Charlie Munger: Full Transcript of Daily Journal Annual Meeting 2020

This month I had the great pleasure of hearing Charlie Munger speak at the Daily Journal Annual Meeting for the fifth time.  Once again, the wit and wisdom of Charlie Munger was on full display at the deceptively youthful age of 96.

Throughout the transcript below, I have included clickable links to my notes and articles which you may find insightful.  In addition to the transcript, you may also watch the entire meeting on YouTube, or listen to it through my SoundCloud channel.

I would like to thank Mr. Munger for energetically entertaining our questions and graciously sharing his wisdom, insights, and time with all of us.

I hope you all enjoy!

(Note: You will find that I frequently summarized the questions from the audience, but as for anything that Charlie or Gerry  said, I translated them verbatim and as accurately as possible.

Start of Transcript

Charlie: The meetings should now come to order. I’ll give you some time to sit down.

Welcome to the Catholic Cathedral. This is the most amazing place. Some of you who have never seen it should go look at it from the inside. It looks like hell from outside, but from inside it’s a startlingly good architectural work. And it’s quite interesting. Our director, Peter Kaufman, is on the committee who runs the cathedral. And if you want to be buried in the same column of the Ashes of Gregory Peck, he’ll arrange it for $100,000. (laughter) This is a very commercial crowd. You can’t even die without paying. OK, I have a script, I’m going to go through and after we’re through this script, let’s take care of the formal business of the meeting. We’ll answer questions in the usual way…After one brief little explanation from the chairman.

[Note: The audio of the formal business affairs have been edited out of the transcript]

Daily Journal “State of Affairs”

I will discuss briefly the state of affairs that’s reflected in our reports and then I will take questions.

This company, of course, started as a public notice rag, which made money by doing public notices and it morphed into a very successful legal daily newspaper which had a monopoly on publishing the opinions of all appellate courts in California and every law firm had to buy it. And did a lot of other useful things and was a small but very profitable paper occupying an ideal niche.

Many of the newspapers in America had similar niches where they just made regular substantial profits in a very easy simple business to run. Of course, what’s happened is that technological change is destroying the daily newspapers in America, including the little ones like ours. The revenue goes away and the expenses remain. They’re all dying. Berkshire Hathaway owns, what, about a hundred of them, and truth of the matter is they’re all going to die. And there’s nothing that can be done with good management to save them.

It’s a sad thing because those newspapers were an accidental part of the government. They called them the ‘Fourth Estate’. And each one had come into being sort of by an accident of capitalism without any planning by the founding fathers. And the people who ran them became very powerful people due to two great American institutions. One is nepotism and the other is monopoly. (laughter)

And all those nepotistic monopolists, many of whom drank too much, actually morphed into a function where they were more useful than our legislators. And of course, we’re losing them all. And what we get is these opinion services on TV that everybody watches, where everybody believes some ridiculous version of things that’s slanted as much as anybody could… And it’s not a good thing in America that we lose Newsweek, Time magazine and all of our daily newspapers and get back Rush Limbaugh. Or (inaudible) on the other side. But that’s what’s happened.

And it’s a sad thing. Nobody planned that we had a fourth estate, that it was really a branch of the government that worked very well for us and that took pride in being accurate and so on. And nobody planned that it would go away. It just happened.

Now The Daily Journal Corporation, strangely, is not going to disappear. If all of our business fails, we still have a lot of marketable securities. So we’re going to do better than these other newspapers. I’m not counting the ones like The Wall Street Journal and The New York Times, there are a few that will survive no matter what. But basically, they’re all going away.

And The Daily Journal is not going to go away and leave the shareholders with nothing because of our big marketable securities. We also have a second business which we’re trying to use to replace the economic strength of the newspaper that is imperiled. And that’s Journal Technologies. And that is a computer software business that helps courts and government agencies replace human error prone inefficient procedures with simpler and better procedures run by software.

That is a very difficult business. Ordinary software like the software a teacher uses to help teach a class or the software is used in accounting if you’re a dealer in Chevrolets or something. That stuff is a gold mine because it’s just standard and you crank it out and everybody uses it, it’s efficient. What we’re doing is servicing all these government departments of a lot of different kinds, and they all have special requirements, and they’re almost all quite bureaucratic, and they’re also political. And it takes forever, and they’re full of lawyers and consultants…The RFP process.

So it’s a branch of the software business that is intrinsically very, very difficult. Where everything takes forever, is very hard to do and so on. And a lot of people just totally avoid it for that reason. They just want to crank out a few bits of software, or distribute it on the cloud, whatever they do, and count the money. And of course, we’re in a business where we need armies of people to help all these courts all over the world automate probation officing work or court filings and so on. It’s all going to happen, so with all this automation and the effect of software, it’s going to happen, but it’s unbelievably difficult.

An RFP involving a government and a bunch of consultants is intrinsically very, very difficult. And you have to keep good nature. You have to have huge patience and you have to have huge talent. You have to just keep rolling with it. And then the money comes in very slowly and has more bureaucracy. It’s very, very difficult. In spite of all those difficulties and the fact that everybody at the very top of this company is very old, we’ve done fairly well. And don’t ask me why it was kind of a miracle. But a lot was done right just to make it to our present state. And it’s a big market, but it’s not going to be easy and it’s not going to be fast.

On the other hand, we all like the customers. I’ve fallen in love with the government of Australia. They’re just such nice people and I think it’s wonderful that Australia wants automated courts. And I think it’s wonderful they’re smart enough to hire us. Imagine hiring the little Daily Journal Company to run the courts of Australia. And my guess is it’s all going to work for them and for us. It’s a miracle they figured out that this little company would be a pretty safe choice. I think part of the reason we’ve been successful is so many of our competitors are so awful. So we don’t deserve as much credit as we’re claiming.

But it’s going to take a long, long time and it’s an everlasting struggle. It’s kind of fun to watch because we have the most unlikely cast of characters and a lot of them are quite successful. Gerry just made a big report to the board of directors. It’s just amazing the goodwill with which the people attack this very difficult work and just keep everlastingly at it. (And if) they have trouble so they go around, if somebody goes crazy they tell him ‘no’. You know, there are a million opportunities to do this wrong.

But I think it’s all going to happen. And I think we may end up with a big share of it, but when it’s all done you shareholders will need a lot of patience. It’s really hard. This is not the easy part of the software business. This is more like trying to create another Pricewaterhouse. That would be difficult. And this is difficult. And of course, we can’t guarantee that we will succeed. But I consider it likely. I just think it will be slow and awful. I don’t anticipate any really easy times for a long time, but I suspect it will keep growing. Gerry, why don’t you…How well do you think we’re going to do in the next two or three years?

Where’s Gerry? I’m blind in my left eye, so that…

Gerry Salzman: We certainly devoted a lot of energy and resources to Journal Technology. We have approximately 250 employees in Journal Technology and we have offices here in Los Angeles obviously.  In Corona, because we acquired a company in 2013 with an office in Corona, California. We have an office in Logan, Utah, where we acquired a company there in 2013. And we have an office in Denver because our original interests in this system of serving courts started because of our interest in providing… or seeing that the court of Los Angeles, the largest in the United States at least, has sufficient resources in a service provider. That’s how we got involved in 1999.

