In 2016 I made a personal commitment to transcribe every Daily Journal Annual Meeting so long as Charlie was graciously hosting them. It’s been a privilege to attend each meeting and spend the time deep into the talks transcribing each sentence. Charlie will be dearly missed.

Intro

It was a wonderful pleasure to hear Charlie Munger speak at the Daily Journal Annual Meeting in February 2023 where his wit and wisdom was on full display!

In addition to the transcript, you may also listen to my “time-saver” edit of the meeting’s audio, or watch the entire meeting on YouTube.

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

My apologies for the long delay. I hope you all enjoy!

(Note: I frequently summarized the questions that were presented by the host Becky Quick, but as for anything that Charlie or Steven said, I translated them as accurately as possible while eliminating occasional superfluous words.)

Start of Transcript

Steven Myhill-Jones: All right, ladies and gentlemen, the meeting will come to order. Hello everyone. I’m Steven Myhill-Jones, the new Chairman and Interim CEO of Daily Journal Corporation as of the end of March 2022. I’m here today at our Los Angeles headquarters with an individual who really needs no introduction, the legendary Mr. Charles T. Munger, who until last year served as Daily Journal Corporation’s Chairman for many decades. I’m grateful that Charlie, who remains a director on our board, has agreed to join us today. I also want to acknowledge and express our gratitude that Mr. Munger continues to manage Daily Journal Corporation’s considerable portfolio of marketable securities and at no cost to the business, I might add. So thank you, Charlie.

Over the years, this annual shareholder meeting has become an increasingly popular event, given it’s been a unique and wonderful opportunity to hear from and ask questions of Mr. Munger. I recognize this is why many of you are joining us today. And so my goal is to go through our formal business as quickly as possible without sounding too much like an auctioneer. I also want to say that we really wanted to return to an in-person format this year with an audience of our shareholders actually here with us and with the other members of our board, Mary Conlin and John Frank joining us on stage. However, for health and safety reasons, we opted to err on the side of caution again this year and do another round of the online approach that we’ve followed over the pandemic. I recognize we’re all done with COVID, but COVID doesn’t quite appear done with all of us.

We’ll now transition to the Q&A once again with Becky Quick of CNBC serving as our moderator. Thank you in advance, Becky. I recognize most questions will be for Charlie, and I’ll likely answer the occasional question if it’s specifically about Daily Journal or Journal Technologies. Thanks, everyone. Over to you, Becky.

Becky Quick: Stephen, thank you very much and welcome everyone. We’ve got a great number of questions that came in and I’ve tried to sort through as many as I could.

The first question that we have is related to Journal Technologies. Can you give an update on the company’s new CEO, Stephen Myhill-Jones? He was appointed as Interim CEO nearly one year ago. How is he performing and when will a decision be made on selecting a permanent CEO?

Charlie Munger: Well, the answer is Steve chose his own titles coming in and we’ll change it whenever he wants to change it. How’s that?

Becky Quick: That sounds fair enough. Steven?

Steven Myhill-Jones: You know, yeah, I’ll say that when we were in discussions a year ago, I told Charlie that I was committed to ensure the success of the business, but that I wasn’t sure I would be the right long-term CEO. And I had incomplete information at the time, and I thought it was important that I have the optionality to hire someone better suited or promote from within, if we discover that would be a better path.

I founded and helped grow a geography software company with no background in publishing or the legal and court sector. And what I can say now is that the parallels between the software company I built and Journal Technologies are remarkable, and I believe I can add value. I like the business and the potential for it. So I expect we’ll have clarity on our long-term approach sometime later this year.

Becky Quick: Okay. Steven, thank you. The second question is in regards to capital allocation. Is the technology business a natural area to allocate excess capital for the best return on equity for the company. How does the current investment manager think about investing in the equity portfolio in relation to reinvesting in growing areas of the business or share buybacks?

Charlie Munger: Well, it’s all very simple. We made a lot of extra money out of the publishing business in its heyday, and that was about $30 million and that was all made in the foreclosure boom. And of course, in the old days we had an information monopoly on publishing the appellate court’s decisions daily in newsprint and the Internet came along and destroyed our position and our circulation went way down and so forth. So we’ve had a drastic change in good fortune in our publishing business. And Steve actually ran a small software company in Canada for years and years and years, which is quite similar to what Journal Technologies does. So that’s how we got together. The future of this business is not in the publishing side, it’s on the Journal Technologies side. The good news is that we’re in a huge market because all the courts of the world are in the Stone Age still in terms of automating with modern technology. So it’s a big market. The bad news is it’s a long, slow slog where you deal with a lot of bureaucracies in response to RFPs, requests for proposals, and it’s just a very slow, difficult business. So we’ve got a slow, difficult business of chewing our way into a huge market that’s not going away with one big competitor in it. And that’s the future. And like many a publishing company which used newsprint, it’s a miracle that any survived.

If you look in the small and mid-cap edition of the Value Line books, you’ll find there are two entries left. One is Gannett, which used to own the Monopoly newspaper in, I don’t know, 50, 60 or 100 different cities. And the executives used to ride around in giant airplanes and be treated like Lords of England when they went to Publisher’s Convention. And every newspaper publisher…you know, was hugely powerful in his own community. So they were like the Lords of England, all these publishers. And now mighty Gannett is just a pale shadow of itself with newspapers shrunk down to a tiny little few and very limited assets and so forth.

So there’s been an unbelievable change in the technology and competitive outcomes in publishing ordinary newspapers on newsprint. And by and large, the safe rule is they’re all dying. They’re just in different states of near death. And so if this place has a future, it’s in the Journal Technologies side. And that’s a long, slow grind. And the only reason we have a lot of marketable securities is we had the extra money and we preferred the marketable securities to cash in an inflationary world. And of course, there’s been a minor miracle that we’ve got as much as we have in marketable securities because our investments have done better than average. The good news is we survived so far and we’ve got some surplus wealth. And the bad news it’s a long, slow slog ahead in the main future is in Journal Technologies.

Becky Quick: As a follow up to that. Given the extended amount of time that it will take to digitize the court systems because of complexity, risk and bureaucracy and the fast moving world of software innovation, how can shareholders be assured that Journal Technologies’ solution remain cutting edge long enough to reward shareholders? And how do you think about the risk of arriving in 2030 with a great software business, but which only lasts a few years until it gets disrupted by some new technology?

Charlie Munger: Steve, you take that one.

Steven Myhill-Jones: You know, of course, there are no assurances. And at the same time, you know, I do have some background dealing with this challenge because I did it for 19 years with my former company and we earned consistent and appealing profits. And I expect the model is still working well for the folks who acquired us. You know, I think a key responsibility is to get technology change working for us and our customers rather than against us. And it takes advance planning and investment to engineer software with change over time in mind. And so it’s inherently upgradable. And I think this model works, works great. If you can establish a sufficient licensee base to fund that proactive R&D to evolve products in a way that manages technology change. So that… And it also needs to be highly repeatable. And I think all of this requires a mindset that enterprise software development is an ongoing process and not a onetime event. And so are customer deployments.

Becky Quick: Let me move on to another question. Two years ago, during the 2021 annual meeting, you said Daily Journal’s $350 stock was selling way above the price that you would pay for the new shares. As I write, this daily Journal trades for $305 a share a $420 Million market cap with a total equity portfolio value of over $310 Million debt charges covered several times over by the bank’s Dividends and with Journal Technologies’ off financial statement value and huge market, do you still hold the same belief?

Charlie Munger: Well, he accurately stated our circumstances and we do have a lot of surplus wealth, but we need it to attack this big market. These courts, why would they gamble on a little company with no net worth? The courts that are (awarding) the RFP contracts. So we’re using our net worth to help the business.

Becky Quick: But does that get at the question of whether you’d buy this stock at $305?

Charlie Munger: Well, I don’t buy it and I don’t sell it. So that’s what the Mungers have been doing. You know, it’s not a crazy valuation considering what everything else is selling for these days. So I have no feeling that it’s almost foolishly high on some crazy mystique. Some people felt, ‘Well, it’s a small Berkshire, and it’ll double like rabbits’, you know. And of course, it’s not a small Berkshire. I’m 99 years old for Christ’s sake.

Becky Quick: Another person wrote in who asks, Berkshire has unloaded the bank stocks. If it’s not good enough for Berkshire shareholders, why is it good for us?

Charlie Munger: Well, I might have a different idea, see. If you own securities, marketable securities within a corporation located in California, you pay huge state and federal taxes if you sell things at a big gain. And that affects our willingness to sell some of those bank stocks I bought on the bottom tick in the foreclosure crisis. It literally was the bottom tick. And they’re practically all gain. So I immediately give the government 40 some percent of everything we sell out of those bank stocks. And of course, they’re producing…the dividends are almost tax free. So based on what we would get if we sold them and the return we’re getting out of the dividends, it’s not so bad for us.

The answer is, we’re not in a normal position. All factors considered, we’re willing to hold them for a while. And there is a big disadvantage in having this huge layer of federal corporate taxes and state taxes between us and any money we make in a state like California, which is a very business unfriendly state. It isn’t like people are rushing to come out and incorporate in California. And there are all kinds of states that have no income taxes and deliberately use that lure to bring in corporations. California is trying to force its wealthy people and its wealthy corporations out of the state, and I must say it’s working fine. They’re leaving just one after another. That’s just the way it is. But, you know, if we succeed in this software business, it will all come good in the end. And if we fail, we have a crutch under us in our real estate and our securities, which means we won’t lose so much from the present market price. So it’s not a crazy thing to own now at the market valuation, but it’s not cheap either.

Becky Quick: Charlie, while I know the Daily Journal is not a mini-Berkshire, I’d have suspected that there would be some shared principles in the area of governance, specifically regarding the board of directors. I’m surprised to see such a small ownership. Three of the five owned zero shares, a fourth owns 100 shares. Pretty unimpressive, doesn’t suggest much alignment between the board members and shareholders. Not trying to be rude, but thinks it’s a fair question.

