{"id":689,"date":"2017-06-24T00:34:04","date_gmt":"2017-06-24T00:34:04","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=689"},"modified":"2017-10-24T22:41:33","modified_gmt":"2017-10-24T22:41:33","slug":"111-wesco-annual-meeting-2010-part-1-wisdom-pick-1-6","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/06\/24\/111-wesco-annual-meeting-2010-part-1-wisdom-pick-1-6\/","title":{"rendered":"111. Wesco Annual Meeting 2010 \u2013 Part 1 \u2013 Wisdom Pick: 1-6"},"content":{"rendered":"

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

Wisdom Pick 1. <\/strong>Because running a big firm living on a small spread is \u201cvery precarious if you\u2019re ambitious.\u201d The same problem exists on Wall Street.<\/strong><\/p>\n

Wesco 2010 Meeting Notes, Part I.\u00a0 The meeting was called to order at 1:57, the nominees for director were elected, and the meeting was adjourned at 2:02.<\/p>\n

Charlie then announced that he would follow the same format as last year, in which he\u2019d \u201cprattle\u201d for a while before taking questions from the floor, except that this time he wouldn\u2019t ask himself questions. \u201cI\u2019m of course flabbergasted that we have so many people coming to Pasadena after Omaha\u201d; obviously we \u201chave some addicts out there.\u201d He will aim to cover matters not covered in Omaha.<\/p>\n

Wesco\u2019s market cap has grown from $20 million to $2 billion under current management, a \u201cfailure\u201d compared to Berkshire but pretty good compared to other things, especially to almost every other California savings and loan; virtually every other S&L \u201cwent blooey.\u201d Why? Because running a big firm living on a small spread is \u201cvery precarious if you\u2019re ambitious.\u201d If you pursue 10 to 12% growth, you\u2019ll take your institution into ruin. Your competition will make bad loans, and you\u2019ll either have to fire people and cut back or join the race to the bottom. It\u2019s like Greek tragedy. The same problem exists on Wall Street.<\/p>\n

Wisdom Pick 2. <\/strong>\u201cIf your way of making a living depends on X, it\u2019s hard to convince yourself of non-X\u201d<\/strong><\/p>\n

Why is there no better system for preventing ruin due to deteriorating asset quality? Because wealth leads to power which leads to political influence and bad audit standards. \u201cWe were on the edge of something deadly serious.\u201d<\/p>\n

Why can\u2019t we get the \u201cpeace process\u201d right after the financial blowup the way we got it right with the Marshall Plan after World War II? Because \u201cour elites failed us.\u201d Academia is still teaching failed financial ideas. Charlie has thought about why some high-IQ people make bad decisions while other make good ones. \u201cIf your way of making a living depends on X, it\u2019s hard to convince yourself of non-X\u201d (which he attributes to Upton Sinclair). To be in the \u201csane minority,\u201d you have to practice right decision making just as you practice making the right swing in golf.<\/p>\n

Other folly: Diversification (\u201cdiworseification\u201d)\u2014it can avoid disaster, but it can\u2019t find success; beta\u2014low beta won\u2019t cause success either. Charlie pointed out Li Lu in the audience as someone who liked business school but didn\u2019t learn much there, except when Buffett gave a lecture. What we do at Berkshire is very difficult and therefore hard to teach. Business schools fail by teaching what is easy to teach but less useful. Going back to teaching business history as Harvard used to would be good; there\u2019s a lot to be learned from the rise and fall of GM, or the rise\/fall\/rise of railroads.<\/p>\n

Wisdom Pick 3. On Difference Between Theory & Practice<\/strong><\/p>\n

Charlie told the story of a friend who learned in business school to prosper by abusing his suppliers, driving up their working capital while driving down his own\u2014it was simple algebra. On the exam, he gave the math the prof wanted but said it was asinine; in the real world he\u2019d want his suppliers to prosper and be happy. That\u2019s how he behaved in the real world, and to say he prospered himself is a gross understatement.<\/p>\n