And we are seeing lots of changes. You take, for example, in Los Angeles. Los Angeles now uses our system to do electronic filing. Attorneys do the filing electronically. If you go down to the courts in Los Angeles where people used to have to stand in line or have a service provider stand in line on behalf of the lawyers, there’s nobody there. Also, in conjunction with L.A., we were able to enable lawyers to determine when they would come to court and see the judge. So attorneys are now setting their own schedule and that reduces some of the personnel requirements at the court.

These are some of the innovations that are taking place. If for example, you get a traffic ticket in in Riverside, you’re using our system to pay for that. So drive fast through Riverside. (Laughter) And we’ve made some good inroads into other California courts. We have one basic system and we have three, four, or five different configurations of the system. One for courts. One for public defenders. One for district attorney. And one for probation officers. So we have to only modify one system and make sure the configuration of the main system is appropriate for other agencies. This is a big advantage when we come to the point of doing installations.

And Charlie mentioned the…projects in Australia, the government of Australia, we now have four or five, six or seven people down in Australia. And we’ve worked for the state of South Australia and Victoria at the present time, which is Melbourne. So we have most of the courts, we have all the courts in in those two states. And they range from mineral courts to other types of courts that we sometimes don’t see here.

Los Angeles, in California, in East County, only has one court. If you went to other states, you’d find that there was a probate court, a civil court, a family law court, it just goes on and on and on. And in California, they’re are much more efficient than you can imagine when it comes by comparison, where they have all the administrators, four or five administrators, and separate systems, and separate I.T. departments. Very inefficient. That’s what we are confronted with all the time.

As we move forward, the financial results will depend upon the number of users in these various justice agencies. Yes, we do get implementation fees, but we can only take that into income when everything is delivered. And so we focus on trying to get to the point where everything is delivered. Then we can take it into income and reflected in the financial statements.

Charlie: This is a very important thing that everybody in this room should understand. We have no simple way of just counting up hours and sending little invoices to the government. That’s what most consultants like to do is bill hours. And we don’t get the right to collect money until the thing works. And we do that on purpose.

It reminds me of one of my favorite tales which really happened. When I was young, a lot of the earth moving was not done with bulldozers, it was done by teams of mules who were guided by contractors who ran these mule teams and their big plows. And there was a Latino contractor who had an enormous number of mules, and when the war came, the big builder called him and said, “I’ve got a cost plus contract with the government, I’m going to make you cost plus and I want your mules to start tomorrow morning on this big project.” Cost plus…Cost plus percentage of cost.  And this Latino said, “Oh, no.” He says, “I can’t do that.”  And he goes, “Why not?” He said, “Well”, he said, “I get business all these years because I’m so efficient.” And he said, “When I take it cost plus contract, even my mules seem to know it and they all go to hell.” (laughter).

And that’s the Daily Journal’s policy. We’re trying to avoid deteriorating, by taking this awful contracting (course). And we’re trying to be good like that Latino contractor. And my guess is it’s going to work. But you have to be very cheerful to take it because it’s agony. I can’t tell you how the people like Microsoft, Google, and so forth, they don’t want our branch of the software business. I kind of like it. Peter kind of likes it. Because he senses that…Peter Kaufman, raise your hand…Peter likes it difficult if he thinks he will keep it forever once he gets it. That’s our system.

But I certainly can’t guarantee it’s going to work. It’s a lot of very work. And I would like to tell you we’re just ass deep in talent. And that we have four qualified people for every job. We’re just the opposite. We’re like a bunch of well-armed paper hangers working away at this stuff, and so far it’s working.

And, of course, what’s happened in America, of course, is that software has grown enormously. If you take every big college in the engineering department, the most popular course is Computer Science. And if you go into venture capital, the most popular investment is some kind of software. And I do not find venture capital’s backing of software companies pretty because there’s just so much of it and there’s some wretched excess, and folly, and high prices and so on. It’s not a scene that attracts a normal Berkshire Hathaway type. I’m not saying it won’t work. For a great many of them it will do very well. But there’s also going to be a lot of casualties.

I don’t like it when bad stuff comes in… I don’t like it when investment bankers talk about EBITDA, which I translate as ‘bullshit earnings’. (laughter) And I don’t like all this talk about J-curves and all these private sales of software companies from one venture capital to another, and markups…it looks like a daisy chain to me. So I think there’s a lot of wretched excess in it. But it reflects an underlying sound development, which is this huge growth of software changing the technology of the world. But it’s going to have some unpleasant consequences because there’s so much wretched excess in it.

I bet (looking around) this room (that) almost everybody has somebody in software in the family. I’ve got two people in private equity in my family, and private equity is grown into the trillions. And of course it’s a very peculiar development because there’s a lot of promotion and a lot of crazy buying. It’s what I call ‘fee-driven buying’, much of it, where people are buying things to get the fees. I’m not used to that. I buy things because I think they’re going to work for me for the long pull…As the owner! I’m not thinking about scraping fees off along the way. So it’s a very different…it makes me very nervous to have all this fee driven buying. Wherever they’re successful, they just raise a fund that’s twice as big as the last one. Throw more money at more deals. And of course, with more money and more overhead, it’s an (inaudible) demand for fees. But will the world provide wonderful results for all these people? The answer is no, it won’t. It’s gonna be a lot of tragedy.

And in the past, the people who did well in venture capital were the clients of Sequoia, which is one of the best venture firms that ever existed in the history of the Earth. But there aren’t that many Sequoias and Sequoia had such a wonderful record because it kept itself small. And now everybody is trying to be enormously large and to grow enormously and hire more and more people and collect more and more fees. It’s weird and it’s not going to work perfectly. I am trying to give you the same service my old Harvard law professor gave me when he said, “Tell me what your problem is and I’ll try and make it more difficult for you.” (laughter) By the way, the guy that told me that was doing me a favor. It’s a pretty good way to proceed. I have this saying, ‘A problem thoroughly understood is half solved.’ It’s hard to understand it well.

Well, I guess that’s enough for The Daily Journal you’re in for a long, long difficult ride. And not only that, the damn leaders look like an old people’s home. (laughter) I’m 96. Rick is 90. Our CEO is 80. I mean, if you’re not decrepit you don’t belong here. I think we will gradually work things out in spite of this aged group of directors. After all we got a young man like Wilcox whose past retirement age. And of course we’ve got a new director, Mary Conlin, whose up here partly to make the rest of us look good…Or bad, rather.

All these odd results in capitalism…It is peculiar that one little newspaper is full of marketable securities, and it’s probably not dying, and a management that has succeeded in a business none of the people understood. None of the people I’ve named is a computer software engineer. It’s weird. And yet you people who come from all over the world to this place, you’re as nutty as we are. And if you ask me, I think it’s slightly more likely to work than not work. And it’s a very good thing to be doing. The world needs what we’re trying to do. And we’re trying to reward the right people. And really trying to serve the customers.

When it comes to customers…My ambition is to be as close to Costco as I can possibly be. I’ve never been associated with a company that works harder than Costco to make sure that customers are served well. I mean, I just love success that occurs that way. And I hate success where you deliberately trying to cheat people or sell them something that’s not good for them. Like gambling service in Las Vegas. By the way, I’m not trying to irritate our customers in Los Vegas. I’m doing it by accident.(laughter). Anyway…

But I do think there’s something to be said…You have the option for selling stuff that’s good for people instead of stuff that tricks them. And any rate, that’s our approach. I would choose that approach even if I made less money. In fact, I think you make more. It reminds me of Warren Buffet’s favorite saying, he says, “You always take the high road.” he says, “It’s less crowded.” And that’s the system.