Charlie Munger: Well, what happened was we used to have Guerin and Munger and we were the two biggest shareholders and of course we’d been partners for years and years and we took no fees, no directors fees, no expenses, no nothing. And so it was a very user friendly Berkshire type place. Well, Guerin died finally at age 90. So now we’re down to one last survivor of the old guard. And of course, we need a certain number of new directors. And our new directors are pretty damn smart. And they’re all rich, by the way. So it’s still a very Berkshire like board, smart and rich and thinking like a capitalist. We have that.

Steven Myhill-Jones: I would add that while I don’t have equity yet, I’m certainly keen to participate in future growth of the business. What should the timing of that be with someone as new as me? I think that’s an interesting question…

Charlie Munger: We’ll work it out.

Steven Myhill-Jones: Yeah. Right now I don’t think that’s impacting my drive or decisions. I already feel enormous skin in the game. Mr. Munger and the board entrusted me to take the reins of the business, is something I take very seriously.

Charlie Munger: It’s really quite interesting to have a pile of securities and one interesting activity in a very high-tech field and with a lot of politics and travel and difficulty in it. But it’s a huge, huge market. And it isn’t like there are a lot of other people in it. Most of the big corporations that would be our natural competitors are places where they hate RFPs. In other words, one of the reasons the business is good for us is a lot of the big companies just hate what we’re doing. They want easier money (to sell a) standard piece of software and just repeat it over and over again. They’re spoiled. We’re willing to slug it out in the mud of all these little consulting contracts, and that makes us have literally a few competitors in the field.

Becky Quick: Charlie, since you brought up Rick Guerin who passed away about a year ago. He was your longtime friend and business partner for several decades. How was he as a person, as an investor, and how do you remember his legacy?

Charlie Munger: Well, he was just terrific as a person and an investor, and I miss him terribly. Of course, we were together for years and years and years and we were poor together. And that creates a bonding. When we met in 1961, we were both poor and struggling and young. So we had a long ride together. But all things end, you know, that’s the nature of the human condition.

Becky Quick: Question about GPT and artificial intelligence and the impact on Daily Journal’s business model and civilization at large. What are your thoughts on AI’s impact on Daily Journal’s business and more broadly, our civilization at large?

Charlie Munger: Well, I think that artificial intelligence is very important, but is also a lot of crazy hype on the subject. Artificial intelligence is not going to cure cancer. It’s not going to do everything we want done. And there’s a lot of nonsense in it, too. So I regard it as a mixed blessing, all this artificial intelligence. Some people have used it in some things like insurance underwriting pretty well, but a lot of people try and use it in ordinary things like buying office buildings or something. And I think that’s way more… I don’t think it’s going to help anybody buy an office building, not very much anyway.

Steven Myhill-Jones: Through the lens of Daily Journal Corporation. AI is something that we started experimenting with in the summer for certain types of writing, of certain types of articles, and that’s something we’re certainly tracking very closely. I think in terms of complex work, I think it’s a long way off. But for many types of activities, especially routine things, I think it’ll be fascinating to see how disruptive it is over a relatively short time horizon for many types of work and activities.

Charlie Munger: It’ll disrupt… We had our big disruption when technology kind of severely and adversely affected our publishing business. And we have our opportunity in this new business. But it’s just a long, tough slog. There’s no there’s no royal road to success in what we’re doing.

Becky Quick: A question posed by ChatGPT. Mr. Munger, you’ve spoken about the importance of avoiding mental biases and decision making. In your experience, what’s the most challenging bias to overcome and how do you personally guard against it? So I’d ask your answer to that question and then what you think of the question that GPT wrote for you.

Charlie Munger: Well, if I had to name one factor that dominates human bad decisions, it would be what I call denial. If the truth is unpleasant enough, people kind of…their mind plays tricks on them and they think that it isn’t really happening. And of course that causes enormous destruction of business where people go on throwing money into the way they used to do things, even though it isn’t going to work at all well in the way the world is now having changed. And if you want an example of how denial is affecting things, take the world of investment management. How many managers are going to beat the indexes all costs considered, I would say maybe 5% can consistently beat the averages. Everybody else is living in a state of extreme denial. They’re used to charging big fees and so forth for stuff that isn’t doing their clients any good. It’s a deep moral depravity if some widow comes to you with $500,000 and you charge her one point a year and you could put her in the indexes, but you need the one point. And so people just charge some widow, you know, a considerable fee for worthless advice. And the whole profession is full of that kind of denial. It’s everywhere. So if I had to say…

I always quote Demosthenes, it’s a long time ago Demosthenes, that’s more than 2000 years ago. And he said, “What people wish is what they believe.” Think of how much of that goes on. And so, of course it’s hugely important. And you can just see it. I would say the agency costs in money management, there’s just so many billions it’s uncountable and nobody can face it. Who wants to… If you want to keep your kids in school you need the fees, you need the brokerage commissions, you need this and that. So you do what’s good for you and bad for them. Now, I don’t think Berkshire does that, and I don’t think Guerin and I did it at the Daily Journal. Guerin and I never took a dime in salary or director’s fees or anything. And if I have business, I talk on my phone or use my car, I don’t charge it to the Daily Journal. That’s unheard of. It shouldn’t be unheard of. And it goes on in Berkshire and it goes on in the Daily Journal.

But we have an incentive plan now in this Journal Technologies, and it has $1,000,000 worth of Daily Journal stock. That did not come from the company issuing those shares. I gave those shares to the company to use in compensating the employees. And I learned that trick, so to speak, from the guy at BYD, which is one of the securities we hold in our securities portfolio. And BYD, at one time in its history, the founder chairman, he didn’t use the company’s stock to reward the executives. He used his own stock. And it was a big reward, too. Well, last year, what happened? BYD last year made more than $2 billion after taxes in the auto business in China. Who in the hell makes $2 billion who’s a brand-new entrant in the auto business for all practical purposes? It’s incredible what’s happened. And so there is some of this old-fashioned capitalist virtue left in the Daily Journal, and there’s something left in Berkshire Hathaway, and there’s some left in BYD. But most places, everybody’s trying to take what they need and just rationalizing whether it’s deserved or not.

Becky Quick: Charlie, you bring up BYD, so I’ll jump to a question. Why do you prefer an investment in BYD to Tesla?

Charlie Munger: Well, that’s easy. Tesla last year reduced its prices in China twice. BYD increased its prices. We’re direct competitors. BYD is so much ahead of Tesla in China, it’s like a… it’s almost ridiculous. If you look at BYD, which most people never heard of, if you count all the manufacturing space they have in China to make cars, it would amount to a big percentage of all the land in Manhattan Island. And nobody ever heard of them. A few years ago.

Becky Quick: Did the sale of some BYD and Taiwan semi shares have anything to do with the relations between the United States and China? Or was it for purely economic reasons?

Charlie Munger: Well, BYD’s selling at about 50 times earnings. That is a very high price. On the other hand, they’re likely to increase their auto sales by another 50% this year. So we sold part of ours, by the way…about a year ago, at a much higher price than it’s selling for now. And, no, we’re not a mini-Berkshire. We’re not going to have a big correlation between us and what Berkshire does. You could understand why somebody will sell BYD stock at 50 times earnings. At the current price of BYD stock, little BYD is worth more than the entire Mercedes Corporation market capitalization, so it’s not a cheap stock. On the other hand, it’s a very remarkable company.

And by the way, I want to tell people the great contribution I made to the success of BYD. We got into it through Li Lu and then it was a little company that knocked off the Japanese cell phones. And the chairman, who’s kind of a genius, said, I (want to) buy a bankrupt little crappy auto plant and go into the auto business from dead scratch when he’s making cell phones, a little tiny nothing company. And both Li Lu and I tried to talk him out of it. We said, “Please don’t do this dumb thing. You’ll get your head handed to you, go into the auto business, little BYD, and so forth.” Well, last year they made more than $2 Billion in the auto business. From that standing start to zero, it’s unheard of. But Li Lu and I deserve all the credit because we tried to get him…we tried to talk him out of doing what worked so well. Which shows that there’s some accident in life.

Becky Quick: Charlie, according to company filings, it appeared that Alibaba shares were purchased with leverage. And when the stock price fell last year, you were seemingly forced to sell. Can you confirm that it was bought with leverage? And if so, why did you do that? It seems to go against your philosophy. I got several questions that were similar to that.

Charlie Munger: Well, yes, it’s true. I operated with no leverage for long stretches of my old age, and Warren’s the same way. And recently I did use a little bit of leverage here and in another place because the opportunities were so ridiculously good. I thought it was desirable to do that. So you’re right, it’s unusual for us. But we did find a few things. And by the way, if you go back early in my career, I used some leverage. I sometimes ask myself a mental question. I say, “What is the appropriate percentage of your net worth You should put it in the stock if you think it’s an absolute cinch?” Well, if you’re the kind of fellow who’s right when you think something is a cinch, the answer is 100% or maybe 150%. But nobody teaches people to think that way in finance. But if the opportunity is great enough, the logical answer is 100%. Or maybe 200%.

Becky Quick: Somebody else wrote in quoting you where you said the three things that ruin people are ladies, liquor and leverage. So why would you use leverage know that’s one of the three things that can destroy somebody?

Charlie Munger: Well, I used a little on my way up, and so did Warren by the way. The Buffett Partnership used leverage regularly every year of its life. What Warren would do is he would buy a bunch of stocks and then he’d borrow against those stocks and then he’d buy into these…They used to call it event arbitrage; liquidations, mergers and so forth. And that was not… didn’t go up and down with the market. That was like an independent banking business and Ben Graham’s name for that type of investment, he called them Jewish Treasury Bills. It always amused me that that’s what he would call them. But Warren used leverage to buy Jewish Treasury Bills on the way up, and it worked fine for him. I don’t think either of us ever buys… Well, no. Berkshire has stock in Activision Blizzard, and you can argue that’s…whether that’ll go through or not, I don’t know…but that’s a Jewish treasury bill.

Becky Quick: The arbitrage play on Activision?

Charlie Munger: Well yes, (it’s) event arbitrage. But we sort of stopped doing it because it’s such a crowded place. But here’s little Berkshire doing it again in Activision Blizzard. And Munger using a little leverage at the Daily Journal Corporation. You could argue that I used that leverage to buy BYD. You can argue it’s the best thing I’ve ever done for the Daily Journal.