A second anecdote about a friend: Guilford Glazer. Back from the war, he was admitted to Harvard Business School, but his father\u2019s machine shop was struggling, and he asked for a year\u2019s deferment to help out, which was granted. A year later, he asked for a second deferment. The Harvard guy asked, \u201cHow many employees did you have a year ago?\u201d \u201cFifty.\u201d \u201cAnd now?\u201d \u201cNine hundred.\u201d \u201cI don\u2019t think you need to come to our school. Why not just stay where you are, and come by later and endow the place.\u201d<\/p>\n

Wisdom Pick 4. In Soccer As In Investment Banking, You Need Referees<\/strong><\/p>\n

Guilford\u2019s father gave him some advice relevant to recent events: only sell things that are good for the customer. He took the advice, and is now a billionaire. Soccer is also relevant: In soccer, it\u2019s hard to win if the other team has a really good player. If you let players do what they want, they\u2019ll \u201cwork mayhem\u201d on the other team\u2019s star, so you have referees running up and down the field to limit the mayhem. It\u2019s the same with other highly competitive people like investment bankers; you can\u2019t expect them to rein themselves in, so it\u2019s government\u2019s role to referee. \u201cAt its peak, something like the Lehman firm just before it went under was pathological,\u201d \u201clike the worst boiler-room operators,\u201d far from Guilford\u2019s father\u2019s advice of selling people only things that are good for them. The people who did this mostly blame others for the bad results.<\/p>\n

You need a referee; yet FannieMae and FreddieMac had 200 people at OFHEO to supervise them, and \u201cright under the nose\u201d of OFHEO they went bust and used phoney accounting to juice the executives\u2019 bonuses. It\u2019s not enough to have a regulator refereeing; there\u2019s co-option of the regulator, or simple bureaucratic inertia (as with Madoff and the SEC), and there\u2019s no point giving more authority to such regulators. So you must curtail the activities that are permitted. Not everybody can be trusted to do what Goldman Sachs does, so it must be curtailed\u2014and Goldman Sachs must share in the curtailment. It was done in the 1930s, and it worked.<\/p>\n

Wisdom Pick 5. <\/strong>We don\u2019t need the capital allocation of civilization to be mixed with a casino. We need to separate commodities and derivatives from investment banking.<\/strong><\/p>\n

We don\u2019t need the capital allocation of civilization to be mixed with a casino. We need to separate commodities and derivatives from investment banking. Underwriting, running margin accounts for hedge funds, advising, commissions, spreads\u2014there\u2019s a lot of legitimate activity for investment banks to do; they don\u2019t need to do everything else. They could spin off the people and capital associated with other activities; there would be no big hardship involved.<\/p>\n

Wisdom Pick 6. Some Things Gets Better With Age<\/strong><\/p>\n

Charlie digresses to comment that it\u2019s hard to sit up here in his 87th year. It reminds him of a story about George Burns, late in life, receiving a singing telegram featuring four beautiful girls. \u201cI\u2019m sorry,\u201d he said, \u201cbut I\u2019m afraid that one of you will have to come back tomorrow.\u201d<\/p>\n

The referee needs to say, If you\u2019re going to be backstopped by government credit, there\u2019s a whole bunch of stuff you can\u2019t do; otherwise you get Lehman.<\/p>\n

On Goldman Sachs: they have the \u201cbest morality and wisdom\u201d among the investment banks, and Charlie doesn\u2019t like the government jumping on them, although he doesn\u2019t think they\u2019re doing it to be \u201casinine\u201d on purpose but just stumbled into it.<\/p>\n

Source: http:\/\/www.valueplays.net\/wp-content\/uploads\/The-Best-of-Charlie-Munger-1994-2011.pdf<\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons Wisdom Pick 1. Because running a big firm living on a small spread<\/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-689","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\/689","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=689"}],"version-history":[{"count":2,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/689\/revisions"}],"predecessor-version":[{"id":830,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/689\/revisions\/830"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=689"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=689"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=689"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}