I think the politics of the country are weirdly awful because of the excesses of hatred that you see everywhere. In California with a gerrymandered House of Representatives, the only danger of getting tossed out of the legislature is if you’re a leftist, somebody to the left of you may come in. Or if you’re rightist, somebody to the right of you may come into the primary.

And this…creates an awful legislature where the individuals hate each other. And there maybe will be 10 sort of sensible Republicans and 10 kinds of sensible Democrats in the California legislature. And every 10 years, these nutcases of the right and left get together and throw all the sensible people out by gerrymandering them out because they all agree that the people in their own party who are near the middle are horrible. Well that is a crazy way to be governed. And it is not pretty. And I have no solution. It’s just interesting. Warren said to me the other day, he said, “It’s so interesting now,” he says, “I would like to stay around for another 30 years if I couldn’t participate, if I could just watch.” And I said I’d sign up for that, too. It is very interesting. It’s weird.

Think about different television is when Cronkite is gone and we have all these clowns on the opinion servers lying to us in a very shrewd way. And they are really good at! You know, the ability to mislead people is greatly underestimated. Any good magician can make anybody see a lot of things happening that aren’t happening and not see a lot of things happening that are happening. And of course, we’re all dealing with various people who, through ‘practice evolution‘, have been good at misleading us. And so it is very very hard to be rational and to stay sane.

Of course, that’s part of the reason that some of the companies that I’ve been affiliated with have been successful. It’s not that we’re so smart, it’s that we stayed sane. Because a lot of what goes on is absolutely nuts. And we all see it in politics of course. It’s even sillier than it is in business. Although sometimes we businessmen try and get into our share of the stupidity.

You people come from all over the world, to this thing out of some deep hunger. I regard you as nerds because I was once one of you, and I know a nerd when I see one. (laughter) And you come here because some fellow nerd has managed to succeed despite his defects, and you need a similar result. (laughter) And you know something that’s really odd, is you’re right! If you could learn some of our tricks, you can get more success out of life than you deserve. That’s what’s happened to me.

And how did it happen? I’ll tell you how it happened, it’s obvious that I got better life outcomes than I deserve based on energy or intellect. And of course that’s an interesting process, and everybody would like more of it. Who doesn’t like to get a lot more than one deserves? I stumbled into a few metal tricks early in life, and I just use them over and over again. I mean, I take the high road because it’s less crowded. Of course that’s a smart thing to do. And then…I was raised by people who thought it was a moral duty to be as rational as you could possibly make yourself. And that notion, which was just inherited basically from my genes and my surroundings, has served me enormously well. It’s like Kipling said, “If you can keep your head when all around you are losing theirs.”, it’s a big advantage!

And just think of all the dumb things that are done by our politicians and our business leaders. And the wretched excess you see in the system and…I can remember one of the earlier crazy movements that caused one of our earlier recessions. All these traders would go to Las Vegas and people would hand them free stacks of chips and they had strippers…That was our securities market. It was grossly awful. And a lot goes on now that is grossly awful. Imagine politicians who never understood Adam Smith? It would be like hiring an engineer to design your airplane and he didn’t believe in gravity. (laughter) Well, I laugh too, but there are tears and my laughter. (laughter)

But this business of being determinedly rational does work, if you just keep everlastingly at it. Because it’s harder to say sane than it is (inaudible). Of course, one of the things that’s wrong with the present system is the way the heads get cabbaged up by the activity and the owners of the heads don’t know what’s happening. One of my favorite actors when I was young was Sir Cedric Hardwicke.  Was such a good British actor that was knighted by his Monarch. Sir Cedric Hardwicke got old and of course he kept acting right on and on and on, and toward the end of his life he made women with great statements in the history of acting. He said, “I have been a great actor for so long that I no longer know what I truly think on any subject.” If you stop to think about, that’s exactly what’s happened to most of our politicians, except they don’t know it! Sir Cedric Hardwicke at least new his brain had been turned to cabbage. Whereas our politicians, they like cabbage. (laughter) Anyway…

And of course the young people that want to shout out their resentment of this and that…You know, I always say what they’re doing is pounding it in. Nobody’s listening to them when they shout out, they’re just pounding a lot of nonsense in. It’s a big mistake to pretend to be practically anything because you become what you pretend to be. Now, sometimes that works. I knew a couple of no-goodniks in my youth who became leading philanthropists, and they did it just to mislead people. But after they had done it for a while, they became legitimate philanthropists. That always gave me conclusion that hypocrisy really is better than most people think. (laughter) Because It does change you to constantly pretend to be one thing or another, and of course it changes you to say something repeatedly. I always felt that Ronald Reagan was shifted from Democrat to Republican…Well, his acting career failed and he was hired by General Electric run around and give right-wing speeches. Of course, he became a Republican.

In a world where that’s the way your own mind tricks you, of course if you have some prophylactic measures where you’re more cautious about your views. Think of how we’d all love to have a bunch of children who we’re a little more cautious about their views. I’ve got some children in the audience. They’re by and large a pretty good bunch, but if I had my druthers, there’s a thing or two I would change. (laughter) Well you can laugh, but that’s the way life works. Well that’s enough of ruminations of one… Imagine coming to listen to some ninety-six-year-old man. Amazing. I’ll take questions now from anybody.

Question & Answers

Question 1: In the past, you’ve referred to value investors as a group of cod fishermen and suggested that they maybe fish in a different pond. Conversely, you’ve also discussed how over a long enough time frame an investor’s realized return would mirror the business’s return. So given that many of the highest quality businesses are in the U.S., wouldn’t some of our time be best focused on analyzing the quality of the businesses here in the U.S.? And I understand that the odds offered on the bet matters a lot. So I’d be curious to hear in your mind how you weigh the quality of the horse vs. the odds offered on the horse.

Charlie: Well, both are important, but basically all investment is value investment in the sense that you’re always trying to get better prospects than you’re paying for. But you can’t look everywhere at once, any more than you could run a marathon in 12 different states at once. And so you have to have some system of picking some place to look, which is your hunting ground. But you’re looking for value in every case.

And what is interesting to me is, you talk about the U.S., I don’t agree with you, I think the strongest companies are not in America. I think the Chinese companies are stronger than ours and they’re growing faster. And I have investments in them and you don’t. And I’m right and you’re wrong. (laughter) Well you can laugh, but I just spoke a simple truth. Li Lu is here, I saw his face in the audience. He’s the most successful investor in the whole damn room. Where does he invest? China. And boy was he smart to do that. And is he good at.

Oh, it really helps if you know witch hunting ground to look in. In fact, we all do better hunting, when we’re hunting where the hunting is easy. I have a friend who’s a fisherman and he says, “I have a simple rule for success in fishing. Fish where the fish are.” You want to fish where the bargains are. It’s that simple. If the fishing is really lousy where you are, you should probably look for another place to fish.  Somebody else?

Question 2: Over the years, you’ve shared lots of comments about India and China. I would love to hear any and all insights you have about your friendly neighbors to the north. Whether it’s our Canadian political system, banking system, housing sector, resources industry, health care system. Any and all insights, wisdom on Canada would be much appreciated.

Charlie: Well, I’m glad you gave me this opportunity. I’m very partial to Canada. And I think their socialized medicine system… I think they’re wise to have it. And I think they’re wise to pay their pharmaceutical prices instead of ours. And I think it’s wonderful that we’ve gotten along with Canada so well all these years. Oh, I think you should be quite pleased with Canada. I don’t think it helped you to have two different languages spoken. It was an unfortunate accident. But I basically like Canada and I think in some ways you do better than we do. Gerry points out that we have customers in Canada. He’s encouraging me.