Becky Quick: So is leverage the least evil of the three L’s?

Charlie Munger: I think most people should avoid it, but maybe not everybody need play by those rules. I have a friend who says, “The young man knows the rules of the old man, knows the exceptions.” At least if he’s lived right, he knows them.

Becky Quick: Charlie, how should investors view geopolitical events in regards to their investment in foreign countries? How do you look at the situation of the recent Chinese spy balloon in regards to the Alibaba investment?

Charlie Munger: Well, of course, it was a very interesting thing. Jack Ma was a dominant capitalist in Alibaba, and one day he got up and made a public speech where he basically said the Communist Party is full of malarkey. They don’t know their ass from their elbow, they’re no damn good and I’m smart. And of course, the Communist Party didn’t particularly like his speech. And pretty soon he just sort of disappeared from view for months on end. And now he’s out of (Alibaba). It was pretty stupid. It’s like poking a bear in the nose with a sharp stick. It’s not smart. And Jack Ma got way out of line by popping off the way he did to the Chinese government. And of course it hurt Alibaba. But I regard Alibaba as one of the worst mistakes I ever made. In thinking about Alibaba I got charmed with the idea of their position in the Chinese Internet. And I didn’t stop to realize they’re still a goddamn retailer. It’s going to be a competitive business, the internet (retailing). It’s not going to be a cakewalk for everybody.

Becky Quick: Just about China in general. I had a lot of questions that came in regarding that. I’ll ask this one. Previously, you stated that despite certain shortcomings, China was generally moving in the right direction. However, with the recent actions taken by the Chinese government, such as capriciously punishing technology and educational companies, declining to import effective COVID vaccines, escalating threats towards Taiwan. Do you still maintain that China is a viable investment option for foreign capital, or is China experiencing a similar regression as Russia has seen under Putin’s leadership that culminates in the invasion of Taiwan?

Charlie Munger: Well, that’s a very good question, of course. But I would argue that the chances in a big confrontation from China have gone down, not up because of what happened in the Ukraine. I think that the Chinese leader is a very smart, practical person. And Russia went into the Ukraine because it looked like a cakewalk. I don’t think Taiwan looks like such a cakewalk anymore. I think it’s off the table in China for a long, long time. And I think that helps the prospects of investors who invest in China. And the other thing that helps in terms of the China prospects are that you can buy the best… You can buy better, stronger companies at a cheaper valuation in China than you can in the United States. So you’re getting…the extra risk can be worth running given the extra value you can get. That’s why we’re in China. It isn’t like we prefer being in some foreign country. Of course I’d rather be in Los Angeles right next to my house. You know, it would be more convenient, but I can’t find that many investments, you know, right next to my house.

Becky Quick: Just to follow up on that. How have political events in China over the last few months affected your thinking on the country? Several people, including me, were taken aback by the forceful withdrawal of former President Hu Jintao at the October 22 Annual Congress. President Xi seems to have consolidated power and his actions have indicated that he thinks very differently about the role of business in Chinese society.

Charlie Munger: Well, I have more optimism about the leader of the Chinese Party than most people do. He’s done a lot right, too. And, you know, he led a big anti-corruption drive. He’s done a lot of things right. So I don’t know where this man lives. Where is there a place where the government is perfect in the world of sin and sorrow? The democracies aren’t that brilliantly run either. So it’s natural to have some decisions made by government that don’t work well. It’s natural to have decisions in each individual life that don’t work very well. We live in a world of sin, sorrow and mis-decision. That’s what human beings get to cope with in their days of life. So I don’t expect the world to be free of folly and mistakes and so forth. And I just hope I’m (invested) with the people who have more good judgment than bad judgment. I don’t know anybody who’s right all the time.

Becky Quick: How should we think about the political climate around Taiwan and the long term impact on the semiconductor industry specifically? Do you see the chips and science act favorably?

Charlie Munger: Well, the semiconductor industry is a very peculiar industry. In the semiconductor industry you have to take all the money you’ve made and with each new generation of chips, you throw in all the money you’ve previously made. So it’s a compulsory investment of everything if you want to stay in the game. Naturally, I hate a business like that. At Berkshire we like a whole lot of surplus money to come in and we can do something else with. And of course, now if you’re enough ahead of it, like Taiwan Semiconductor is, that may be a good buy at these prices. It’s not at all clear to me that they’re not going to succeed mightily. It’s a business with enormous promise for the big winner, but it’s a difficult business in requiring everybody to keep increasing the bets on and on with all the money. And so it’s not perfect that semiconductor business. But remember when Intel owned the world? Intel was once the Taiwan Semiconductor business of the world. They invented the damn business, and they dominated it for decades. And it’s not clear to me that Intel’s going to have a very decent semiconductor business getting as far behind as they are now. My answer is it’s not so damn foolproof as it looked.

Becky Quick: Even with the incentives to build plants here in the United States, like Intel is doing in Ohio?

Charlie Munger: Well, of course, that will really help. But they’re borrowing the money. There’s no indication the government is going to forgive the loans or something. It’s not like the recent loans to business where they said, “We’ll loan you the money” and then (they’re like, “Oh heck,) keep the money.” The government is not planning to do that with these new semiconductor loans. And so it’s not a field where I feel I have a lot of expertise. What the hell do I know about semiconductors?

Becky Quick: Do you worry about any conditions that the government would put on companies that end up using any of that money with semiconductors or anything else?

Charlie Munger: Well, of course, all of that. It’s deeply intertwined with government policies of both China and the United States. So I would rather have something that’s more fool proof myself. But I do think Taiwan Semiconductor is the strongest semiconductor company on Earth. So I am a big admirer of what they’ve achieved. It’s just incredible of what they’ve achieved. And by the way, it may be a wonderful investment. The fact that I don’t like it because I’m an old man and I don’t like learning new tricks, that doesn’t mean it isn’t right for some younger person that understands it better than I do.

Becky Quick: That leads me to this question about crypto. In 2007 at the USC Law School, Charlie said, I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who are supporting it. The question is, does this also apply to your Wall Street Journal article on banning cryptocurrencies? And if yes, would you care to share the arguments against your position?

Charlie Munger: I don’t think there are good arguments against my position. I think the people that oppose my position are idiots and so I don’t think there is a rationale argument against my position. This is an incredible thing. Naturally, people like to run gambling casinos where other people lose. And the people who invented this crypto-crappo, which is my name for it, sometimes I call it crypto-crappo and sometimes I call it…well, crypto-shit. And it’s just ridiculous that anybody would buy this stuff. You can think of hardly nothing on earth that has done more good to the human race than currency, national currencies. They were absolutely required to turn man from a goddamn successful ape into a modern successful humans and human civilization. Because it enabled all these convenient exchanges. So if somebody says, I’m going to create something that sort of replaces the national currency, it’s like saying I’m going to replace the national air. It’s asinine. It isn’t even slightly stupid. It’s massively stupid. And, of course, it’s very dangerous. And of course, the governments were totally wrong to permit it. And of course, I’m not proud of my country for allowing this crap, what I call the crypto-shit. It’s worthless. It’s no good. It’s crazy. It’ll do nothing but harm. It’s anti-social to allow it. And the guy who made the correct decision on this is the Chinese leader. The Chinese leader took one look at crypto-shit, and he says, “Not in my China.” And boom, there isn’t any crypto shit in China. He’s right. And we’re wrong. And there is no good argument on the other side. I can’t supply it.

Becky Quick: So does that counter what you said back at USC that you shouldn’t have a position unless you can counter?

Charlie Munger: No it doesn’t counter it. I do think you ought to be able to state on a lot of issues…You ought to be… How big should the social safety net be? That’s a place where reasonable minds can disagree. And you should be able to state the case on the other side about as well as the case you believe in. But when you’re dealing with something as awful as crypto shit, you…it’s just unspeakable. It’s an absolute horror. And I’m ashamed of my country that so many people believe in this kind of crap and the government allows it to exist. It is totally, absolutely crazy, stupid gambling with enormous house odds for the people on the other side and they cheat in addition to the cheating and the betting. It’s just crazy. So that is something that there’s only one correct answer for intelligent people, that is just totally avoid it and avoid all the people that are promoting it.

Becky Quick: How do you feel about the gambling that took place at the Super Bowl and surrounding that and the legalized gambling taking place in this country at this point?

Charlie Munger: Well, it’s not as bad as crypto-shit. I don’t think there’s much harm in betting a modest amount you can afford on a Super Bowl ball game. That strikes me as pretty… Particularly if you do it with a friend and not with a bookie. So I don’t have the same feeling. I obviously don’t think you should have a gambling compulsion going around betting against odds. If you take all the money that I have bet against odds in my whole life, I don’t think it’s more than a few thousand dollars. So I’m all in favor of betting with the odds.

Becky Quick: With the odds?

Charlie Munger: Yeah, sure.

Becky Quick: If you think that Bitcoin and Ethereum are rat poison, have you ever profited by shorting them?

Charlie Munger: No, I don’t short. That isn’t right. I have made three short sales in my entire life, and they’re all more than 30 years ago. One was a currency and there were two stock trades. In the two stock trades I made a big profit on one and made a big loss on the other, and they canceled out. And in my currency bet I made $1,000,000. But it was a very irritating way to make $1,000,000. I’ve stopped.

Becky Quick: Not worth the headache, I guess.

Charlie Munger: Well, you can laugh, but that’s true. It was irritating.

Becky Quick: Because you were worried?

Charlie Munger: Well, because they kept asking me for more margin. I kept sending over Treasury notes. It was very unpleasant. I made a profit in the end, but I never wanted to do it again.

Becky Quick: Charlie, I said I’d come back to this question. This was about something that you do like as an investment. What do you think can hurt Costco’s economic moat in the long term?

Charlie Munger: Well, as long as Costco keeps the faith with its strong culture and their extreme low markup policy, I don’t see any stopping it. The trouble with Costco is it’s 40 times earnings, but except for that, it’s a perfect damn company and it has a marvelous future and it has a wonderful culture and it’s been run by wonderful people. And I love everything about Costco. I’m a total addict. And I’m never going to sell a share.

