{"id":704,"date":"2017-06-27T21:14:13","date_gmt":"2017-06-27T21:14:13","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=704"},"modified":"2017-06-27T21:19:24","modified_gmt":"2017-06-27T21:19:24","slug":"115-wesco-annual-meeting-2010-part-5-wisdom-pick-25-32","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/06\/27\/115-wesco-annual-meeting-2010-part-5-wisdom-pick-25-32\/","title":{"rendered":"115. Wesco Annual Meeting 2010 \u2013 Part 5 \u2013 Wisdom Pick: 25-32"},"content":{"rendered":"

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

New Book Release:
\nCharlie Munger For All Seasons – https:\/\/charliemungersays.com\/index.php\/books\/<\/a><\/p>\n

Wisdom Pick 25. (Condos that Wesco Built) <\/strong>I\u2019m glad you brought that up because it\u2019s like rubbing my nose in financial failure, and that\u2019s good for me.<\/strong><\/p>\n

Q (South Pasadena) What about those condos Wesco built next to the headquarters building?<\/p>\n

A I\u2019m glad you brought that up because it\u2019s like rubbing my nose in financial failure, and that\u2019s good for me. We had surplus property and decided to build condos several steps up from what you could buy in downtown Pasadena. We came to market in the worst condo market in a long time. We\u2019re selling condos at prices that give us a modest loss and resisting doing stupid things. Eventually there\u2019ll be one condo left and two or three buyers. I think it\u2019ll make a lot of money eventually for the buyers, but never for Wesco.<\/p>\n

Wisdom Pick 26. T<\/strong>here\u2019s an opportunity cost; there\u2019s a loss to civilization when bright people go into money-grubbing instead of science.<\/strong><\/p>\n

Q You said you regret so many Caltech grads go into finance. But mightn\u2019t they end up running those businesses and do better at it than Fuld?<\/p>\n

A That could be true. You could probably take anybody at random out of Caltech and have them do better than Fuld. But there\u2019s an opportunity cost; there\u2019s a loss to civilization when bright people go into money-grubbing instead of science.<\/p>\n

Wisdom Pick 26. (On China) <\/strong>We\u2019re too critical for expecting them to do things exactly our way.<\/strong><\/p>\n

Q Can you comment on the state of the insurance business?<\/p>\n

A Casualty insurance is intrinsically a very difficult business. As in financial businesses, people delude themselves to maintain volume. I wouldn\u2019t be looking for investments in the field. \u00a0Berkshire is different, and a few others too, but those others are generally known and priced accordingly. Reinsurance is even worse.<\/p>\n

Q (Ottawa) WEB says he expects a \u201creasonable return\u201d on BNSF. What percentage or range of percentages is reasonable? Also, any books you\u2019ve read in the past year and recommend?<\/p>\n

A Berkshire is looking at opportunity costs. We spent 6% of shares outstanding to acquire BNSF. We were getting low returns on cash, and we paid low rates on the money borrowed to do the deal. It\u2019s a better deal for Burlington shareholders, but that doesn\u2019t mean it\u2019s a bad deal for Berkshire shareholders. Bringing in Matt Rose, who\u2019s quite young, is a huge plus. Though not an iron rule, we hope to make, say, 10% pretax long term when buying with equity. But this was part equity, part debt. Stocks generally will probably do worse that 10% pretax; this isn\u2019t an environment you should be happy about. We might be wrong about getting 10%, too. As for books, the ones about the Great Recession are all very interesting. John Paulson is a very interesting story; his imitators are going to create a lot of trouble. The same applies to me to some extent; I try to atone by doing other things.<\/p>\n

Q (Toronto) It seems the rate of change in business is speeding up. Does that make things harder?<\/p>\n

A I don\u2019t know what will happen in the next 20 years and have very little reason personally to care. That said, the most interesting rate of change is in China\u2014so fast, so pragmatic that I am quite optimistic. An amazing percentage of Chinese Communists have engineering training. \u201cThat\u2019s my kind of Communist.\u201d We\u2019re too critical for expecting them to do things exactly our way. They\u2019re coming up the technical competency curve at a rate with no precedent except perhaps Japan, and they\u2019re a big country. It\u2019s very difficult to compete with them. They\u2019re wise to foster people like BYD who are trying to make things better rather than just cheaper. In my youth, I liked the King Fong Restaurant in Omaha. Recently, I drove by, and downtown Omaha has gone to hell but it\u2019s still there. The Chinese find a way to survive.<\/p>\n

