{"id":608,"date":"2017-05-15T21:56:27","date_gmt":"2017-05-15T21:56:27","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=608"},"modified":"2017-10-24T22:53:02","modified_gmt":"2017-10-24T22:53:02","slug":"95-berkshire-annual-meeting-2017-part-5-wisdom-guide-25-30","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/05\/15\/95-berkshire-annual-meeting-2017-part-5-wisdom-guide-25-30\/","title":{"rendered":"95. Berkshire Annual Meeting 2017 – Part 5 – Wisdom Guide 25 – 30"},"content":{"rendered":"

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

Ref: Adam Blum\u2019s 2017 Berkshire Hathaway Annual Meeting Notes – May 6, 2017<\/strong><\/p>\n

Guide 25. Artificial intelligence, like in trade, the small invisible benefits to consumers don\u2019t show as prominently as the harm incurred by the displaced local manufacturer.<\/strong><\/p>\n

Q42 – \u201cYou\u2019ve only tweeted 4 times\u201d – \u201cit was either going that or going to the monastery.\u201d They made a large investment in IBM which has been a significant laggard and expect to end up being 1-2 vs 0-2, but will find out (Apple). Buffett makes no pretense of being on intellectual level of some 15- year-old into tech. He does have some insight into consumer behavior, though. And he will make some mistakes in marketable securities. \u201cYou can\u2019t bat 1.000 no matter what industry you are in. We\u2019ve lost money on insurance. I\u2019ve gained no real knowledge of tech since I was born.\u201d<\/p>\n

Munger: \u201cIt was a very good sign that Warren bought Apple. Either he\u2019s gone crazy or is learning. I prefer to think he\u2019s learning.\u201d<\/p>\n

Q43 – artificial intelligence – They bet a lot will happen in AI but have no insight. This would result in significantly less employment in certain areas, and that\u2019s a good thing. Is the world better off if 1 person can do the job of 143 million people? Of course it is. It would require a great deal of adjustment, but is a good thing. Artificial intelligence is great for society but is disruptive and can have huge problems in terms of democracy. Like in trade, the small invisible benefits to consumers don\u2019t show as prominently as the harm incurred by the displaced local manufacturer.<\/p>\n

Munger: \u201cI give you golf lessons while you dye my hair. It\u2019s like the royal family of Kuwait. We can\u2019t have all the work so concentrated to leave so many at leisure. But a few percent per year of gain is a wonderful thing. No one ever complained about the advent of air conditioning. I am worried more about the change not being fast enough.\u201d<\/p>\n

Guide 26. Missing Out Is Human But Don\u2019t Miss Out On Them All<\/strong><\/p>\n

Q44 – solar\/wind – They don\u2019t look at it in terms of capacity; they just look at what comes along. They have a big appetite for either one. They have done more wind lately but have no bias. They\u2019re well situated, because they pay lots of taxes as a multi-pronged enterprise and can use the tax benefits better than electric utilities who often don\u2019t have enough tax money to offset with tax credits.<\/p>\n

Q45 – Amazon \u2013 They didn\u2019t buy it, because they were too dumb to realize what was going to happen. They didn\u2019t even think about the Amazon Web Services possibility and didn\u2019t think Bezos would succeed like he has in retail. They underestimated the brilliance of the execution. \u201cYou can read Bezos\u2019 annual report in 1997, and he lays it all out. And he has done it and done it in spades. It just always looked expensive.\u201d<\/p>\n

Munger: \u201cIt was easy. What was done there was very difficult; it was not at all obvious that it was going to work as well as it did. Other things were easier, and we screwed those up. I don\u2019t regret missing it – I do with Google. We\u2019ll miss out on more, but that\u2019s our secret – we don\u2019t miss out on them all.\u201d<\/p>\n

Guide 27. We really disagree with like amortization of intangibles – unless it\u2019s material.<\/strong><\/p>\n

Q46 – board buying back stock if the company\u2019s stock drops after Buffett dies \u2013 There have been a few times where people aggressively repurchased shares after playing games to depress the shares.<\/p>\n

\u201cEncouraging shareholders to sell at lower prices knowing you\u2019re going to buy back shares is reprehensible.\u201d Buffett thinks the stock is likely to go up if he dies on breakup speculation alone. People would say Buffett obstructed breaking up something where the sum of parts might sell for more than the whole.<\/p>\n

Munger: \u201cWe might suddenly get very stupid very quickly, but I don\u2019t think board will have that problem.\u201d<\/p>\n

Q47 – companies benefitting from stock grant accounting – not a factor at Berkshire Hathaway<\/p>\n

Munger: \u201cIt\u2019s not a big deal\u201d<\/p>\n

Buffett: \u201cThere are few things in accounting we really disagree with like amortization of intangibles – unless it\u2019s material, we stay away from fighting it.\u201d<\/p>\n

Munger: \u201cI certainly agree with that (that stock grant accounting changes are not material to Berkshire Hathaway)\u201d<\/p>\n

Buffett: \u201cIs anything less real now that Precision Castparts is now private? Then why do they have to report $400mm less in earnings? Also, for valuation purposes, depreciation accounting is very inadequate for capital-intensive businesses.\u201d<\/p>\n

Guide 28. There\u2019s nothing like a personal, painful experience if we want to learn, and we certainly have had our share of it.<\/strong><\/p>\n

Q48 – Ratios and formulas have some degree of meaning, but valuation of a business is not reducible to any formula where you can put in the variables perfectly. Not that it\u2019s unimportant, but it\u2019s not as simple as having one or two formulas. \u201cThe most important thing in intrinsic valuation is future interest rates.\u201d<\/p>\n