Becky Quick: President Biden has proposed increasing the tax on stock buybacks from its current level of 1% to a new higher level of 4%. What are your views on taxing stock buybacks?

Charlie Munger: Well, I’m strongly opposed because I think if you’re… A good culture has a lot of people that are good fiduciaries, and it is like stealing to do something dumb with the corporate money when you can get more advantage for your shareholders by buying back your own stock. And I like encouraging morality and decency and honor (in) your dealings with the people you’re the fiduciary for. And so I agree with our president on some things, but this is not one of them.

Becky Quick: Do you vehemently disagree?

Charlie Munger: Well, I’m not vehement because it’s not as bad as cryptocurrency, and it’s a forgivable error. But yes, I disagree strongly. I think it’s a big mistake to adopt that policy. But, you know, I’m a Republican, I sometimes vote for Democrats, but I am a Republican.

Becky Quick: Another question on stock buybacks. Berkshire’s share repurchase has slowed considerably from $3 billion in the first quarter of 2022 to $1 billion in the second quarter and $1 billion in the third quarter, even though the price decline somewhat, as did the general market. One would think that the buyback would increase with a lower stock price. Does Berkshire adjust its buyback price based on the intrinsic value of the approximately $300 Billion stock portfolio or the quoted price?

Charlie Munger: I never pay any attention to how they do it. They’re cautious and careful people. But if you take the amount that’s been bought back in the last three years, it’s a lot. And I thoroughly approve of what we’re doing, and I don’t consider it at all fair that we’re being taxed because we are doing something good for our own shareholders.

Becky Quick: The president laid out the case today, I think he said something like north of 90% of executives are paid with stock compensation, at least in part, he said that’s not fair. The best way to goose your own compensation is to buy back your shares. So it helps the executives, it helps the shareholders, but it doesn’t help the employees or other constituents.

Charlie Munger: Well, there’s no question about the fact that he sympathizes with the employees more, and that’s understandable. And a lot of people would have the president’s orientation on that issue. And I don’t have a big opinion about how wealth ought to be distributed in a country. I don’t know the answer. I do think we need a capitalistic system if we want to have a productive economy that makes civilization advance.

Becky Quick: A recent Barron’s article stated, Berkshire shareholders could benefit after Warren as the company could come under pressure to break up. I don’t see how we would benefit with our businesses being broken up. As you and Warren have long stated, the company as a whole is stronger and one division could always aid another division in need. Warren and you, Charlie, have said that the current structure and philosophies will be preserved after your departures. However, please offer us shareowners reassurance that the company would never succumb to these pressures to break it up.

Charlie Munger: Well, I don’t think it’s at all likely that it’ll be broken up for a long, long time. A lot of companies are worth more dead than alive, meaning at the current price for whole businesses, you could sell things at higher prices, but you can only do it once. Shareholders would pay a big tax, and then you’d have the problem of what to do with the money and so forth. I think all factors considered, and with Berkshire buying in its own shares when they’re reasonably priced, I think Berkshire is a pretty damn good bet for shareholders who hold it long term in the future. And I don’t think it’s any hardship that it isn’t being broken up. It works pretty damn well. Everybody that bought Berkshire held it for 20 years, it’s done well. I think that will be true for those who buy it at the current price. I don’t think it will be as good in the future as it was in the past, but it will be okay considering how poorly everything else is going to do.

Becky Quick: Why do you think everything else is going to do so poorly?

Charlie Munger: Because the valuations start higher now and because government is so hostile to business.

Becky Quick: And that’s a view over the next five, ten, twenty years? How and how far out are you thinking?

Charlie Munger: I would say it will fluctuate naturally between administrations and so on. But I think basically the culture of the world will become more and more anti-business in the big democracies. And I think taxes will go up, not down. So I think the investment world is going to get harder for everybody. But it’s been almost too easy in the past for the investment class. It’s natural that it would have a period of getting harder. I don’t worry about it much because I’m going to be dead. You know, it won’t bother me very much when I’m lying there dead.

Becky Quick: I guess you want to point out to people, you’re 99. Nobody lives forever. That’s what you’re referring to. You’re not sick at the moment, right?

Charlie Munger: No, I’m eating this. Good peanut brittle. That’s what you want to do if you want to live to be 99. I hate to advertise my own product, but this is the key to longevity.

Becky Quick: Sees peanut brittle. I can see. I saw the box earlier. We did get a lot of people who wrote in questions just asking what your daily habits are, what you do every day. If you exercise, if you think exercising a lot when you’re younger is important to longevity.

Charlie Munger: Well, that’s a very… I have almost no exercise except when the Army Air Corps made me do exercise. I’ve done almost no exercise on purpose in my life. If I enjoyed the activity like tennis, I would exercise. But for the first 99 years, I’ve gotten by without doing any exercise at all.

Becky Quick: And you’re not planning on changing that anytime soon?

Charlie Munger: No, I’m not changing it.

Steven Myhill-Jones: Other people’s mileage may vary.

Becky Quick: What would the 100th day of your life look like and how would you want to spend it when you step out of bed in the morning?

Charlie Munger: Well, I step out of my bed these days and then sit down in my wheelchair. So I am paying some price for old age, but I prefer it to being dead. And whenever I feel sad, me being in a wheelchair, I think, well you know, Roosevelt ran the whole damn country for 12 years in a wheelchair. So I’m just trying to make this wheelchair thing last as long as Roosevelt did.

Becky Quick: That’s a good plan. I like it. Charlie, in your 1995 talk, the psychology of misjudgment, you listed senescence as a cause of misjudgment. You said old people like me get pretty skilled without working on it at disguising age related deterioration because social convention like clothing hides much decline. You went on to say that such decline was inevitable. He says, You’re my hero, Charlie, and I offer you this question with the utmost respect, but feel it needs to be asked what 71 year old Charlie must trust the judgment and mental capacity of 99 year old Charlie?

Charlie Munger: Well, there’s no question about the fact that you lose some mental acuity as you get older, but some people get shrewder at adapting to their limitations, and they do pretty well. And so far, I’ve had plenty of decline, but I’m pretty shrewd about the way I handle it. And so far, the results have not been that bad in my old age. Now my sex life would be a different subject.

Becky Quick: Okay, how do I follow that up? Given the increasing rate environment, what are the ramifications of moving away from a close to zero interest rate policy? Warren and yourself have frequently spoken about Aesop and a bird in the hand is worth two in the bush to describe the essence of investment decision making. So what do you do now that the interest rate environment is changing?

Charlie Munger: Well, there’s no question about the fact that as the interest rates have gone up, it’s hostile to stock prices, but they should go up. We couldn’t have kept them forever at zero. And I just think this is one more damn thing to adapt to an investment life is that there are headwinds and they’re tailwinds. And one of the headwinds is inflation. And I think more inflation over the next 100 years is inevitable given the nature of Democratic politics and politics in a democracy. So I think we’ll have more inflation. That’s one of the reasons the Daily Journal owns securities instead of government bonds…owns common stocks instead of government bonds.

Becky Quick: When you say the nature of Democratic policies and I forget exactly how you worded it, are you talking about the Democratic Party? Are you talking about democracy as a whole?

Charlie Munger: No, I’m talking about…Listen, Trump ran on a deficit that was bigger than the Democrats did. All politicians in a democracy tend to be in favor of printing the money and spending it, and that will cause some inflation over time. It may avoid a few recessions, too. It may not be all bad, but it will do more harm than good, I think, from this point forward.

Becky Quick: On that point, should we continue to maintain a debt limit? The adjustment process seems to be a very simple and mechanical process. However, such a measure only seems to create an environment rife with political jockeying and sniping. What’s the purpose if we continue to budget beyond our means? And then the bill comes due?

Charlie Munger: Well. If you take the history of democracy in the world and go back far enough, it fails a lot and gets succeeded by dictatorships and all kinds of awful things. And as a matter of fact, the worst thing that happened to the human race in my lifetime was when an advanced civilization like Germany was taken over by a dictator as awful as Adolf Hitler. That happened as a consequence of a big worldwide depression. It would never have happened if we hadn’t had the big depression. And once Hitler got in, that meant World War II was inevitable. And that could have worked out a lot worse than it did for the people like the United States. So these things are quite important and they’re not going to be done perfectly in the future, no more than they were done perfectly in the past. So, of course, you’ve got to expect a certain amount of future trouble in the world, and your government’s going to do some things that aren’t exactly right. On the other hand, I would argue that the US government did some things magnificently right. I have said on many an occasion that the thing that makes me proudest of my own government is the way we handle the sequel to (World War I), instead of punishing the Germans and the Japanese, we made them into some of our best friends on Earth. Now, that was a stunt, and it was to the credit of our country that that was done and it was done on a bipartisan basis. And I think we can all be proud of that. That was a smart thing to do. It took some generosity. We had to give up some of our money to help them rebuild. It was a credit to our species that we behaved that well on that occasion. And I don’t think our future behavior will lack similar episodes of some kind. We’ll do some things very right and some things very wrong. That’s the way it happens.

Becky Quick: That’s very Churchill-esque, right? They’ll try all the wrong things until we do the right thing?

Charlie Munger: No. We’ll keep doing both wrong and right as far ahead as you can see.

Becky Quick: Charlie, do you think we might have on and off waves of inflation like we did prior to when Volcker stepped in at the Fed the seventies era.

Charlie Munger: Of course, it will happen some in the future. Yes, I think we’ll have some of that in the future.

Becky Quick: Do you think we’ll have it immediately right now with what Jay Powell is dealing with?

Charlie Munger: I don’t regard myself… I think I’m pretty good at long run expectations, but I don’t think I’m good at short term wobbles. I don’t have the faintest idea what’s going to happen short term.

Becky Quick: Okay. Well, let me ask this one as a follow up. Do you have faith in Jay Powell? Are you expecting a soft landing?

Charlie Munger: Well, I’ll tell you the way I feel about Jay Powell is that I feel he’s about as good as we have any right to expect. I think he’s honorable and intelligent and doing the best he can. And I have no feeling that I know a lot of people who’d do it a lot better. So I’m glad we have him.