Question 3: With computers and artificial intelligence rapidly getting better at investing than humans, what should analysts and portfolio managers in the investment management industry do to remain competitive?

Charlie: Well, that’s a very good question. I think what people in the investment management industry ought to do is prepare for tougher times ahead. I think this indexing thing is going to run and run and run. And I think that there are wretched excesses in a lot of well-paid hedge fund and private equity businesses that will in due time result in a lot of troubles that give pain.

So, everywhere I see the endowment managers have the same mantra. They want fewer and better investment managers. That’s not gonna be good for investment managers and the rest of the people are indexing. Now do you want any other cheery news? The cheery news is that if you think the way we nerds think and keep at it long enough, you’ll do all right. But if you go with this crowd, I think there’s pain ahead.

Question 4: In the past, you’ve recommended index funds for most people seeking wealth accumulation. And in the past, Warren Buffett has recommended using the selloff strategy for income as opposed to chasing dividends. If we synthesize those ideas, it seems like the best course of action for investing over a lifetime is to use index funds for accumulation and the selloff strategy for income in retirement. Would you agree with that? And if so, what benefits do you see in using that strategy?

Charlie: Well I think the reason it’s growing is that for most people it does work better. And on the other hand, there’s a huge proclivity to gamble. It’s very interesting to play in a game where the returns are variable, so that there’s a huge lure that comes to gambling. In China, the ordinary holding period for the individual investor is short. They love to gamble in stocks. This is really stupid. It’s hard to imagine anything dumber than the way the Chinese hold stock. And they’re so good at everything else. It shows how hard it is to be rational. But I don’t think investment management is going to…I think there are lots of troubles coming. There’s too much wretched excess.

Question 5: I had a question regarding the Stoics. Anybody who’s read your life, your testament to the idea to not be a victim, but to be a survivor. And it’s an attitude that has helped me in my short life so far. Could you perhaps expand on that idea, how it’s helped you, and how that is perhaps one of the greatest ways to live your life out regardless of what happens to you?

Charlie: Well of course, feeling like a… It’s fairly interesting…Some people are victimized by other people. And if it weren’t for the indignation that that causes, we wouldn’t have reforms that we need. But that truth is mixed with another. It’s very counterproductive for an individual to feel like a victim, even if he is. Best attitude is just to be cheerful about everything and keep plugging along. And therefore I don’t like politicians that get ahead by trying to make everybody else feel like a victim. It makes my flesh crawl. And I just don’t believe in it. Of course, who wants to be a victim instead of a survivor?

Of course, we want… But feeling like a victim… You can recognize your position as bad and try and improve it. That’s OK. But to have, a deep feeling of victimhood and it’s all somebody else’s fault is a very counterproductive way to think. People don’t even like being around it. It’s really stupid. And yet our politicians build on it and try and make their careers work by doing something that’s very bad for all the people they’re talking to. And they think they’re doing the world’s work. You know, it’s crazy. It’s absolutely crazy.

Question 6: The Daily Journal and Berkshire own a lot of the very large banks. My question is concerning some of the fintech technologies coming up. Your position on crypto is very clear. But do you see other fintech technologies as being a threat to the long-term profitability of those large banks?

Charlie: Well, I don’t know much about crypto technologies except to avoid them. And by the way, I have a lot of things…I have what I call the ‘too hard pile’. And if you (fit into) my ‘too hard pile’, I throw you into ‘too hard pile’ and I don’t think about them. Now every once in a while, I take something on or drift into something really difficult. And then I continue doing it just because I’m perverse. The Daily Journal is basically a ridiculous enterprise. It’s really difficult. And I’m enormously rich and I’m ninety-six years old. And yet I care terribly how it works out. It’s a little insane. Why would you come here and talk to a nutcase like me?

But, no, I hate things like Bitcoin. I mean, I hate things that are intrinsically anti-social. Of course, we need real currencies. And one of the interesting things about the current condition is that the Americans have created the reserve…by accident…have created the reserve currency of the world. And the world needs a reserve currency. And I don’t sense any great sense of trusteeship among my fellow Americans for behaving very well in our responsibilities to the rest of the world with our own currency. Our attitude is we’ll do what pleases us. That’s not my view. I think once you get a big responsibility to other people who are depending on you, you ought to think about them too.

Question 7: We have record budget deficits, record unemployment, and record expansion of the balance sheet. Why do you think we don’t have inflation? And secondly, could you recommend some good books you’ve read the last year?

Charlie: Well, regarding inflation. You know the economists of the world thought they knew a lot more than they did. What has happened is weird, that in response to the Great Recession, all the nations of the world have printed money like crazy and have bought all kinds of investment assets. And they’ve done things that nobody in the economics profession would have recommended on this scale. Even five or so years ago, and yet the inflation has been very low. I think we all have a lot to be modest about when we talk about economics. Lyndon Johnson said that giving a talk on economics was a lot like pissing down your leg, he says, “It feels hot to you, but it doesn’t influence anybody else very much.” (laughter) And I’m afraid I can’t do much better than Lyndon Johnson could.

Charlie: Oh books. People send me books, more than I can read. And I’ve gotten so I skim a lot of them very rapidly. I’m not sure I’m the right one anymore to… Books were so important to me all my life that I find that my…I used to read fewer books and read them better than I do now. And of course, I don’t see very well. So maybe you should talk to some younger man about your books.

Question 8: My question is about your outlook for global market and economy, especially given the slowdown in the global economy, driven by Chinese economy. And also the rising geopolitical risk. So what’s your take on market and economy going forward?

Charlie: Well, I am mildly optimistic about China for a variety of reasons. Nobody has ever taken a big nation ahead as fast as China has come ahead. And I think they’ve done a lot right. So I’m a big admirer of what’s happened there. If stopped to think about it. They we’re in a Malthusian trap and they prevented 500,000 babies from being born. They did it by methods that we wouldn’t like in the United States. But I think they were doing their world a favor. And I think that what they did was admirable.

So, basically, I don’t have this hostility toward China. I really admire what the Chinese people have achieved. And I think, considering that they started as communists, their leaders are pretty good. And it’s amazing. Imagine a communist country creating this enormous period of growth and prosperity and lifting 800 million people out of poverty. I like what’s happening in China. And I think the United States ought to get along with China. And China ought to get along with the United States.

And regarding the global situation. It’s so peculiar to have negative interest rates…Oh, another thing I greatly admire is…and this will strike you as very peculiar…There’s one modern nation which has had like 25 years of stasis. How can anybody admire twenty-five years of stasis? Well I think the Japanese have handled 25 years of stasis with my magnificent skill and philosophy. Japan is not going to hell. They don’t like 25 years of stasis, but they take it like men and they aren’t bitching and wailing and they don’t act like victims. And so I really admire the way the Japanese have handled their adversity. And I don’t think the adversity came from a lot of mistakes. I think the adversity to Japan…They were an export powerhouse and up came China and Korea. Of course they had some troubles. We’d all have troubles if we had way tougher competition.

