Following the 2017 Daily Journal meeting, Charlie Munger treated everyone who stayed to an informal fireside chat. For over two hours, he graciously answered any questions. I transcribed this fireside chat verbatim and as accurately as possible.
The Full Transcript is 15,508 words. It was transcribed from this fantastic 1 hour and 48 minute recording of the talk. Below is a sample of this transcript.
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Location: 949 E 2nd St, Los Angeles, CA 90012
Event: Informal Fireside Chat following the DJCO Annual Meeting
Date: February 15, 2017
Start of Transcript
(Video 1 of 22 0:27)
Charlie: …Why do you want to strain and (feel like you) have more danger when you’re already filthy rich? As Warren says, ‘What difference does it make to him if he has an extra zero on his tombstone?’.
Question: For return on invested capital, isn’t that already taking into account leverage?
Charlie: Well of course everybody would rather have billions with a high return on capital.
(Video 2 of 22 0:04)
(Video 3 of 22 0:28)
Question: What’s your reading habits every day?
Charlie: I read 3 or 4 newspapers when I get up in the morning, and I always have two or three books that I’m reading. I kind of go back and forth between them. And that’s what I do. That’s what I’ve done all my life.
Question: What are your four newspapers?
Charlie: Wall Street Journal, New York Times, Financial Times, L.A. Times. (Questioner: No Washington Post?) No, no Washington Post.
(Video 4 of 22 1:14)
Question: (Question Regarding deferred gratification)
Charlie: What about medical school, that’s a lot of work. You’re not living very high or this or that. Later you’re a doctor and you have a better life. That’s deferred gratification.
Question: So Charlie, you’re the chairman of the Good Samaritan Hospital, do you have any recommendations or any suggestions about lowering the prices…
Charlie: Well I took that because basically it was basically a losing hand and I play so many winning hands, so I thought, I should force myself to play a losing hand, and I must say it’s been very difficult.
Question: Do you believe in a single-payer health system?
Charlie: I think a single-payer health system would work a lot better, yes. I think it will eventually come. I think the existing system is a ridiculous (inaudible) system. Ridiculous system.
Question: How should we help our children to avoid envy and jealousy.
Charlie: Well you can’t.
(Video 5 of 22 0:41)
Question: What’s your go to (valuation approach)?
Charlie: We don’t have one way of doing it. We have certain things we avoid because we don’t think we have the competency to deal with it. And we have certain things we kind of like because we’re use to them. And so, we don’t have just one set of rules. We don’t have any formulas that are exact or anything like that. And some of the stuff we do, we just know it’s a little better than our alternatives. We’re doing all kinds of stuff now that we would not have done. We would have never bought Apple stock in the old days.
(Video 6 of 22 0:51)
Question: (Regarding Todd Combs. How he got introduced to Charlie and Warren)
Charlie: He seemed like very straight forward. But you see I get a million letters from people who want to come work for Berkshire. Or want to come work…I sometimes get a check from somebody who says, “Here’s $50,000, I’ll pay this to work for you.” I sent the $50,000 back. I will say that it’s kind of a brash thing to do, and I kind of admire it because it was kind of a smart-ass stunt, and I was something of a smart-ass when I was young myself. But I’m not looking for another starting helper or something. I’m playing out the end game. Anybody who’s playing anything else but an endgame when they’re 93 is crazy. It’s an endgame.
(Video 7 of 22 2:35)
Question: So you bet against the jockey, not against the horse necessarily?
Charlie: Well, no…McKinsey. Skilling came out of McKinsey. There are a lot of manipulative types that (inaudible) McKinsey.
Question: So is it simply an observation of the people more so than the quantitative factors? You don’t need to look at the balance sheet when you’re looking at the person.
Charlie: Well I can see the chain-letter aspects of the game. And the huge leverage and the huge…he was just sort of building a chain-letter. It’s intrinsically sort of a dishonorable thing to do. Because the nature of the thing you’re…doing something that you can’t continue on its own motion. You know, making it look like oil. So it’s intrinsically sort of dishonorable. So I don’t like chain-letter operators and I don’t like drunks. I don’t like people who puff and lie and I don’t like people who raise prices on drugs that people have to have by 500% overnight just because it would work. There’s a lot of flags we’re flying.