Becky Quick: Charlie, you’ve recommended the use of an index fund for the average investor. As these index funds continue to expand in size, their influence on corporate boards and ultimately management is ever increasing. This concentration of voting in the hands of a few index funds is alarming to me. Do you see this concentration as alarming as well? And what reforms would you suggest to address that issue?

Charlie Munger: Well, of course, it’s a very serious issue because it’s an enormous amount of power. And for a while, all these index funds got the feeling they were suddenly made god-like to clean up the world. But Vanguard has retreated from that policy, and I think wisely so. And I have some hope that Larry Fink will follow. I don’t think it’s smart for these index funds to try and influence the policy and politics of the country just because they’re an index fund. I think they should be satisfied to eliminate some of the folly from investment management and do a better job for their clients, which I think they do very well. And I think they should be pleased with that and not try and run the whole damn country as a matter of corporate governance. I have no feeling that anybody at Vanguard or Larry Fink’s operation has any special genius at how American corporations ought to be run. And to the extent they ask Berkshire to this or that, I wish they’d stop.

Becky Quick: To ask Berkshire to follow their guidance?

Charlie Munger: Anything. I’m just not interested in their views as to how Berkshire should behave.

Becky Quick: Stock based compensation is a popular means of incentive compensation in many companies. In some cases, these take on alarming proportions. It feels like companies are competing to outbid each other. In some companies, 20% of sales are paid out in stock-based compensation. How do you perceive this development in recent years? And what’s a healthy level of incentives?

Charlie Munger: Well, I think you will find in American corporations very good incentive systems and others that are too liberal and others that are too niggardly. And what else would you expect of human nature but a certain amount of variety? And I agree that some of this… In many a corporation, everybody would vote to being allowed to have stock based compensation that you didn’t count it in computing the earnings. They just want any damn way of making the earnings appear higher. It’s just human nature. Of course they want their… It’s like a little kid goes off to school, they want to bring home good grades, not bad grades. And sure, there’s a big problem of excess corporation pay in some places. Other places like Costco, I would say the compensation system is damn near perfect. And there’s a fair amount of stock-based (compensation). But we always buy in enough stock in Costco to pay for the stock we’re issuing. A lot of people in high tech, they issue the stock, and they don’t buy it in, so it’s a net dilution. I think there’s a lot that’s wrong in American compensation systems. But why wouldn’t there be? By the way, when I was young, it wasn’t so bad. This is something that’s happened in the last 50 years.

Becky Quick: Why?

Charlie Munger: I don’t know. It’s just the history of the way things came up and the greater hardship and the pioneering ethos or God… Whatever it was. When I was young executive, nobody complained about executive compensation. Now, practically everybody in the investment world thinks in many cases the executive compensation has gotten too high. Take General Electric in its heyday. Think of all the big compensation packages they paid and think of how they were phony-ing up the earnings and so forth to pay for it. It was disgusting. And of course, if that kind of crap creeps in everywhere and our civilization, the civilization will perish. We need more honor, not less. But I have no suggestion as to how to fix the places where it’s excessive. It’s a difficult issue, really difficult.

Becky Quick: Geoffrey Malloy writes in and asked this question. He’s from San Francisco. He says, do you think Elon Musk’s ownership of Twitter, specifically his hands off approach to content moderation is good or bad for American society?

Charlie Munger: Well, you know, I don’t use Twitter, so I’m not a good judge on that subject. And my policy on Elon Musk is that he’s a very talented man, but also quite peculiar. And so I, I don’t buy him and I don’t sell him short. I just say, well, he’s a very unusual person.

Becky Quick: You said some nice things about him the last time I talked to you and what he’s done with Tesla.

Charlie Munger: Oh, it’s unbelievable. Who else has done it except BYD? It just shows how tough capitalism is. Even if you’re a genius like Musk is, in some ways, there’s always some little BYD that comes out and does better. Capitalism is not easy.

Becky Quick: Charlie, last year in 2022, a Missouri court awarded a victim $5.2 million in compensation from Berkshire’s subsidiary Geico after a woman was infected with an STD in a car that was insured by GEICO Auto Insurance. The claimant says that the man was negligent and didn’t tell her about his health diagnosis. Your grandfather was a judge and you have a background in law. Did the Missouri court get this verdict right?

Charlie Munger: Well, I would doubt it myself, but it’s in the nature of things that not every court is going to be right in every verdict or every judgment. And I do think that allowing… You again, you raised a very tough subject. You will get occasional verdicts that are just totally outrageous and that’s inevitable. And, of course, that’s what appellate courts are for. But sometimes the appellate courts are very sympathetic with crazy verdicts. Again, I can’t fix everything that’s wrong with human life, including a few crazy verdicts.

Becky Quick: You’d put that in the category of a crazy verdict, though?

Charlie Munger: Yeah, sure.

Becky Quick: There was a lot of excitement about the relationship between Berkshire and 3G for the Kraft Heinz transaction. Has your perception of the private equity business changed on the back of that partnership?

Charlie Munger: Well, like every other human being on earth, some deals work out better than others for 3G, and they would love to have a way of going back and turning all our bad deals into good deals. Berkshire would like to have the same option, but we don’t get it either. Average out, 3G did pretty well, but recently they’ve had some… Their approach hasn’t worked as well in recent years as would be ideal. Again, welcome to human life. It isn’t so damned easy.

Becky Quick: The Florida governor and legislative body has recently taken a stand to try and control Disney’s exclusive self-governing authority previously set up in Florida under the founder, Walt Disney. As your organization and I guess by this they mean Daily Journal Corporation still owns Disney shares. You think Disney shares are still a good investment given this backdrop?

Charlie Munger: We’ve never owned Disney shares.

Becky Quick: That’s my mistake.

Charlie Munger: But Disney is an interesting case. Practically every business that Disney has gotten tougher than it used to be. Again, welcome to human life. Think of how Disney once owned the world. Lion King was running a long run on the theater district of New York. They went from triumphs with marching, marching, marching. All of a sudden, on practically every front, it’s more difficult. This is what happens. Imagine Kodak, which totally dominated photography in the world, and they invented this new technology. Kodak wiped out its common shareholders.

Becky Quick: Do you think Disney is headed down the same path or do you think that they’ll be able to pivot? I mean, I know you followed the company.

Charlie Munger: No, I think Disney has a lot of assets in it. But it’s unpleasant to have something… How would you like running the sports, ESPN, now at Disney compared to its heyday? It’s going to be way harder for them.

Movies look to me like it’s going to be a bloodbath, too. So it’s not a bit easy. And it was easy in the heyday of ESPN, Disney made nothing but money out of ESPN. It was a total goldmine.

Becky Quick: What about other movie businesses? I’m thinking of Paramount, which is a huge holding that Berkshire now owns.

Charlie Munger: I live within a few blocks of Paramount Studios, and I don’t even know anybody at Paramount. I have avoided the movies like the plague as an investor all my life. I’ve never made an investment in a movie business in any way, shape, matter, or form. It always gives me the (willow-whas.) I don’t like the unions. I don’t like the crazy agents. I don’t like the goddamn crazy lawyers. I don’t like the crazy movie stars. I don’t like the people who sell dope to the musicians. I mean, everything about it is not my culture. I like those old English actors when they came over. You know, I grew up with them. But basically, movies is not my scene, so I’ve avoided it. It’s always been very hard for the people who put up the money. It may be a very good place to make a living as an actor or a writer or something, or a musician. But it’s a hard place to make money if you’re an investor.

Becky Quick: The population of the world is thought to have increased by more than fourfold time since you were born. Is there a point where the biggest existential threat to humanity is the growth of the population and humanity? If so, how do we discern when that point has arrived?

Charlie Munger: Well, that’s an interesting subject. If you’d looked at the way things have happened in the past, you would have concluded, like Paul Ehrlich did, that the world is headed for an absolute population disaster. But what actually has happened is quite different. What’s happened is that as the world has gotten more and more prosperous, including in places like China, the birthrate has gone down, down, down, down. And so that there’s actually sort of a population shortage in a place like Japan. So the prediction of all the great experts, based on extrapolating the past graphs, it turned out to be totally wrong. It now looks as though the world’s population in the advanced countries will sort of self-limit.

Becky Quick: I mean, that kind of puts you in the same camp with Elon Musk. He’s made some of the same arguments that it’s really shrinking population that’s a bigger threat to humanity.

Charlie Munger: Well, as I said, he’s a smart man…sometimes, sometimes like all the rest of us.

Becky Quick: When assessing the character and competence of a business’s management, have you ever made a mistake? If so, when did this occur, and what did you learn from the experience?

Charlie Munger: Well, everybody makes mistakes, and I’d say one of the most interesting things that happened in my lifetime was the rise of IBM and the fall of IBM. IBM was the most admired company in America for most of my young life. They just marched from triumph to triumph to triumph. And in the last ten or 15 years, they’ve slipped and they’re falling back in relation to other people in their field as the Apples and the Googles and so forth came ahead, IBM just kind of missed the boat. I think that’s almost inevitable. Kodak missed the boat of the change to digital photography, too. And I’ve heard Bill Gates say that it’s almost the rule as a really disruptive technology comes along, the incumbents screw up their reaction to it. It’s hard to change your ways when they’ve been successful for a long time and go into a totally different way of behaving and thinking.

Charlie Munger: Look at where we’re sitting. We’re sitting in Daily Journal Corporation. We’re adapting to the new world. Think of how different it is publishing a newspaper and inventing software for courts to automate. These are two radically different businesses.

Becky Quick: Mr. Munger, Do you think that currently in the United States we have systemic racism?

Charlie Munger: Well, I suppose we’ve got some, sure. Of course you’re going to have a certain amount of animosity, one group toward another. In the whole history of the human race, we’ve had a certain amount of that. I think it’s gotten way better in my lifetime however. I would argue that the racism has gone down a lot.

Becky Quick: What, if any, impact do you think the insurance industry will see because of climate change over the next 25 years?