And so I think that’s my…I don’t think Japan’s stasis was Japan’s fault. I think it just happened. And I think they bear up in it magnificently well and they’re to be greatly admired. And of course, they got into this defect free manufacturing ethos in a big way and led the world in it. So I think the United States has a lot to learn from Asians. Think about how everything’s clean in Japan. You don’t see any homeless sleeping in the…defecating in the street either. Oh, I think there’s a lot to be said for Japan.

Question 9: I was hoping that you might share with us some examples of how you used disconfirming evidence to change some of your important determinedly held beliefs.

Charlie: Well of course being able to recognize when you’re wrong is a godsend. If you take…A good bit of the Munger fortune came from liquidating things that we originally purchased because we were wrong. Of course, you have to learn to change your mind when you’re wrong. And I actually work at trying to discard beliefs. And most people try and cherish whatever idiotic notion they already have because they think if it’s their notion it must be good. And I think, of course you want to be reexamining what you previously thought, particularly when disconfirming evidence comes through. And there’s hardly anything more important than being rational and objective.

Just think of all the dumb things you can do in life. Think of the brilliant people who are just utterly brilliant, who do some of the dumbest things. You won’t have any trouble thinking of examples. In fact, most of us can think about our own action in the last year or two and we can all pull up an example or two. It’s hard to be rational.

Question 10: I recently watched a documentary that introduced the economic masters, Keynes and Hayek. I would like to know your comments on both of them and which economic theory you’d prefer. And to take a step further if applied to personal goal setting, which model would you advise us to follow? Between planning and flexibility?

Charlie: Well, Keynes of course, was a very interesting man. And he probably had more influence on the economics profession than anybody, maybe excepting Adam Smith. And of course, I lived in the Great Depression. And his ideas were exactly right for fixing the Great Depression. And what happened was we got out of it finally because accidental Keynesianism came in courtesy of Adolf Hitler in World War II. So, I don’t see how you could study economics without Keynes.

Hayek is more complicated, and I don’t think I’m the world’s best understander of Hayek. I have read him. And I tend to rather admire him. But I’m not sure I totally agree with him. It’s too tough for me. Therefore, I (inaudible) to you.

Question 11: I want to ask you about Tesla. The company has a market capitalization of about $140 billion. It traded last week about $200 billion dollars in stock and traded about $500 billion in options. And the stock moved about 20 percent a day. Meanwhile, Mr. Musk seems thrilled to stoke this volatility. I wanted to know what your thoughts are on this situation and particularly what your thoughts are on Mr. Musk’s behavior.

Charlie: My thoughts are, two. I would never buy it. And I would never sell short. (laughter) I have a third comment. There’s a man known in Los Angeles for years named Howard Ahmanson, he once said something that I’ve taken to my heart. He said, “Never underestimate the man who overestimates himself.” I think Elon Musk is peculiar and he may overestimate himself, but he may not be wrong all the time.

Question 12: I have two questions. First, what do you think of the value investments in the next 50 or 100 years? And the second question is, do have any advice on the industrial research, or the industrial investments?

Charlie: Well, I don’t think I’ve got any wonderful comments to make about industrial investment. I do have the feeling that the world may change. And two changes that I think are possible are…I think they may extend life, average life duration, by fancy tricks. And I think they may reduce cancer deaths by fancy amounts. Well I think weird things may happen. (inaudible)…any of this if it happens to me.

But I think that…Think of what’s already happened in technology. Imagine the whole internet developing and whole different things. And all those old companies, all the daily newspapers dying, and total change in manufacturing processes. And there has been a lot of change and of course this caused a lot of loss to people who had owned stocks.

I do have the feeling that (what) is really important has probably already happened and it’s going to happen from this point forward. How much better can it be once you have enough to eat? (inaudible) and a few other things? What is extra money going to do for you?

So I do think that my generation had the best of all this technical change. You know, our children stop dying. Living standards have gone way up. Air conditioning came. There were a million good things that happened.  Medicine greatly improved. They could replace your achy joint when it caused agony. I don’t think we’re going to get as much improvement in the future because we’ve got it so much already.

Question 13: Earlier in the meeting you mentioned the benefits of taking the high road, treating the customers the right way, etc. There’s a sense, which may or may not be true, but there is a sense that in China there’s more moral flexibility in business, less respect for the rule of law, and less transparency than there is in the West. Do you share that concern?

Charlie: Well, I’m naturally more comfortable in my own country, with its traditions, than I am into what’s evolved out of Chinese communism. But I admire…Considering where they were, mired in this Malthusian poverty and also mired in some ignorance, and that leader who said I don’t care if the cat is black or white, I want to know if it catches mice. That was one smart leader. And I think that that smart leader of yesteryear has other leaders now who are as smart, and I think they’re going to keep improving. I even think the Chinese may get over their crazy love of gambling. I once talked to a bunch of Chinese leaders. (And I tell you, I got to Feng Shui) and I said, “Get over it.” Pure superstition.

Question 14: Any secret of longevity tips? And how many hours do you work a day? How do you stay so current with all the information as a lifelong learner?

Charlie: Well, I don’t think I deserve any credit for longevity. It just happened. There’s no male in my family that ever lived any such age. And it’s weird. Well, I can’t help you. (laughter)

Question 15: You mentioned earlier that some mental tricks have been helpful to you. One was taking the high road. The other is being perfectly rational. What other mental tricks have been helpful to you during your life? And also you touched how you’re worried about some excesses, whether it’s in venture capital, private equity, political sphere, and in government debt. What other excesses do you see in the system right now?

Charlie: I don’t think the wide use of opioids has helped us either. There’s always some miserable excess. And it’s a very complicated subject. Do you remember how the Chinese emperor got rid of opioid addiction when something like 1 male in 8, or something like that, in China was an opium addict? He didn’t have to kill very many people, he just said death penalty for users, no exceptions. And away went his addiction problem. I think somebody may try some of that stuff sooner or later if things get awful enough. It may not be the worst way to handle it. On that cheery note, I’ll go to the next question.

Question 16: I’m a father of three young children under the age of 14. And my question to you is, what would you recommend to teach children to prepare than to be successful in life?

Charlie: I think the best thing any parent can do is be a good example. Preaching doesn’t work worth a damn.

Question 17: There are over 10 trillion dollars of securities around the world with a negative yield. And by the president’s Twitter feed, it seems that he wants to bring negative interest rates to the United States. Are you for negative interest rates or against them?

Charlie: Negative interest rates make me very nervous. However, I don’t think the authorities had much choice. It’s politically impossible to do big stimulus rapidly and the only weapon they had in a crisis was to print money and change interest rates. And I think it was probably the right thing to be done. Of course it makes me nervous. And I think, having worked once, people will overdo it. And that’s the nature of governments and people. And of course, that makes me nervous. I don’t know what to do about this.

Question 18: My question is about the effects of low interest rates on insurance. Lower returns on float may be causing a tighter supply of insurance. For example, there used to be three main underwriters insuring all the taxi cabs in Southern California. Now it is heading towards just one underwriter who will have a monopoly on all commercial taxi insurance in Southern California. You have access to CEOs of Geico and Wesco and a Rolodex that we can only dream of. So do you see 10 years of low interest rates posing a systemic risk to the supply of insurance?

Charlie: I am made uncomfortable with the idea of extremely low interest rates, or negative interest rates even more extreme, lasting a long time. I don’t think anybody knows how those will work. If you are a little uneasy, welcome to the club. I think it’s dangerous and peculiar, but I think we had to do what we did. In other words, I don’t have any good solution for you. I think you’re right to be worried about it.