Wisdom Pick 26. (On Photovoltaic in 2010) <\/strong>I thinks it\u2019s about to get a lot cheaper.<\/strong><\/p>\n

Q (San Jose) You said solar was too expensive for your house, yet Mid-American is investing in solar and wind.<\/p>\n

A I don\u2019t second-guess Mid-American. As for photovoltaic, I thinks it\u2019s about to get a lot cheaper, and therefore isn\u2019t a buy now. But I could be wrong.<\/p>\n

Wisdom Pick 27. (On Investment Strategy) S<\/strong>trategic stuff almost always involves BRK.<\/strong><\/p>\n

Q Float at Wesco has gone up quickly compared to float at Berkshire. Can it keep going up? Also, why was it Berkshire and not Wesco that invested in BYD?<\/p>\n

A The second one is easy: strategic stuff almost always involves BRK, which is bigger and famous. To repeat, Wesco is not a smaller Berkshire. The insurance is a gift; if Wesco wasn\u2019t part of BRK we wouldn\u2019t have any way of getting it. As for CORT, it \u201clooks pretty damn mediocre\u201d and was bought at the top of a boom; still, I think it will do all right over time. You shouldn\u2019t analyze Wesco as an independent entity; it\u2019s a \u201cweird historical accident.\u201d<\/p>\n

Wisdom Pick 28. (On Derivatives) <\/strong>I hate its social implications. I dislike other derivatives too. Warren wrote a letter against allowing S&P derivatives, but after they were made legal anyway.<\/strong><\/p>\n

Q (USC MBA student) Can you come talk to us?<\/p>\n

A I used to once a year; one talk\u2019s in Poor Charlie\u2019s Almanack, and it wears pretty well, so you don\u2019t need a live Charlie. Warren does a lot of that and likes it; my taste for it is limited, so I can\u2019t help you.<\/p>\n

Q Does WEB prefers durable competitive advantage to Graham-style investing because it\u2019s a better model, or because it works better for large amounts of capital?<\/p>\n

A If I were young and had a small amount to invest, I would be looking in the small-cap world.<\/p>\n

Q (Los Angeles) Is CORT in a cyclical or secular decline? Is there a goodwill writedown coming? And what about Goldman Sachs?<\/p>\n

A CORT will do OK and justify the price paid but not be a worldbeater. But it\u2019s getting pretty dominant in its niche, so maybe I\u2019m too negative. On Goldman: The total return derivative is a way to avoid margin limits and deceive accountants; I hate its social implications. I dislike other derivatives too. Warren wrote a letter against allowing S&P derivatives, but after they were made legal anyway, he invested in them; nothing inconsistent in that. In a world where derivatives were allowed, I see no reason to think Goldman was misbehaving, just doing what others were. The disadvantage is that it\u2019s hard to explain to the public. I suspect they\u2019ll change; Blankfein is pragmatic and flexible. Goldman deserves its share of blame for helping to persuade the government to allow derivatives trading, but no more. The idea that any sort of risk transfer between consenting adults ought to be legal is wrong. But Goldman Sachs shouldn\u2019t be singled out.<\/p>\n

Wisdom Pick 29. <\/strong>For myself, I think that investing helped with wisdom acquisition, and wisdom acquisition is a moral duty; but the money all goes away when you die.<\/strong><\/p>\n

Q (Boston) Why did Coke buy back its bottlers, and what makes a good distribution business?<\/p>\n

A I don\u2019t follow Coke, but originally they spun off low-margin businesses into nonconsolidated entities to make the accounting look better. That\u2019s not a Munger-type thing to do, so if they\u2019re undoing it, that\u2019s a good thing. By the way, I think the new CEO of Coke is the best we\u2019ve had in a long time.<\/p>\n

Q (Chicago) Clayton\u2019s products are great, but it\u2019s almost impossible to put a Clayton home in Chicago due to zoning. Will that change?<\/p>\n

A Kevin Clayton is very interested in taking Clayton techniques upscale and getting past regulatory problems. Clayton houses are improving. Charlie thinks we\u2019ll see more Clayton-type methods used in the future, though it\u2019s a slow process of change; the custom home approach is so expensive.<\/p>\n

Q (Los Angeles) Can you recommend investment books for children and strategies for getting them interested in investing?<\/p>\n

A I\u2019m not sure I believe in getting you children interested in investing. For myself, I think that investing helped with wisdom acquisition, and wisdom acquisition is a moral duty; but the money all goes away when you die.<\/p>\n