Charlie Munger: Well, I’m not sure I am any good at answering that kind of a question.

Becky Quick: Are you raising rates in any of the Berkshire insurance companies?

Charlie Munger: I don’t think I know particularly how well… I think there’s a good chance that climate change will be less important than a lot of people think. That doesn’t mean it’ll be unimportant, but I think it won’t be an absolute full blooded horror capacity with no possibility to adjust.

Becky Quick: Question from Tony Hwang. He’s teaching the introduction of personal finance and the introduction of corporate finance to undergraduates at Indiana University in Bloomington. Most of his students are non-finance majors, and this will likely be the only finance class that they take in college. What should he teach them? Incorporating as many writings and speeches that you’ve given over the years so that they have the foundations and common sense to effectively deal with their personal or corporate finance problems later in life?

Charlie Munger: Well, that’s a good question, but of course it’s a big question. If you have good judgment, your life will work a lot better than if you have bad judgment and you get good judgment gradually over time. Partly we’re making bad judgments and having them work out poorly. So my counsel has always been to start trying to be better and keep trying to improve all your life, and you’ve got about half a chance. If you don’t do that, you’ve got like no chance. And so. I used to say I could only teach what the other person almost knows, and I can just turn him over to the brink when he’s hanging on the edge. But if the guy is not within miles of even starting, I never make any public. I never succeed. So in removing idiocy, I have no I have a 100% failing talent. I’ve never succeeded.

Becky Quick: What would you push in that direction, if you’ve got a class full of finance students in college? What are a few lessons.

Charlie Munger: I would teach to the people who can learn and if the others couldn’t keep up, to hell with them. What can’t be improved, can’t be improved. Can’t be improved. I don’t believe in putting my head against the wall. And that, by the way, that’s the way most education works. They just throw out those who can’t keep up. That’s the way academia works. That’s the reason it gets so good at the top. I talked yesterday on Zoom with a law professor at a great place. And my God, this is an admirable guy. He’s just so goddamn smart…Incredible. But he’s a very senior law teacher at one of the great law schools of the world. So I would expect him to be pretty good. But he was more than pretty good. He was awesome. And I thought, My God, academia is quite competitive. You know, by the time you get to the top, the professors at a good place, you find some very remarkable people. But there’s a limit to what they can accomplish. One of the reasons that they turn out such good people is they take in such good people. That’s their secret. They can’t fix the (inaudible). Nobody can. There’s an old saying, Dumb is forever.

Becky Quick: Reading many entrepreneurs and famous people, they always say that you have to dream really big. Instead, you say, Charlie, that the secret to a happy life is having low expectations. Could you please expand on that?

Charlie Munger: Well, yes. You climb as hard as you can by just advancing one inch at a time. That’s the secret of life. Now there’s always somebody who’s a little nuts and who succeeds. But for every guy who succeeds, there’s a thousand failures.

Becky Quick: Is this an under-promise over overdeliver situation?

Charlie Munger: Well, of course. Who in the hell in his right mind would like going around making a lot of commitments and failing time after time after time at doing what you promised to do? Everybody would hate you, right? There’s no more guaranteed way to make people hate you than to fail them in their reasonable expectations. So of course, you want to live a life where by and large you’re meeting the reasonable expectations of other people. That’s what civilization requires of all of us.

Becky Quick: Did you get COVID during the pandemic? And how do you stay healthy? What’s your advice to elders?

Charlie Munger: I did get COVID, but I got it after I was vaccinated and I had like a tiny sniffle for about 10 minutes, and that was my COVID. But I tested positive during that time. And in terms of the general idea of cautious adjustment, I’ve had a lot of elderly friends who either died or had terrible injuries from falls. And so when I got old myself and it got time to use something to avoid falling down, people tried to sell me on the cane. But I noticed that my friends who use canes would fall down occasionally. So I never used the goddamn cane. Instead, I bought one of these modern walkers, and wherever I was worried about falling down, I pushed my walker. I did that for six and a half years and I never fell down once in six and a half years just because I was more cautious. That is my advice to old people. Just be a little more cautious. Now I’ve gone to the wheelchair, and I’ve got another six and a half years probably, but some of it I’ve already used up. And I’m just as cautious with my wheelchair. What is the harm of having a little extra caution?

Becky Quick: Berkshire previously took a position in Exxon and then exited fairly quickly, if I recall correctly, I believe you had stated that Berkshire thought it was a good alternative to cash at the time. Is it the same type of thinking with Berkshire’s new position in Occidental and Chevron? Or is it likely to be more of a long-term type of holding for Berkshire going forward?

Charlie Munger: Well, that is a very good question. And I think having a big position in the Permian Basin through those two companies is likely to be a pretty good long term hold. So I like that aspect of that position. And Ben Graham used to say, if it’s a good investment, it may be a good speculation. And I think that’s generally true. But I don’t do those short-term speculations, at least not very often. But I like the big position that Berkshire has in the Permian through those two. I kind of admire both places a lot. Both Occidental and Chevron are very admirable places. By the way, Oxy didn’t start like that. If you go back 30 or 40 years, Oxy was run by a crook. It’s evolved into a wonderful place, but it started as a sleazebag.

Becky Quick: Who was running at 30 or 40 years ago.

Charlie Munger: A man named Armand Hammer. Before your time, Becky, you’re too young.

Becky Quick: Charlie, you’re largely credited with Warren Buffett’s evolution to buying great businesses at a reasonable price or, in simple terms, a willingness to pay up for a great business. Given Ben Graham’s exceptional insights and understanding of investing, how or why did he himself not evolve to foresee the inability to scale his net-net cigar butt approach? What do you attribute your early willingness to pay up stems from?

Charlie Munger: Well, remember, a lot of Ben Graham’s rise in life was during a period when there was plenty of low hanging fruit among mediocre businesses that were way too cheap. And he was relatively rare in doing his hunting in that garden. And so he made a pretty good living for himself buying these… What happened is that low hanging fruit eventually went away as the aftermath of the Great Depression went away. And Ben Graham actually made more than half of all the money he made in his life out of one stock. And that stock was Geico, which was a great business. So if you actually look at the great man’s own life, you see that what he taught wasn’t the way he got rich himself. And by the way, he told that story on himself late in life. He carefully computed how much he’d made in Geico compared to everything he had ever done in his previous life. And so you can argue that Ben Graham himself woke up once.

Becky Quick: Why do you think that you, so early on, were willing to come up with this idea of paying up for great businesses?

Charlie Munger: Well, because it’s so obvious and I’m good at doing things that are obvious. Of course, it was obvious that if you wanted to have a particularly good result, you got to (own) a great company, you know? I recognized that greatness was good, you know? Big deal. Charlie Munger, genius, recognizes greatness is good. Of course greatness is good!

Becky Quick: When you’re evaluating a company for potential investment. What do you place the most emphasis on the business or the management? And do you differ with Warren when it comes to what you place first?

Charlie Munger: No, I think we’re the same. I think we like the business great first and then second we want a great manager. But we have not made a huge success by investing in great managers who take over lousy businesses. That is not the way we rose. If you’re a lousy manager you really need a great business.

Becky Quick: And can a great business be run by a lousy manager? The inverse?

Charlie Munger: Sometimes. Coca-Cola was run for years by a man with very severe mental impairment, and the directors just assumed he was drunk and let him stay there year after year. Now, that’s my idea of a wonderful business that you can be mentally defective and run it pretty well. That was Coca-Cola in its heyday.

Becky Quick: How far back are we talking?

Charlie Munger: Well, 25 years.

Becky Quick: Charlie, you’ve described too much diversification as de-worsification, being, at best, an average return producing strategy. In light of that thought, if one was allowed only one stock to hold for a very long time and it would be the most important asset to him and his family and their future well-being. Please describe what you would look for in that stock or company and also talk about the features that you would consider most important when you’re trying to figure that out.

Charlie Munger: Well, it helps to have somebody that’s lucked into a good position. So a great business should be what you’d like. And of course you’d like a great management, too. And occasionally we’ve had both (arrive) together for a long, long period. But of course, everybody’s looking for the same thing. And the trouble with it is you will find when you get into those good businesses in a place that’s as picked over and analyzed as American stocks are…You can imagine the amount of time spent thinking about American stocks… And you will find, by and large in America, (if) it’s really a great business, it’s at least 25 times earnings and maybe 30 or 35 or something. So that makes it much harder of course, because if something goes wrong, you can lose a lot of your investment. And, of course, that’s what makes investment so difficult is the fact that the good businesses don’t stay cheap. You have got to somehow recognize a good business before it’s recognizable as a good business. That’s very hard to do. Some people get good at it, but not many. I don’t think I would want 95% of the people who are America’s professional asset managers, I wouldn’t want working for me. I think it’s that hard. I think you’d need to be in the top 5% to have a reasonable chance. It’s very difficult. Now, it’s not difficult to just buy an index fund and sit on your ass. That’s the great default position. And by the way, if you look at the Daily Journal Corporation, we just put in a 401k plan, what are the investment options for the people at work? Zero. It’s all index funds. What percentage of American 401k’s have our plan? Index funds required. About zero. Am I right or am I wrong? Well of course I’m right. That’s the logical thing to do.

Becky Quick: So is an investment manager worth 2 and 20?

Charlie Munger: Sometimes. Being worth 2 and 20, I would say that is way less than 5%. The man who is worth 2 and 20, that is really… That’s getting very rare indeed. Particularly under modern conditions where every niche is occupied. If you take early stage venture capital like Sequoia does, how many people have a Sequoia like record? I don’t think there’s 1 in 100 that has a Sequoia type record. By the way, even Sequoia makes even Sequoia makes an occasional mistake. You know, everybody does.

Becky Quick: You’ve said previously that you should destroy at least one good idea that you have each year. What good idea did you destroy in 2022 and anything in 2023 so far?

Charlie Munger: Well, the idea that I destroyed that was… It wasn’t a good idea, it was a bad idea. When the Internet came in, I got over-charmed by the people who were leading in the online retailing. And I didn’t realize it’s still retailing. You know, it may be online retailing, but it’s also still retailing. And I just, I got a little out of focus. And that made me overestimate the future returns from Alibaba. I have never gotten so I eliminate mistakes. What I do though is I keep rubbing my own nose in my own mistakes like I’m doing now because I think it’s good for myself.