Munger: \u201cFish where the fish are. A good fisherman can find more fish in China; it\u2019s a happier hunting ground.\u201d<\/p>\n

Buffett: \u201cIf you want to be a good evaluator of businesses, you really ought to figure out a way to run a lousy business for a while. You learn more than running a business so good you can\u2019t mess it up – seeing how awful it is, and how little you can do about it, and how IQ means nothing.\u201d<\/p>\n

Munger: \u201cThere\u2019s nothing like a personal, painful experience if we want to learn, and we certainly have had our share of it.\u201d<\/p>\n

Guide 29. In certain cases, one can learn a lot by asking a lot of questions.<\/strong><\/p>\n

Q49 \u2013 He can\u2019t think of anything that can harm Berkshire Hathaway in a material, permanent way, except weapons of mass destruction. They have a variety of earnings streams and asset positions and a great philosophy. They\u2019re in a strong place.<\/p>\n

Munger: \u201cIt would take something really extreme. BP took huge loss with one well. Berkshire Hathaway subs are all independent. We would pay, but we are not one accident away from disaster. We are better protected in every way than most companies.\u201d<\/p>\n

Q50 – Berkshire Hathaway Specialty Insurance \u2013 Its growth depends on the market. They\u2019re not interested in being a price cutter in a market where prices aren\u2019t attractive. The business is built to scale and grow a lot. It\u2019s destined to be one of the leading P&C firms in the world just as they were in reinsurance when Ajit came in at a time when they had nothing. They have people, capital and reputation. There\u2019s no stronger company in insurance. Specialty is a very important addition.<\/p>\n

Q51 – most interesting learnings of last few years \u2013 \u201cI am a specialized one, and Charlie does as well as I do and has a much higher general absorption rate. A lot of fun can occur when learn you were really wrong on something – what\u2019s going on in America is terribly interesting, politically and all.\u201d<\/p>\n

Munger: \u201cBuying the Apple stock is a good sign in Warren – now he did run around and take his ,grandchildren\u2019s tablets away for market research. Don\u2019t unlearn the new tricks. We can\u2019t solve problems by printing money and lying. Take Puerto Rico. Who would\u2019ve ever guessed that a US territory would be bankrupt? I would have, because they behaved like idiots; everywhere you look in Berkshire Hathaway someone is being sensible. Combine that with being very opportunistic so when some panic or something comes along it\u2019s like playing a one-hand sport with two hands.\u201d<\/p>\n

Phil Fisher\u2019s Common Stocks and Uncommon Profits <\/em>describes the usefulness of scuttlebutt method. In certain cases, one can learn a lot by asking a lot of questions. They did it with Apple. If they talked to heads of ten companies in an industry and asked which competitor they\u2019d bet on or against and why, they\u2019d have a better fix on the industry\u2019s economics than any one executive in the industry. The problem is not in getting the new but in shedding the old.<\/p>\n

Munger added that they would never have bought Iscar or Precision Castparts if these businesses had come along ten years ago. They\u2019re learning and still are.<\/p>\n

Guide 30. No one comes through heart surgery better than a man who doesn\u2019t need it.<\/strong><\/p>\n

Q52 – healthcare – Going back to 1960, taxes were 4% of GDP (now 2%) and healthcare was 5% of GDP (now 18%); \u201cmedical costs are the tapeworm of American economic competitiveness.\u201d The tax system isn\u2019t crippling Berkshire Hathaway. Health costs have gone up and will go up more. The rest of the world has gained an advantage in healthcare costs with socialized medicine. It will be a problem regardless of which party is in power. The new act is interesting. The net effect on one person is a 17% drop in taxes for someone like Buffett – either the deficit will go up, or the lost taxes will get collected from someone else. Munger doesn\u2019t like it that too much medicine gets prescribed for people who all but dead. There are all kinds of crazy things going on in Medicare. With so much vested interest it\u2019s hard to change. No rational person wouldn\u2019t think the system is crazy, and it puts manufacturers at big disadvantage with other manufacturers abroad. \u201cHuge vested interests naturally give a terrible result, and costs will keep going up. Both parties hate each other so much that neither one can think rationally on this issue.\u201d<\/p>\n

Regarding the competitiveness of American industry, the biggest single variable is healthcare costs, where it keeps getting more and more out of whack.<\/p>\n

Munger: \u201cIt\u2019s deeply immoral. Doctors are feasting like a bunch of jackals on a carcass. A bunch of cardiologists in Redding got the idea that heart was a widow-maker and recommended heart surgery to everyone and got great results, because no one comes through heart surgery better than a man who doesn\u2019t need it. This department at Redding became a model for the whole system, and then a priest didn\u2019t believe it and blew the whistle (of course he didn\u2019t \u2013 a dead priest wouldn\u2019t have a widow). The doctors thought what they were doing was good for people. The delusion that comes into people as they make money and do god-awful things should never be underestimated. You\u2019d think hospital CEO would notice heart surgery rates were twenty times higher than normal, and did they ever notice \u2013 they wanted the rest of the branches to perform more surgeries too \u2013 disgusting!\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons Ref: Adam Blum\u2019s 2017 Berkshire Hathaway Annual Meeting Notes – May 6, 2017<\/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-608","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\/608","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=608"}],"version-history":[{"count":2,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/608\/revisions"}],"predecessor-version":[{"id":840,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/608\/revisions\/840"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=608"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=608"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=608"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}