Wisdom Pick 30. <\/strong>If crime goes up by a factor of three, affluent people might move to Singapore, but I won\u2019t.<\/strong><\/p>\n

Q (Shreveport) Why do you and WEB read 5 newspapers daily? And will Goldman Sachs divest its derivatives business?<\/p>\n

A To the second question, not unless forced to, any more than a diver will step on his own air hose. To the first, \u201cIt\u2019s all I can conveniently crowd in.\u201d \u201cI am particularly charmed by the Financial Times,\u201d but I also like the Wall Street Journal; I\u2019d read more if I had the time. I skim. I don\u2019t know anyone who\u2019s really wise in the practical world who reads no newspapers. Maybe you can do as well with keyboards and multitasking, but I don\u2019t think so.<\/p>\n

Q If you were 35, would you move to Singapore?<\/p>\n

A I\u2019m such a lover of the US I\u2019m not going to move to Singapore. With all its defects counterbalanced by its virtues, I love this country. The move might be right for somebody else. If crime goes up by a factor of three, affluent people might move to Singapore, but I won\u2019t.<\/p>\n

Wisdom Pick 31. <\/strong>We\u2019ve been issuing them to \u201cfiscaholics.\u201d I don\u2019t like issuing credit at 30% to people who can\u2019t really handle it.<\/strong><\/p>\n

Q (Santa Monica) You said reinsurance is a tough business, so why the Swiss Re and Munich Re investments?<\/p>\n

A Warren makes those decisions. Those are both respectable businesses that have been around a long time. They\u2019re portfolio investments at what seemed like reasonable prices. That doesn\u2019t change my general view of reinsurance. Of course it\u2019s difficult to judge whether to invest in them. I like no-brainers like Costco and BYD better, but you don\u2019t find very many.<\/p>\n

Q (Los Angeles) With banks moving away from mark-to-market and keeping troubled assets on their books, how is Wells Fargo affected?<\/p>\n

A Wells Fargo got very cheap at the low tick. Yes, they made mistakes, and yes, they have a lot of work cleaning up Wachovia, but it\u2019s a good investment even at the current price. Even the best banks drift with the times and do stupid things, but I suspect Wells faced up to it better. We may be getting changes in credit cards. We\u2019ve been issuing them to \u201cfiscaholics.\u201d I don\u2019t like issuing credit at 30% to people who can\u2019t really handle it. \u201cBut that\u2019s a crotchet, not a\u00a0 complaint.\u201d However, how many here agree? (Many hands go up.)<\/p>\n

Q (Chinese online journalist) What fields for investment are you interested in, besides BYD, in China? And what advice do you have for Chinese investors?<\/p>\n

A It\u2019s hard to imagine finding another one as good as BYD. We\u2019ll look, but will be surprised to find another one.<\/p>\n

Q Any more add-on activities at GEICO?<\/p>\n

A The credit card was \u201ca really stupid decision that got a bad result.\u201d I hope we don\u2019t find another \u201copportunity\u201d like that.<\/p>\n

Wisdom Pick 32. <\/strong>As a professor, you have to hold your nose and teach the standards as they are. Accounting is a noble profession.<\/strong><\/p>\n

Q (Los Angeles area accounting prof ) Advice to accounting students? And should our investment group buy more Berkshire?<\/p>\n

A Huge changes are needed in accounting standards, but that\u2019s a problem at the top of the profession. As a professor, you have to hold your nose and teach the standards as they are. We never\u2014well, almost never\u2014tell people when or whether to buy Berkshire. Accounting is a noble profession; double-entry bookkeeping had a big role in the rise of Venice. But accountants fear liability if they make difficult decisions. I would favor exempting them from liability for anything except deliberate fraud, in exchange for requiring them to be conservative.<\/p>\n

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

New Book Release: Charlie Munger For All Seasons – https:\/\/charliemungersays.com\/index.php\/books\/ Wisdom Pick 25. (Condos that Wesco Built) I\u2019m glad you<\/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":[1,3,4],"tags":[],"class_list":["post-704","post","type-post","status-publish","format-standard","hentry","category-charlie-mungers-3-categories-of-investment-in-out-too-tough","category-investment","category-wisdom"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/704","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=704"}],"version-history":[{"count":3,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/704\/revisions"}],"predecessor-version":[{"id":709,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/704\/revisions\/709"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=704"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=704"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=704"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}