My 10 Learnings from Charlie Munger from the 2019 Daily Journal Corporation Shareholder Meeting
Charles Koch says he wanted to stand on the shoulders of giants and I spend my Saturday night standing on the shoulder of a 95 year old man in a wheelchair.
This is how I spend saturday nights. Laughing out loud (literally) by myself in my living room watching Charlie Munger talk for 2 hours. For those who are not familiar, Charlie Munger is the Vice Chairman of Berkshire Hathaway. In addition to that role, he is also the Chairman of the Daily Journal Corporation. It's weird that you'd click into reading this article without knowing full well who Charlie Munger is but if you are one of such few people then welcome. I hope this becomes the gateway to your life's turning point for the better.
The following are a list of my own key learnings from Charlie in his talk. At 95 years of age, he does repeat many core principles but it is with such repetition that I hope to have his principles written in stone in my own psyche. I tried organizing these into 10 key learnings. Hope you find it valuable enough to click on the full interview to watch and learn. Charlie's direct quotes are noted below in italics. I've added my own commentary to add context for some but many did not need it.
1) On Diversification of Investments:
"Seeking diversification while trying to have an edge is like doing the impossible task over and over again."
Munger has investments in Berkshire, the Daily Journal, Costco and Li Lu's Asia Fund (the one and only time in Charlie's 95 years he let someone besides himself run his money). And those 4 holdings have him outperforming most people. Most would do well to stop compensating for their existence with needless action. As Adam Smith would wager, constant buying and selling is the way of the speculator and not the investor.
2) Folly of modern finance:
"If you look at the modern world where someone is trying to teach you to actively trade in stocks. I see that as the equivalent of inducing young people to start off on heroin. It is really stupid. When you're already rich and you are encouraging young people to get rich by trading."
"This man has this wonderful horse. It's a marvelous horse. But occasionally the horse gets dangerous and vicious. He takes the horse to the vet and asks him 'what should I do about this horse?' The Vet says 'That's a very easy problem and I'm glad to help you. Next time your horse is behaving well, sell it.' Think of how immoral that is. Haven't I just described what private equity has to do? When private equity has to sell something troublesome they hire an investment banker. What does the investment banker do? He makes a projection. I have never seen such expertise in an investment banker's ability to make a projection. There is no business so lousy it can't get a wonderful projection. But is that a great way to make a living? To have phony projections and use it to make money out of the people you look into the eyes of? I would say no."
The unfortunate reality of modern commerce where the untrustworthy will always seek out to screw over the many. The solution is to become wise to avoid them and not associate with them.
3 )Choose honesty. People rarely do.
"Peter Kaufman says if crooks only knew how much money you'd make by being honest they'd all behave differently."
"Warren has a wonderful saying and that is: 'if you take the high road it's never crowded'."
4) How to not have a lousy life. Invert my friends!
"Mozart had a lousy unhappy life and died young because of 2 things. 1) he overspent his income scrupulously. That's stupid. 2) He was full of resentment and jealousy. Those two will have live a lousy unhappy life and die young. Learn from Mozart."
5) Charlie would not hire Elon Musk
"Never underestimate the man who overestimates himself. These weird guys who overestimate themselves occasionally knock it right out of the park.. it's the unfortunate part of modern life. I've come to accept that. In my personal life, I don't want the person who acts in a state of delusion who occasionally wins big. I want the prudent person"
6) Decision making and opportunity cost
"If we can do something that we can do more of, then we aren't interested in doing anything better than that."
Discount rates are opportunity costs. Hence, your discount rate should be based on your next best opportunity. If the option presented before you is no better than what you've got doing now, then why pursue it?
7) Virtues to live by
"If it's tried, it's right. All those old virtues, they work."
No surprise that Charlie is big fan of Stoicism, Epictetus, Marcus Aurelius and the full works.
8) Organizational Principles for Success
Questioner: "Why do other corporations fail to copy Berkshire's organizational principles, given its obvious successes?"
Charlie: "The main reason is it looks impossible for most. It's too hard for them. One of the reasons Berkshire has been so successful is that there is almost no one at headquarters. We've eliminated bureaucracy. Having no bureaucracy is a huge advantage if the people who are running it are sensible people"
9) On Investing
"If you want to hit it out of the park easily, you should talk to Jim Cramer"
Everyone wants the guaranteed, immediate big win. It's how the talking heads on finance television make their money. Stocks featured on Jim Cramer probably aren't the best investments. Rather, they may be the overcrowded ones. The moment Shopify went on Jim Cramer a few weeks ago, my friend messaged me and said "Looks like it's time to short Shopify." There are no easy, quick wins.
"I say find Costcos, not exits"
In response to how he exits companies. He bought Berkshire and Costco in the 1960s and has held them since. The focus of an investor is finding the best investment opportunities possible and having the temperance to hold them for a long time. The focus is not selling for you cannot ever time the market nor know of what the "correct" valuation of a company is. Valuation is relative to your next best opportunity.
10) Speak the obvious.
"What people refer to as common sense is actually uncommon sense."
Questioner: "The simple life is the obvious right answer but most of america ends up like Mozart. In debt and overspending. How do you develop the discipline to fight the temptation and live the simple life?"
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