Value Investing

Conversation with Charlie Munger @ UMich

Quotes from Charlie Munger in his session at University of Michigan on 14 Sep 2010. Video here or here. These are not verbatim, its what I gather:

  1. On things never to do: Two things that you should never do
    1. Never ever feel sorry for yourself. When your child is dying of cancer, don’t feel sorry for yourself.
    2. Never have envy. That’s the only one of the deadly sins that you will never have any fun with at all.
  2. On perseverance: Treat the little fluctuations in fate, and the two imposters (success and failure), just the same. Keep plugging away, keep your head down, do your best, and the tide will come.
  3. On herd effect: CEO culture causes very competitive people to be at the top. When someone down the street is “making lots of money” regardless of how, the CEOs will just all do the same. They can’t help it.
  4. On politicians: Politicians are in a trade that is hard to behave well.
  5. On employment: Companies are rationalizing to protect their balance sheets and earnings power while utilizing fewer people. This is a bad market for easy employment.
  6. On compensation: The more directors are paid, the more they pay CEOs.
  7. On accounting: Marked to Market accounting should be called Marked to Myth. Accounting should be made much more conservative, currently estimates are too optimistic.
  8. On stocks: For the long-term I will rather own common stocks than government bonds at their current rates.
  9. On gold: I don’t have any interest in gold. If you have the capability to understand how the world works, you have a moral obligation to be rational. I don’t see how you can be rational holding gold. Even if it works, you are a jerk.
  10. On deflation: U.S. can of course be like Japan and have a period of no growth. I think the U.S. can be better, but if it does happen to the U.S., I think Americans will not handle it as well as Japanese due to their different natures (e.g. Japanese are submissive, courteous, etc.)
  11. On bailout: Those bailouts were absolutely required to give us the best chances to solve the problems. We are lucky that the administration was as wise and bold as they were.  If you understand the system, you would know that its a blessing.
  12. On Berkshire: If you take out Berkshire’s 20 best transactions over the last 40+ years, our record would be a joke. That is like 1 only every 2 years.
  13. On social security: I will not touch Social Security. A value-added-tax can be introduced to support Social Security.
  14. I don’t think healthcare is a problem
  15. On Asians: Asians are going to help us stem the tide. Asians will get way more important in the world.
  16. On the best system: Singapore has the best system. It has the habit of stepping hard on things that can grow like cancer. Study the life and work of Lee Kuan Yew.
  17. On energy: If I were the Government, I will have the biggest infrastructure program you ever saw to get energy from the sun. The main technical difficulty of mankind is energy. With energy, there is no shortage of water.
  18. On near future: Worst in a lot of real estate ventures is still ahead of us.
  19. On the future: I don’t think for the next hundred years, advances will be as much as what happened in the past 100 years (e.g. cheap air travel, people having cars, air conditioning, information at your fingertips, TV and radio, etc.)

I also recently read a translation of Li Lu’s forward in Poor Charlie’s Almanack (link here). Some interesting points:

  1. Charlie researches about how things can fail, so as to know what not to do, e.g. how companies, people, governments, academia, etc. have failed in the past.
  2. Charlie sets a high standard for himself in terms of when he gives his opinion or position. He was quoted as saying “If I want to hold a view, if I cannot refute or disprove this view better than the smartest, most capable, most qualified person on Earth, then I’m not worthy of holding that view.”
  3. Charlie believes people must be strict and demanding on themselves, continuously improving their discipline in life in order to overcome the innate weaknesses of human nature. To Charlie, this way of life is a moral requirement, and this process is both rational and pleasant and it allows people to having a successful and happy life.
  4. Charlie is always energetic and is an early riser (he arrives at morning meetings at 6.45am and starts reading newspapers). He constantly reads during every spare time he has.


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