{"id":590,"date":"2017-05-09T08:56:34","date_gmt":"2017-05-09T08:56:34","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=590"},"modified":"2017-10-24T22:59:31","modified_gmt":"2017-10-24T22:59:31","slug":"89-wesco-2007-lets-learn-some-more-part-7-points-37-42","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/05\/09\/89-wesco-2007-lets-learn-some-more-part-7-points-37-42\/","title":{"rendered":"89. Wesco 2007: Let’s Learn Some More- Part 7- Points 37-42"},"content":{"rendered":"

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

Point 37. Envy and Imitation Will Lead To Flood Of Money and Disaster<\/strong><\/p>\n

Risk of a Hedge Fund Blowup<\/p>\n

There will be some repeat of Long Term Capital Management in some place \u2013 you can count on that. There\u2019s a lot of real brainpower at a lot of these firms and some are making a lot of money by being very shrewd. The problem is envy and imitation. The result will be like what happened with early stage venture capital in Silicon Valley. Envy will lead to a flood of money and then a disaster.<\/p>\n

Point 38. You do not want to have a margin account at a dubious firm. Also not 100% of assets at even the strongest financial firm.<\/strong><\/p>\n

Should One Be Worried About Having Cash in a Brokerage Account?<\/p>\n

I think a cash account at the really strong brokerages is safe enough. You have other better things to worry about. As for margin accounts, with hedge funds using leverage, there will be troubles there. You\u2019ll notice there\u2019s an uproar at Refco. You do not want to have a margin account at a dubious firm. And personally, I wouldn\u2019t want 100% of my assets in a brokerage account at even the strongest financial firm in America. Margin debt I\u2019d be very goosy about right now.<\/p>\n

Point 39. Rationality will save you from a lot but not from everything. Character & Rationality Is The Way To Play The Game.<\/strong><\/p>\n

How Fearful Should We Be About a Major Meltdown?<\/p>\n

Every period is weird in its own way, but this period is extra weird. I could add the twin deficits to what I said earlier [about the things that worry me]. Yet economy is [rolling along]. I think it\u2019s almost always a mistake to think that a great civilization can\u2019t take some more [bad behavior]. I have friends who are building bomb shelters and the like [which is going overboard in my opinion]. I\u2019m all for being reasonably cautious, like John Arrillaga [who Munger discussed in his opening remarks]. I haven\u2019t had any debt for a long, long time. Neither has Warren \u2013 not any significant debt anyway; maybe a blip.<\/p>\n

But I think the rationality you\u2019re talking about is pretty sure to work. It won\u2019t save you from a terrible accident or the death of a child, but character and rationality will save you from a lot. It\u2019s all about not trying to get the extra zero on your portfolio\u2019s total value when you die. It\u2019s playing the game all the way through with both character and rationality. It doesn\u2019t do any good to [have good motives?] if you\u2019re a horse\u2019s ass [?]. [Laughter]<\/p>\n

Point 40. The only thing that will change corporate directors\u2019 behavior is if they look ridiculous in the press.<\/strong><\/p>\n

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

Backdating Stock Options<\/p>\n

I think backdating stock options is embezzlement. I would argue that if it happened, it was criminal. But I would bet that the people who did it think it was god\u2019s work. [They probably said to themselves:] \u201cIf options are great, then this must be even greater!\u201d I\u2019ll bet there\u2019s no sense they did anything wrong. It\u2019s hard to believe that the human mind can play such ghastly tricks.<\/p>\n

How to Change Corporate Directors\u2019 Behavior<\/p>\n

The only thing that will change corporate directors\u2019 behavior is if they look ridiculous in the press. Otherwise the CEO could be an ax murderer. [Laughter]<\/p>\n

Is Home Depot\u2019s CEO [Bob Nardelli] Being Paid Too Much in Light of the Company\u2019s Stock Decline Since He\u2019s Been CEO?<\/p>\n

Generally I don\u2019t think management should be blamed if the stock market goes crazy for a certain period of time. If it went up 35 times earning and then declined to 25 times earnings, how is that the CEO\u2019s fault? Lou Simpson bought that stock and I don\u2019t think he\u2019ll want to comments on the situation at Home Depot. I\u2019m not in a position to judge if the CEO\u2019s compensation is reasonable or not, but I wouldn\u2019t be surprised if it was.<\/p>\n

Corporate Compensation<\/p>\n

I don\u2019t know how we\u2019re going to fix corporate compensation. To have the CEO rewarded in a way that\u2019s so extreme [is terrible].<\/p>\n

Point 41. I think future generations will curse us for using hydrocarbons for our cars when they need them to grow food to eat.<\/strong><\/p>\n

Future Oil Prices<\/p>\n

I think eventually the price will be higher than it is now, but what will happen in the meantime I don\u2019t know. I\u2019m not an expert on the price of oil, but I think it will get harder to extract hydrocarbons and demand for them will go up.<\/p>\n

I think future generations will curse us for using hydrocarbons for our cars when they need them to grow food to eat.<\/p>\n

Point 42. Some guy can develop a lot of algorithms and can outwit the other guys\u2019 algorithms.<\/strong><\/p>\n

Views on Naked Shorting<\/p>\n

One of the nice things about being an old man in a secure place is that I don\u2019t have to think about many things and naked shorting is one of them. My jihad calendar is full enough. [Laughter] I\u2019m sorry, that\u2019s all I have to say.<\/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 Point 37. Envy and Imitation Will Lead To Flood Of Money and Disaster<\/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-590","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\/590","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=590"}],"version-history":[{"count":2,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/590\/revisions"}],"predecessor-version":[{"id":846,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/590\/revisions\/846"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=590"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=590"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=590"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}