Question: Charlie, we’ve seen a lot of folks boycotting retailers because they sell Trump brand merchandise and vice-versa because…
Charlie: I don’t like all that. Basically, I’m not in favor of young people agitating them and trying to change the whole world because they think they know so much. I think young people should learn more and shout less. So I’m not sympathetic to anybody…young people are out in the streets agitating and I say, ‘to hell with them’. That’s not my system. I think if you got Hitler or something you can go out and agitate, but short of that, I think the young people ought to learn more and shout less. They ought to act more like Chinese.
Question: Did you personally know Richard Feynman and what do you think of him?
Charlie: Yes. I knew him slightly. Very slightly. Well he was a genius. On the other hand he was a screwball. He absolutely was nuts about screwing around with a lot of different woman, and going after the wives of his own graduate students (I think). That’s disgusting. So he had this blind-spot. Now in physics, in teaching, he was one of the nobelist people we ever had. But in his personal life he was a little nuts.
(Video 8 of 22 2:22)
Question: Charlie, I have a question about real estate. When I look at real estate and stocks, real estate is just easier to evaluate. You know, comps, cash flow, and replacement cost. It just seems like an easier game than the equities market.
Charlie: The trouble with real estate is that everybody else understands it. And the people who you are dealing with and competing with, they’ve specialized in a little twelve blocks or a little industry. They know more about the industry than you do. So you’ve got a lot of bull-shitters and liars and brokers. So it’s not a bit easy. It’s not a bit easy. The trouble with it is, if it’s easy…all these people…a whole bunch of ethnics that love real estate…you know Asians, Hasidic Jews, Indians from India, they all love real estate. They’re smart people. And they know everybody and they know the tricks. You don’t even see the good offerings in real estate. It’s not an easy game to play from a beginner’s point of view. Real estate. Whereas with stocks, you’re equal with everybody. If you’re smart. In real estate, you don’t even see the opportunities when you’re a young person starting out. They go to others. The stock market’s always open. It’s (like) venture capital. Sequoia sees the good stuff. You can open an office, “Joe Schmoe Venture Capitalists: Start-ups come to me!” You’d starve to death. You got to figure out what your competitive position is in what you’re choosing. Real estate has a lot of difficulties.
Those Patels from India that buy all those motels? They know more about motels than you do. They live in the g.d. motel. They pay no income taxes, they don’t pay much in worker’s compensation, and every dime they get, they fix up the thing and buy another motel. You want to compete with the Patels? Not I….Not I.
(Video 9 of 22 1:44)
Question: You and Warren throughout your business history were incredible at judging people. Whether it’s Mrs. B. (Charlie interjects: We were pretty good, yes.) What was it that you and he looked for. And what were mistakes that you made that you learned from along the way in judging who would be good business partners to work with.
Charlie: Well, first there’s some very good people in Warren’s family. One of them I worked under was Fred Buffett. So we had people we knew well that were really noble people. So we had basis to compare people against. And we had basis to compare people in terms of capacity and talent and so forth. So we had a lot of data in our heads that helped us. And I think we had some genetic advantages. Not IQ points, just absolute quirks of nature that made us better.
Question: Like Harry Bottle? Tell me about Harry Bottle and what you saw in him.
Charlie: Well I worked with him in an electronics business that got into terrible difficulties and he’d help us work out of that business trouble by downsizing. He knew how to do it. And Warren had a business that needed downsizing and Warren did not know how to do it. So I put those two together and of course it worked well. (link)
Question: Charlie, could you talk about the episode at Solomon Brothers and what you really learned about people…
(Video 10 of 22 8:14)
Charlie: What I learned is that all that easy money and easy leverage and so forth in investment banking creates a culture that’s full of envy, jealousy, craziness, over-reaching, over-leveraging. It’s a very hard business to manage…investment banking. It was out of control. The envy was…these people went berserk. If one jerk got $4 million some year, the other guy was furious that he only got $3 million. And they just seethed and caused trouble. It was a very difficult business to manage. I think a lot of easy money that comes into finance just ruins practically everybody.
Question: Charlie, anything thoughts on Apple Corporation?
End of Sample Transcript
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