Becky Quick: A notable theme during the last Daily Journal conversation revolved around positive and negative tradeoffs between different systems, frameworks and choices. Can you discuss your views on the health care industry, specifically the tradeoffs between capitalist systems like the United States and single payer systems like Canada and the UK? And I’m asking this single payer health care question because for those who don’t know, you serve for a long time as chairman at a hospital in Los Angeles. So you do have some insights into what this situation is.

Charlie Munger: When somebody asked Warren what happened when their experimental with JPMorgan Chase and Amazon and so forth. And they were going to change…what was wrong with American medicine and its cost. And when they gave that up it was a total failure. Warren just said, “The tapeworm won.” And that’s what happens. I think the American system costs way too much.

Becky Quick: Charlie, I’m a big fan of your disciplined approach to life. Do you get up at the same time every day and go to the bed at the same time? And finally, what’s the first thing you focus on each day?

Charlie Munger: Well, I vary a little in my time, but I’m pretty regular and I’m a pretty good sleeper in my old age. So I’m very lucky in that respect. And… you got sound again?

Becky Quick: Yeah. I’ve got you.

Charlie Munger: Modern technology it really works…Sometimes.

Becky Quick: If you could inaugurate anyone for president in 2024, who would you choose?

Charlie Munger: Well, I think I’ll duck that one. I don’t want to get into presidential politics.

Becky Quick: I can understand that. Charles writes in and first of all he wants to thank you, for gifting some DJCO shares to establish that new Daily Journal management equity incentive plan. Is there a new edition of Pure Charlie’s Almanac forthcoming? And you said that you admire Benjamin Franklin. Can you please elaborate on this subject and highlight the qualities that you admire in Ben Franklin?

Charlie Munger: Well, Ben Franklin was a genius. It was a small country. But remember, he started in absolute poverty. His father made soap out of the carcasses of dead animals that stank. Now, that is a very low place to start from. And he was almost entirely self-educated, two or three years of primary school and after that, he had to learn it all himself. Well, to rise from that kind of a starting position and become…by the time he died, he was the best inventor in his country, the best scientist in this country, the best writer in his country, the best diplomat in this country. You know, thing after thing after thing, he was the best there was in the whole United States. So he was a very unusual person. And he just got an extremely high IQ and a very kind of pithy way of talking that made him very useful to his fellow citizens. And he kept inventing all these things. Imagine inventing the Franklin Stove and bifocal glasses and all these things that we use all the time. I’m wearing bifocal glasses as I’m looking at you. These are Ben Franklin glasses. What the hell kind of a man that just goes through life and his sight gets a little imperfect… He invented the goddamn bifocals! And it was just one of his many inventions. So he was a very, very remarkable person. And, of course, I admire somebody like that. We don’t get very many people like Ben Franklin. He was the best writer in his nation and also the best scientist and also the best inventor. When did that ever happen again? And he played four different musical instruments in addition to everything else. One of which he invented…they still play it occasionally. But he actually played on four different instruments. No, he was a very amazing person. Of course, the country was lucky to have him.

Becky Quick: Is it true, is there a new poor Charlie’s Almanac coming out?

Charlie Munger: Well, they’re creating an online edition. By the way, the Chinese edition sold way more than the one in the United States.

Becky Quick: Well, there’s more people there.

Charlie Munger: That’s not the sole reason.

Becky Quick: Why else?

Charlie Munger: Well, a rich old man looks like Confucius. In their system, there’s nothing better than a rich old man.

Becky Quick: This is about delayed gratification. Taken to the extreme, how rational is it for a person of your age and wealth to practice delayed gratification. If it’s not rational at your age, how is it rational to delay gratification for the average adult? So what’s the rational point in life to live with no delayed gratification too?

Charlie Munger: I’m still… I’m still doing deferred… Now that I’m older, I buy these apartment houses. It gives me something to do. And we’re different from the way we run them and the way everybody else runs them. Everybody else is trying to show high income, so they can (have high) distributions. We’re trying to find ways to intelligently spend money, to make them better. And of course, our apartments do better than other people do because the man who runs them does it so well for me. There are two young men that do it with me. But it’s all deferred gratification. We’re looking for opportunities to defer other people that are looking for ways to enjoy. It’s a different way of going at life. By the way, you get more enjoyment out of life doing it my way than theirs.

Becky Quick: Did you start out having to work at delayed gratification, or is that just how you were born?

Charlie Munger: No, I learned this trick early. You know, they’ve done that experiment with the two marshmallows with little kids. They offer them two marshmallows if they’ll wait. They’ve watched them, how they work out in life by now. The little kids who were good at deferring the marshmallows are also the people that succeed in life. It’s kind of sad that so much is inborn, so to speak. But you can learn it to some extent, too. But I was very lucky. I just naturally took to deferred gratification very early in life. And of course, it’s helped me ever since.

Becky Quick: We’ve come to know Warren Buffett as a learning machine because of your candid descriptions. Aside from this quality, what others would you credit to Warren that has helped make him one of the greatest investors and compounders that the world has ever seen?

Charlie Munger: Well, Warren is not only a very good thinker and a good learner, which is important, but Warren has a big, strong fiduciary gene. He cares about what happens to the shareholders. Warren and I were lucky in that the early shareholders were people who trusted us when we were young and didn’t have a reputation and so on. And naturally, we feel an exceptional loyalty to those people. And of course, naturally they’re all dead now, but we’re still loyal to them. Warren and I still care what happens to the Berkshire shareholders a lot. And I think that helps us. I think that it helps if you’re good at loyalty.

Becky Quick: Many large companies, including Meta, which owns Facebook and various insurances, are choosing to self-insure against liability, either for directors or for the business risks. If it’s carried to extremes, as it no doubt will be over time, this could cause potential systemic issues. Would you share your thoughts on this, please?

Charlie Munger: In my own life, I’m a big self-insurer and so is Warren. It’s ridiculous for me to carry fire insurance on my houses because I could so easily rebuild a house that had burned down. So why would I want to bother fooling around with a claims process and all kinds of things. You should insure against things you can’t afford to pay for yourself. But if you can afford to take the bumps, you know, some unusual expense coming along doesn’t really hurt you that much, why would you want to fool around with some insurance company if your house burned down? I would just write a check and rebuild it. All intelligent people do it my way. I won’t say all, but maybe I should say all intelligent people should do it my way. There should be way more self-insurance in life. There’s a lot of waste. You’re paying when you buy insurance for the other fellow’s frauds. And there’s a lot of fraud in life. And if you can afford to take the risk yourself and not fool around with claims and this and that and commissions and time, of course you should self-insure it’s simpler and so forth. Think of what I’ve saved in my life. I never carried…I think once, but with one exception, I never carried collision insurance on a car. And once I got rich, I stopped carrying fire insurance on houses. I just self-insure. And that’s the right way to do it.

Becky Quick: That’s a little bit of a surprising take from a guy who’s a Vice Chairman at Berkshire, which has so many insurance companies.

Charlie Munger: Well, but I’m not… I’d rather tell it the way it is than tell it in a way that helps Berkshire. I’m not going to tell it differently than I think it really is, just because it’s better for Berkshire, even though it’s bad for Berkshire. I want to tell you, if you can afford to self-insure, self-insure.

Becky Quick: Even on things like medical?

Charlie Munger: That is different, the insurer pays the doctor in the hospital a small fraction of what you pay. So that’s a different kind of calculus. Everything in medicine is… The cost of American medical care and the medical insurance, it’s a disgrace. If you go to Singapore, you will find that they do the whole thing better than we do, and it cost 20% of what we pay. By the way, I have no idea of how to get from where we are to where Singapore is, because all the people that are getting all that extra money fight like fierce tigers to hold on to it. And they control boards and cities and states and every other guy. So I don’t know how to fix the costs in American health care. They’re totally out of control. And Warren tried to fix it with Amazon and all that stuff. He failed to. Everybody’s failed. Everybody in America has a marvelous record failing in handling our cost of medicines.

Becky Quick: What are some of the most important things that we need to know about Greg Abel? Have you experienced examples of him also being a learning machine? And if so, could you share one?

Charlie Munger: Yeah, well, Greg is just sensational at being a business leader, both as a thinker and as a doer. And he’s also sensationally good at smoothly getting things done through other people. So he’s a very remarkable human being, and Berkshire is very lucky to have him. He’s also just a tremendous learning machine. You can argue that he’s just as good as Warren is learning all kinds of things. One of the interesting things about Greg is there’s some things he’s better at than Warren is. And Warren knows that, and he just keeps dumping on Greg everything that Greg can do better. And it’s a lot. So the system at Berkshire is working pretty damn well. We’re very lucky to have a 92 year old that’s a good shape as Warren and we’re very lucky to have a chief executive like Greg. Greg is very remarkable. Greg is trusted by utility regulators and rightly so. He is trying to run all those utilities as if he were the regulator. Now, how many people think that way? But it’s such a smart way to think.

Becky Quick: You mean just from a show of good faith?

Charlie Munger: Yeah. Why not do it the way that you would want it done if you were on the other side of the transaction? How can you fail if you treat other people the way you’d like to be treated or yourself? It’s the golden rule. Of course it works.

Becky Quick: Would you recommend I take Social Security when I’m 67 or wait till I’m 70 when I’ll receive more per month?

Charlie Munger: Well, I can’t make that choice for you. It depends. If you know you’re going to be dead pretty soon I’d go ahead and have more money to spend. If you think you may live a long time you may have a different calculus. And I would say that most people who are healthy and so forth and who have a pretty good life expectancy, generally they’re wise to defer the Social Security taking and take more money later.

Becky Quick: I guess it’s optimistic thinking, too, if you’re thinking that you’re going to live a long time, that’s the way to play it out.

Charlie Munger: Well, what do you do, Becky?

Becky Quick: Well, I’m not 65 yet, so I haven’t thought about it yet. I’m waiting.

Charlie Munger: I don’t think you’re going to need Social Security, Becky. I’m not worried about you.

