. This didn\u2019t happen to Warren.<\/p>\n

[Wesco board member] Peter Kaufman came into a business [Glenair] and became the CEO in his early 30s, so he\u2019s been the CEO a long time. The whole place is twenty or more times bigger. That\u2019s a Berkshire experience, but that\u2019s not normal. Normal bureaucracy doesn\u2019t reward an attitude like ours.<\/p>\n

Lesson 16. Where Can You Find Market Inefficiencies? (i) Small Markets (ii) Crazy Markets <\/strong><\/p>\n

Where are there market inefficiencies?<\/p>\n

Two markets are inefficient: very small ones (which are not much use to Berkshire, with its $120 billion), and ones where crazy people are doing crazy things, especially if they\u2019re selling. From time to time, the big markets have some crazily mispriced securities in them. But there\u2019s no question that in small markets there\u2019s a lot of opportunity to find mispricings.<\/p>\n

Is the Chinese stock market a bubble?<\/p>\n

The Chinese market is divided into two parts: Shanghai and Hong Kong. The Shanghai market shows some signs of gross excess and I have no interest in what\u2019s traded there given prices at present. But there are other parts of the Chinese market that are at least interesting. We don\u2019t comment on individual securities for obvious reasons.<\/p>\n

Lesson 17. How Some People Become Rich Just Based On One Decision? Bought Bershire Stocks.<\/strong><\/p>\n

Comments on Andy Kilpatrick<\/p>\n

I don\u2019t think he\u2019s the greatest Warren Buffett fan, but he\u2019s the most resolute. Andy met Warren through the Washington Post connection and Andy had the same experience that St. Paul had on the road to Damascus. Andy was decisive, he bought all the Berkshire stock he could on margin, it went up, he bought more, it went down and he sold just enough. In due course, became quite rich. He did this by making one decision.<\/p>\n

Not only Peter Kaufman [Poor Charlie\u2019s Almanack], but Andy self-published his book [Of Permanent Value: The Story of Warren Buffett]. A lot of other people met Warren and said, \u201cWho in the hell is this bumpkin?\u201d Now they\u2019ve had to pretend they bought Berkshire.<\/p>\n

Lesson 18. Immense concentration of wealth in people who don\u2019t make or invent anything is not good for our system.<\/strong><\/p>\n

COMMENTS ON BUSINESS AND ECONOMIC MATTERS<\/p>\n

Tax rate for hedge funds and the concentration of wealth<\/p>\n

If you\u2019re running a hedge fund, you\u2019re paying the lowest taxes, lower than a college professor or a taxi driver. This is madness of a sort. It would not surprise me if this changed in the near future.<\/p>\n

There\u2019s an enormous concentration of wealth in people who don\u2019t make or invent anything. It can\u2019t be good for our system to create this new kind of hero if our graduating brilliant young give up engineering to go into trading derivatives. This is rewarded by a peculiarity in the tax code, but it\u2019ll probably change.<\/p>\n

If you have a Jasper Johns painting, this is the world for you. These hedge fund guys seem to like Jasper Johns paintings and what\u2019s $120 million if you made $1.7 billion last year? That\u2019s the world that we live in and you gotta admit it\u2019s very interesting.<\/p>\n

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

Notes from 2007 Wesco Financial Annual Meeting – By Whitney Tilson <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons Lesson 13.\u00a0 By specializing in a particular area, you are more likely to<\/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-571","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\/571","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=571"}],"version-history":[{"count":2,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/571\/revisions"}],"predecessor-version":[{"id":850,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/571\/revisions\/850"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=571"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=571"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=571"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}