Question 19: Do large cap technology stocks today reflect the bubble environment of the Nifty Fifty, in that everyone is investing in the same 10 or 15 stocks?  Also, Berkshire Hathaway owns 26 percent of Kraft Foods, would it make sense to buy out Kraft Foods completely and take advantage of the low price?

Charlie: Well I don’t think I can comment about what Berkshire Hathaway might do next at what price. But Nifty Fifty is an interesting question. At the height of the Nifty Fifty craziness, which was created by the Morgan Bank of all places, you had a home sewing company that was selling for 50 times earnings. Home sowing! Great god. We are not that crazy yet. So I don’t think that…I think that a lot of what’s happened is not crazy. I think these companies are very valuable…While they may be selling at too high prices. But home sowing was sure to fail. I don’t think our leading tech companies are at all sure to fail. Well, I think it’s not nearly…The current situation is not nearly as crazy as what…The Nifty Fifty was absolute dementia.

Question 20: What advice do you give to your family that is starting careers in private equity? And what advice would you give to young people as a whole, starting careers in those sectors?

Charlie: My family is not very interested in what I think about their career choices. (laughter) And I respect their disinterest. But I do think we’ve got way too much wretched excess. Any time you’re inventing new names to sort of mislead people, like adjusted EBITDA? Think of the basic intellectual dishonesty that comes when you start talking about adjusting the EBITDA. You’re almost announcing you’re a flake. And yet our respectable people talk that way and charge fees for talking that way. It’s ridiculous.

And so I don’t like the wretched excess. I don’t like all these transactions were one private equity group sells to another and the guys who really own it are just sort of raising the fees higher and higher for owning the same intellectual mix. It says a lot that’s…Finance by its nature, the temptations are too great and it goes to wretched excess. And of course, I don’t like it. I don’t think it’s good for the country.

I would argue that the wretched excess that led to the Great Depression, which led to the rise of Hitler. I think we pay a big price eventually for wretched excess and stupidity and greed and so forth. I’m all for staying in control. In other words, I’m all for behaving a lot more like Confucius.

Question 21: Mr. Munger, it is well known that you’re an avid and voracious reader. Do you ever reread books that you’ve already read before? And if so, which books do you reread?

Charlie: Yeah, I do. Let me give you an example of something I want to reread that I haven’t re-read yet. The other day I was musing over the current situation. And it popped into my head that I had read a poem about 80 years ago by George Sand. And George Sand was a female writer, but you know, female writers to get ahead in those days sometimes used men’s names. George Sand wrote a poem and it was an ode to the goddess of poverty. She said, “Hail to the goddess of poverty! A wonderful goddess of poverty. She tills the fields, she mines the mines, and so on.” If I remember right toward the end, the goddess of poverty said, “If you try and banish me, you’ll live to want me back.” I kind of agreed with this poem and I’d like to see it again.

I don’t know how a punch notes on the internet and get George Sands poem to me. So if somebody will send me her poem, I’ll very much like it. But I’m telling you this because it’s an anecdote to our politicians who want to tell us that they’re going to abolish all poverty. It’s a stupid idea. You know, it’s like saying we’ll all be…Riches in a modern civilization are a relative thing. It’s status where we want. It isn’t that we need more means. The trouble with reaching for status is that the bottom 90 percent are always going to contain exactly 90 percent of the people, no matter how hard we work or how much we succeed. And we actually need some tough incentives in a civilization to make it work. In other words, George Sand was right. The goddess of poverty is not all bad. She’s partly good.

And of course, I like thoughts that I have that are different from everybody else. I think that a billionaire who talks about the glories of goddess of poverty, is making a contribution. (laughter) But only a bunch of nerds like you will appreciate it.

Question 22: You were an early proponent of electric vehicles, specifically your investment in BYD. I wonder if from your perspective today, other technologies like hydrogen fuel cells or others that may come to mind are equally important in terms of their emerging capabilities and what sort of impact they may have.

Charlie: Well, I think electric vehicles will be more popular than hydrogen fuel cells. Getting the sun’s energy transferred into electricity, and electricity into the vehicles is basically a good idea for the long pull. And I think all the technology is going to work. And some of it’s actually improving. We may get a lithium battery that’s actually quite safe and more energetic than those we have now.  I think that’s all to the good.

In fact, here in California…When I came to California, we had a Petroleum Club. We had wildcatters. We had a big oil industry. It was a little like Texas. I don’t think we’ve found any new oil to speak of in California in decades. I think it’s dangerous to rely on hydrocarbons for energy. Of course we’ve got to take more of it directly from the sun. I think that Texas will eventually get to be like California.

Question 23: Do you think it’s necessary for America to record a positive trade balance to keep its prosperity in the next century?

Charlie: The answer is no.

Question 24: To borrow words from another blind philosopher, John Milton, Berkshire, Costco, and Daily Journal. “Pleas’d be long choosing, and beginning late.” This question is for my five children who may be watching later, how do you nudge your kids and grandkids to hold on to their shares for as long as possible?

Charlie: I don’t think I’m a good model for you. My children seem to do pretty much what they please. I find I’m happier if I just do the best I can by my children and take the results as they fall. I wouldn’t sweat too much about whether your children hold the stock or not.

Question 25: I’m 18 right now, I’m in college and sometimes I lose interest in what I do. And your ninety-six and you’re so passionate about what you do. So what keeps you going? How do you still have the motivation?

Charlie: Well, maybe I’ve been lucky. I like what I do. I have wonderful partners and friends. I have a nice family. My problems are interesting to me. I have been a very fortunate man. And I don’t know how to make everybody else lucky. Well, I could have had a different hand and been some miserable alcoholic throwing up in the gutter. I don’t think I deserve any great credit for having stumbled into a reasonable amount of felicity. I do think that trying to be rational helped. That’s the only thing you’ve got if you’re fellow nerd. There’s no point in your...If you’re not going to be a sex object, you may have to rely on your rationality. (laughter)

Question 26: There’s a lot of talk these days about the climate and the environment and funds divesting fossil fuels and in countries trying to figure out how to generate electricity without polluting the environment. Could you give us your thoughts on nuclear power? I know Bill Gates has been a pretty vocal supporter of it. And I read that Warren used to invest in uranium back in the 50’s. And he more recently helped to fund a uranium bank in Central Asia. So if you had any comments on that as well.

Charlie: Well, I admire Bill Gates, who feels a duty to throw money at stuff that’s unpopular elsewhere, and that might possibly work. Oh, I think it’s an admirable charitable effort by Bill Gates and one for which he’s very well suited. I don’t know whether we’re going to get safe little atom plants or something. But I think it’s certainly worth thinking about. Problem with it of courts is that, how much additional (nuclear) material do you want a bunch of crazy humans to have? I don’t know the answer to that question.

And regarding energy, of course we’re going to have to get more directly from the sun and so forth. And I think it’s all to the good that everybody’s going into that in a big way. By the way, I would be in favor…if there were no global warming problem…I’d be in favor of substituting… getting power directly from the sun for fossil fuels starting today, even if we didn’t have a global warming problem. I think it’s a good idea to conserve the hydrocarbons and use more solar energy. That is, by the way, not the normal attitude of other people. But I’m right and they’re all wrong. (laughter)

Question 27: My question is on a universal basic income. So it is a government’s whole public program for a periodic payment delivered to everyone without any work requirement. So I’m just curious about your opinion plan like this.