Becky Quick: You urged the US government to ban cryptocurrencies, as China has done. I have a more general question. With boom-and-bust cycles in different countries in history, what should a good government do and not do for economic growth?

Charlie Munger: Well, what you’ve got to do if you want growing GDP per capita, which is what everybody should want, you’ve got to have most of the property in private hands. So that most of the people who are making decisions about how properties should be cared for own the property in question. And that makes the whole system so efficient that GDP per capita grows, in a system where you have easy exchanges due to a currency system and so on. That’s the main way of a civilization getting rich is having all these exchanges and having all the property in private hands. If you like violin lessons and I need your money and we make a transaction, we’re gaining on both sides. So of course, GDP goes like crazy when you got a bunch of people who are spending their own money and owning their own businesses and so on. Nobody in the history of the world that I’m aware of has ever gotten from hunter gathering to modern civilization, except through a system where most of the property was privately owned and a lot of freedom of exchange. By the way, I’ve just said something that’s perfectly obvious but isn’t really taught that way in most education. You can take a course in economics in college and not know what I just said. They don’t teach it exactly the same way. Anyway.

Becky Quick: Throughout your experience with Berkshire Hathaway, what are a few of the things that have surprised you most based upon some of your previous rational thoughts and ideas? Also, how have you used some of those surprises in your quest to become a better learning machine?

Charlie Munger: I would say, some of the things that surprised me the most was how much dies. The business world is very much like the physical world where all the animals die in the course of improving all the species so they can live in niches and so forth. All the animals die and eventually all the species die. That’s the system. And when I was young, I didn’t realize that that same system applied to what happens in capitalism, to all the businesses. They’re all on their way to dying is the answer. So other things can replace them and live. And it causes some remarkable deaths. Imagine having Kodak die! It was one of the great trademarks of the world. There was nobody who didn’t use film. They dominated film. They knew more about the chemistry of film than anybody else on Earth. And of course, the whole damn business went to zero. And look at Xerox who once owned the world. It’s just a pale shrinking… It’s nothing compared to what it once was. So practically everything dies if you are big enough time scale. When I was young enough, that was just as obvious then. I didn’t see it for a while. You know, things that looked eternal and had been around for a long time I thought would likely be that way when I was old. But a lot of them have disappeared. Practically everything dies in business. None of the eminence lasts forever. Think of all the great department stores. Think of how long they were the most important thing in their little community. They’re way ahead of everybody in furnishing credit, convenience, and all seasons. You know, convenience back and forth, use same banks of elevators and so forth, multiple floors. It looked like they were eternal. They’re basically all dying or dead. And so once I understood that better, I think it made me a better investor I think.

Becky Quick: I mean, the same can be said for managers. I’ve talked with Doug McMillon of Walmart, who carries around in his wallet a list of the top retailers over the decades, and nobody’s ever the same.

Charlie Munger: Yes. Who are gone. Yes. Yes. Of course, retailers live in terror because you can die. Some guy gets a better way of doing it, you just die. Like those department stores did.

Becky Quick: The ones that you invested in early on you mean?

Charlie Munger: Well, no. Most of the… Think of the department stores that are gone. Just chain after chain after chain in big downtown. They’re not weakened, they’re gone, dead. And to have IBM have the huge position it once had in terms of utter dominance, and now it’s just one of the also rans. And it’s still an admirable place. I’m sure they have a lot of talent left in IBM. It doesn’t help. You die, even though you’re talented and hardworking.

Becky Quick: Who were some of the people you most admired and looked up to? What was it about them that made them so special?

Charlie Munger: Well, some of the best people… I would argue that, Jim Sinegal at Costco was about as well adapted for the executive career he got. And by the way, he didn’t go to Wharton, he didn’t go to the Harvard Business School and he started work at age 18 in a store, and he rose to be CEO at Costco. And in effect, he was a founder under a man named Saul Price. And I would argue that what he accomplished in his own lifetime was one of the most remarkable things in the whole history of business, in the history of the world. Jim Sinegal, in his life. He’s still very much alive, but he’s, he had one business throughout his whole life basically. And he just got so damn good at it. There was practically nothing he didn’t understand, large or small. And there aren’t that many Jim Sinegals. I’ll tell you somebody else for a job of the kind he has, Greg Abel, in a way, is just as good as Jim Sinegal was. He has a kind of a genius for the way he handles people and so forth and problems. And I can’t tell you how I admire somebody that has enough sense to kind of run these utilities as though he were the regulator. He’s not trying to pass on the cost because he can do it. He’s trying to he’s trying to do it the way he’d want it done if he were the regulator instead of the executive. Well of course that’s the right way to run a utility. But how many are really run that way? So there are some admirable business people out there, and I’ve been lucky to have quite a few of them involved in my life. The guy who ran T.T.I. was a genius. T.T.I. is a Berkshire subsidiary. You Daily Journal people think about how lucky you’d be if we still had our monopoly on publishing our cases or something. We’d be like, T.T.I. Well, T.T.I. has just marched some triumph to triumph. And it was run by a guy. He got fired and created the business.

Becky Quick: You got fired from where?

Charlie Munger: A defense contractor. I forget which. I can’t remember exactly. But he was a terrific guy, and he ran the business for us. He wouldn’t let us raise his pay. How many people have the problem with their managers, they won’t allow you to raise their pay?

Becky Quick: It’s pretty rare.

Charlie Munger: Yeah.

Becky Quick: Charlie, I spoke with a friend of yours yesterday, and his question that he had for you is what quality has helped you the most in life?

Charlie Munger: Well, that’s easy. Rationality. If you’re just not crazy, you have a big advantage over 95% of the people, because most people have all kinds of crazy patches. And if you just are consistently not crazy, you had you get a big advantage in life. And if you’re patient and gratification deferrer in addition to being not crazy, then it’s practically a cinch. And then if you’re exceptionally good at satisfying your commitments to other people, you just automatically improved your resources and your chances in life enormously. And it’s so simple. And why don’t more people do it? It’s an interesting question. I don’t think you can educate your children to do it automatically. In fact I think if you have ten children, you’ll have some that are a lot better than others in doing this.

Becky Quick: Is it harder with success, age, wealth, to hold onto rationality?

Charlie Munger: I think it’s always hard, but you get better at it if you get good at it young and keep practicing. But it’s never easy. That question somebody asked, what one stock would you buy if you had to just rely on that one stock only for your sole living expenses? You weren’t allowed to have any or earn any income at all, you just had to invest a million dollars and live on that one stock. How many people would give an intelligent answer to that question in America? I don’t think it’s 1 in 100. They wouldn’t even know how to begin.

Becky Quick: I think one of my favorite things that I’ve heard you say, is whatever you are, age and wealth makes you more so. You came up with that a while ago. What led you to that?

Charlie Munger: Yes, yeah, of course. I think that’s true that we all tend to get a little more so in every way. And I thought of that when I woke up this morning and put on my trousers and I thought, you know, I really economized in buying those trousers, you know, why am I economizing in my trouser buying? But the habit is just so ingrained I can’t stop.

Becky Quick: I’d like to circle back to a question on Daily Journal to wrap things up. In a previous shareholder meeting back around 2018, you spoke about BYD and said Journal Technologies is not quite BYD, but added that, by the way, it might work out just like BYD. Now, a few years on, do you still find Journal Technologies can turn out similar to BYD?

Charlie Munger: Well, it won’t be as fast that I guarantee you and it won’t be as great, I can also practically guarantee that. BYD is one of the most remarkable venture capital type successes in the history of the world. He was the eighth son of a peasant, had an older brother that recognized his younger brother was a genius, and the older brother sacrificed himself to get this peasant son into some good engineering school. And he became an engineering professor and then an entrepreneur. How many times do you get a story like that? And imagine buying a little bankrupt auto company in China and turning it into something that this year they’re going to sell more electrical cars than anybody else in the world at a time when electrical cars are hot. It’s a remarkable story. But again, a very unusual human being Wang Chuanfu. And by the way, in his case, it wouldn’t have happened if Wang Chuanfu hadn’t been so unusual.

Becky Quick: Unusual how?

Charlie Munger: He’s a damn genius and he’s been thinking about the right things 17 hours a day all his life. He’s a workaholic. And he can do things that ordinary human beings can’t do.

Becky Quick: Is that the favorite stock you’ve ever purchased, BYD or Costco?

Charlie Munger: Well, I would say… I have never helped do anything at Berkshire that was as good as BYD, and I only did it once. Our 270 (million) dollar investment there is worth about $8 Billion now or maybe nine. And that’s a pretty good rate of return.

Becky Quick: Yeah, that’s more than pretty good.

Charlie Munger: Yeah, well, we don’t do it all the time. We do it once in a lifetime. Now, we have had some other successes, too, but I don’t think hardly anything like that. We made one better investment. You know what it was? We paid an executive recruiter to get us an employee, and he came up with Ajit Jain. The return that Ajit has made us compared to the amount we paid the executive recruiter, that was our best investment at Berkshire was paying an executive recruiting firm to get us Ajit Jain. But again, it only happened once.

Becky Quick: Yeah, that’s quite an investment, too. Charlie, I just want to thank you for all your time today and being so generous with us. And we’ll turn it back over to Charlie and Steven.

Charlie Munger: All right? We’re all through. I guess our meeting is over, and I’m glad I’m still here to do one more with you people. We’ve been at this quite a few years. So my best to all of you. Bye.

Steven Myhill-Jones: Thanks, everyone. Thank you, Becky.

Becky Quick: Thank you, Steven. Thank you, Charlie.

End of Transcript

Thank you for reading. I hope you thoroughly enjoyed it!

Sincerely,

Richard Lewis, CFA

White Stork Asset Management LLC

Partner, Investments

Links to additional Transcripts:

• Daily Journal Annual Meetings: 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023
• 2017 Fireside Chat with Charlie Munger
• Charlie Munger: Full Transcript of Caltech Zoom Talk, Dec. 2020
• Peter Kaufman on The Multidisciplinary Approach to Thinking: Transcript
• Li Lu: Value Investing in China, Full Transcript