Charlie: Well, if you did enough of it, you’d totally ruin everything. A little of it, we can afford. What the exact mix is? We’ll be determining through the political process forever.

Question 28: You talk frequently about having the moral imperative to be rational. And yet as humans, we’re constantly carrying this evolutionary baggage which gets in the way of us thinking rationally. Are there any tools or behaviors you embrace to facilitate your rational thinking?

Charlie: The answer is, of course. I hardly do anything else. One of my favorite tricks is the inversion process. I’ll give you an example. When I was a meteorologist in World War II. They told me how to draw weather maps and predict the weather. But what I was actually doing is clearing pilots to take flights.

I just reverse the problem. I inverted. I said, “Suppose I wanted to kill a lot of pilots, what would be the easy way to do it?” And I soon concluded that the only easy way to do it, would be to get the planes into icing the planes couldn’t handle. Or to get the pilot to a place where he’d run out of fuel before he could safely land. So I made up my mind that I was going to stay miles away from killing pilots. By either icing or getting him into (inaudible) conditions when they couldn’t land. I think that helped me be a better meteorologist in World War II. I just reversed the problem.

And if somebody hired me to fix India, I would immediately say, “What could I do if I really want to hurt India?” And I’d figure out all the things that could most easily hurt India and then I’d figure out how to avoid them. Now you’d say it’s the same thing, it’s just in reverse. But it works better to frequently invert the problem. If you’re a meteorologist, it really helps if you really know how to avoid something which is the only thing that’s going to kill your pilot. And you can help India best, if you understand what will really hurt India the easiest and worst.

Algebra works the same way. Every great algebraist inverts all the time because the problems are solved easier. Human beings should do the same thing in the ordinary walks of life. Just constantly invert. You don’t think of what you want. You think what you want to avoid. Or when you’re thinking what you want to avoid, you also think about what you want. And you just go back and forth all the time.

Peter Kaufman, who is here today, he likes the idea that you want to know how the world looks from the top looking down and you want to know what it looks like from the bottom looking up. And if you don’t have both points of view, your reality recognition is lousy. Peter’s right. And an inversion is the same thing. Just such a simple trick to think, “How does this look from the people above me? How does it look from the people beneath me? How can I hurt these people I’m trying to help?” All these things help you think it through. And they’re such simple tricks. Like the lever, they really help. And yet our great educational systems that give out advanced degrees, they don’t teach people these simple tricks. They’re wrong. They’re just plain wrong.

Question 29: If you were researching a new company that you’ve never heard of, how would you approach the research process? How much time would you spend if you performed an intrinsic value estimate and the company was expensive, would you still continue following the company closely and researching it? Or do you kind of try to get to a valuation pretty quickly, and if it’s if it’s not cheap kind of move on? How do you balance the time you spend on companies?

Charlie: Well, of course if it’s complicated technologically I tend to leave it to others. I may make an occasional variation on that, but basically, I just don’t do it. I want to think about things where I have an advantage over other people. I don’t want to play a game where the other people have an advantage over me.

So if you have a pharmaceutical company and you’re trying to guess what new drug is going to be invented, I’ve got no advantage. Other people are better at that than I am. So I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid. And believe me, it works better.

God bless our stupid competitors, they make us rich. You know, that’s my philosophy. And I think you have to know the edge of your own competency. You have to kind of know, ‘This is too tough for me. I’ll never figure this out.’ I’m very good at knowing when I can’t handle something.

Question 30: My question is about electric vehicles and BYD. Why are electric vehicles sales at BYD down 50 to 70 percent while Tesla is growing 50 percent? And what’s the future hold for BYD?

Charlie: Well, I’m not sure I’m the world’s greatest expert on the future of electric vehicles, except I think they’re coming generally and somebody’s going to make them. BYD’s vehicle sales went down because the Chinese reduce the incentives they were giving to the buyers of electric cars. And Telsa’s sales went up because Elon has convinced people that he can cure cancer. (laughter)

Question 31: One of the more surprising opinions I’ve heard this year is that we never really had journalistic ethics, that the news has always been colored yellow with the voice of their proprietors. With nine decades of observation under your belt, does that ring true? Or does the recent business models shift from subscriptions towards…

Charlie: No, I think those old proprietors, the people that owned the networked news and Time magazine, and Newsweek, and the Monopoly newspapers, I think those people were pretty good and this current bunch are deliberately lying because it sells better. Oh, I like the old products of nepotism and monopoly. They were better for us than these new guys.

These guys are so good at marshaling hatreds. You know, politics was once called by some famous English politician ‘the art of marshaling hatreds’. We now have news outlets that we all follow and they’re good at marshaling hatreds. Now some hatred may have some constructive use, but they’re overdoing it. The hatred is too intense, it’s cabbaging up the minds. Pretty cabbaged up the minds of the broadcasters, and now it’s cabbaging up the people who watch.

Question 32: There’s this common sentiment that technology is both accelerating the pace of change and its impact is broadening across most industries, usurping traditional moats. So given your long career, I’m wondering, do you think the traditionally ‘moaty’ industries are being undermined at a pace that’s different from what’s been happening in the past?

Charlie: Yeah, I think the moats of have been breached time after time after time. Imagine the Eastman Chemical Company going broke. Imagine all these great department stores being on the edge of extinction. Imagine all those monopoly newspapers going down. Look at the strength of the American auto industry now compared to what it was, say in 1950. Oh, I think the moats are disappearing rapidly. I mean, the old classical moats. I think that’s probably a natural part of the modern economic system is that old moats stopped working. Let me know what your problem is and I’ll try and make it more difficult for you.

Question 33: I’m a current undergraduate student. What would you say is the best possible way for someone to expose themselves and expand their understanding of working in the business world, without actually currently being involved in it? And how can I maximize my potential value to a corporation in the future by what I do right now?

Charlie: Well, that’s a good question. There’s so many of you now who want to be rich by going into finance. And of course, that multitude is not going to all get rich. And of course, 99 percent will be in the bottom 99 percent. That’s just the way it’s going to work.

I look at the people in my generation who were the nerds who were patient and rational, eventually did well, who lived within their income and worked at being sensible and when they saw an opportunity, grabbed it pretty fiercely and so forth. And I think that’ll work for the new nerds of the world. The people who get ahead because they’re star salesmen or charismatic personalities, I’m not one of those, so I don’t know how to do that. So if you’re not a nerd, I can’t help you. And I think that the odds are that most people who try and do finance are not going to succeed.

And there’s a lot of wretched excess in it because easy money will always attract wretched excess. It’s just the nature. It’s like a bunch of animals feeding on a carcass in Africa. By the way that’s (inaudible) I chose on purpose. But so, I don’t think it’s so pretty. And I don’t think that modern finance is so wonderful. And in my day a lot of the finance were more like engineers. They were so chastened by the Great Depression and all the wretched failure that they really tried to make everything super safe. It was a very different plodding place. The people weren’t trying to get rich they were trying to be safe. This modern world is radically different. I’m not sure if I were starting out in your world how well I would do. It would be a lot harder than it was to get ahead in the world the way it was when I came up.

If I were you my best (advice), I think you’ll be happier if you reduce your expectations than if you try and satisfy them. And by the way, I think that’s generally a very good idea. It sounds silly, but it’s so obvious. You think of how many of us are fairly content with pretty moderate success. That is worth knowing because that’s what most of us are going to get.

Question 34: What are your thoughts on the errors in engineering and business generally at Boeing? And how you’ve been thinking about that as that’s unfolded recently?

Charlie: Well, I don’t like to jump on Boeing.  Boeing is a great company that had one of the great success rates…great safety records of the world. They lost their way. They made some dumb mistakes. And I think that’s almost the nature of things too when you try and do something very complicated with hundreds of thousands of people. That occasionally there may well be a slip up.

In most places, if you actually look at them, they have some near misses. Boeing had a near miss a few years ago when the rudder stuff failed and they had a few crashes. I was on the safety committee at U.S. Air when that happened and nobody could figure it out for months. Something in the rudder was not working and it caused three crashes. It took them six months or so to figure it out. And they must put an army on it. Well they survived that one and they’ll no doubt survive this one. But, it’s really expensive to make a big safety mistake. And of course, they should be avoided.

Question 35: I have two questions.  The first is, it’s been a while since you’ve had the psychology of human misjudgment as a talk. And I was wondering if there are any additions you would have, that you’ve seen more recently? And the second part is, you’ve mentioned how important being rational is throughout your life. Can you walk us through what steps we can take to become more rational?

Charlie: Well, it’s a long process. I don’t think anybody just flashes into it. It’s not like somebody who tells you all you’ve got to do is run down to the front of the revival meeting and shout out and you get a wonderful here after. Rationality is something you get slowly and it has a variable result. But it’s better than not having it. No, I just think that…you can just see how awful it is when people get into these furies of resentment and anger, and sure they’re right about everything. It’s hard to know exactly how human civilization ought to be organized.

In my own life, I’ve often reflected about how well the system has worked. What I concluded was that the social safety net is…it’s just come up enormously as the world has gotten more prosperous. That was a very desirable thing. And that the Republicans who always opposed it were wrong. And I’ve also…the Democrats that always wanted to push the safety net too far ahead, as they did for a while with the welfare program, that was also wrong. And that, by and large, what we have is about right. We wouldn’t have got it from either party alone. If either party had been totally in control in a one-party government, we wouldn’t have had the result that we had, which is close to right.

I think power does corrupt. I think too much power…Part of the genius of the American system is, is no one person gets too much power. If either party had all the power, I don’t think American civilization would’ve work as well as it has with this ebb and flow. And I don’t know what the exact right safety net is. I don’t think it matters that much. I think the United States would be about as happy if it had five percent more, or five percent less safety net.

Question 36: One of my favorite lines from your book is, ‘It’s better to be roughly right than precisely wrong.’…

Charlie: That comes from Keynes.

Question 36 continued: Could you elaborate a little bit on the Project Haven? What are you doing to improve health care, lower the cost, improve quality and access?

Charlie: Well, that’s a very interesting subject. If you take American health care, in many ways it’s the best in the whole world. We have more brains in our medical schools and our pharmaceutical companies than the rest of the world has per capita. In fact, we may have as much brains as all the rest of the world together.

On the other hand, if you actually went into American medicine, hospitals, doctor’s offices, or… You would find a huge amount of totally counterproductive, unnecessary activity that costs a lot and does no good or actually does harm. And you’d find that some people are not doing that. Or they don’t have the incentives to make money by doing it. You don’t get a lot of counterproductive medical care. Kaiser here in California does not do a lot of unnecessary stupid medical care, or prolonged death to make more money and do all the evil things that other people do. Other people, as hospitals and doctors get under pressure, introduce a lot of waste and folly. And some of the pharmaceutical companies, behavior is totally outrageous. They have some basic diabetes drugs and it’s trying to charge some woman ten thousand a month or something, it’s ridiculous. And I even go further. I think it’s evil.

And I think that the system should be changed. And I think it will be changed. I think there’s too much wretched excess in the medical system, and the really sad part of it is, the people who are doing it have no conscious malevolence. They’re not people who decide to do murders and maimings to make money. They think it’s good for the patients, what they’re doing. And of course, you go to do an unnecessary back operation on somebody, it’s a major evil. But the guy that’s doing it really thinks it’s good for the patient. In other words, he’s turned his brain into cabbage. And that’s not a good thing.

I think you have to change the incentives. I think there are places in America that are very admirable that don’t do a lot of unnecessary stuff and other places that do. And I think we’re going to have to change the system. If you take the medical system of Singapore, it costs 20 percent of what ours costs and it has better statistics. And it’s not opaque, it’s open. We have a whole industry that tries to make the payment things opaque so they can take advantage of people. And they think it’s free enterprise. I think it’s stealing.

Question 37: I’ve been working in the financial services industry for the past five years, and one of the things that has surprised me is how many of my peers in the industry have sat out the market over the last five years. Holding cash in anticipation of a market downturn. And, you know, I would think, given that we’re in our late 20s and we’ve accumulated savings and have what’s hopefully a multi-decade runway ahead of us, the right thing to do would be to start investing now. And my question is, first, do you agree with this assessment? And if so, how would you convince your friends to start investing?

Charlie: Well, it’s obvious that deferred gratifiers do better over the long pull than these impulsive children that have to spend money on Rolex watches and other folly. And not that I’m picking Rolex is any worse than Patek Philippe or something. But I think everybody should…save and not be stupid at spending money and defer gratification to get more later. All those good things that we were taught, you know, by Benjamin Franklin, thrift and so forth.

And the odd thing about it is that people were kind of born deferred gratifiers or not. They’ve done recent psychological work on that subject. Lots of luck if you’re an impulsive person that has to be gratified immediately, you’re probably not going to have a very good life and we can’t fix you. (laughter) But if you have a slight tendency to defer gratification, and you can feed that tendency, you’re on the way to prosperity and happiness. It’s that demand for immediate gratification, that’s the way to ruin. It may also give you a syphilis. (laughter)

They have a saying in vaudeville, ‘Give him the hook.’ My (friend) Guerin is just giving me the hook. You know, I’m an accidental guru. We didn’t set out to have an audience of people coming in and asking me questions about every damn subject in the world. It just kind of happened by accident and I went along with it because I think it did more good than harm and I kind of enjoy it as long as I don’t have to do it too often. But I feel sorry for people who have adulating multitudes. And I also wouldn’t like a normal multitude, I love these nerds.

Question 38: I wanted to go back to Singapore and ask you a question involving Lee Kuan Yew, particularly his housing policies. I’m curious how you think California should address the insane costs of construction, new development right now, and how you would try to create housing in California that would be affordable across all socio economic areas to avoid kind of the social evils that Lee Kuan Yew has managed to avoid back in Singapore.

Charlie: Well, that’s like asking some ordinary klutz, who’s drunk, if he can’t come up with something like Albert Einstein. It’s just too much. Lee Kuan Yew is the best nation builder that probably ever existed. And what he accomplished in Singapore considering what he started with, it was a miracle. And of course, I don’t know how to create that everywhere. I’m not sure Lee Kuan Yew could have done it if he didn’t have a bunch of fellow Chinese there. I’m not sure that any other ethnic group would have done it.

I think he had a very…it looked like a terrible hand. And by the way, there’s an interesting story there. He needed an army when he first took over and nobody would help him. And only one nation in the whole world would help him and that was Israel. And he said, “How can I accept? I’m surrounded by Muslims who hate me. How can I accept military advice from Israel?” And he finally figured it out. He accepted the help and he told everybody they were Mexicans. (laughter)

Well with that little joke we’ll end the meeting.

End of Transcript

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Richard Lewis, CFA
White Stork Asset Management LLC
Partner, Investments

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