Top Stories, Value Investing

Daily Journal Meeting 2017 – Munger On Picking Managers, Books, Amex, China And More

nifty fifty era”

On funds management and big decisions ..

“The prices for managing really big sums of money are going down down down.  20 basis points and so on.  The people who rose in investment management didn’t do it getting paid 20 basis points.  I would hate to manage a trillion dollars in big stocks and try and beat the indexes, I don’t think I could do it.  In fact if you look at Berkshire and take out 100 decisions, which is 2 a year, the success of Berkshire came from 2 decisions a year for fifty years.  We may have beaten the indexes but we didn’t do it by having big portfolios of securities and having subdivisions managing the drugs etc”

On Books ..


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“I just read this new book by Ed Thorp, the guy who beat the dealer in Las Vegas.. then he did computer algorithmic trading.  I really liked the book, I recommend Thorp’s new book

Destroying old ideas …

“I’m very busy destroying bad ideas.  I actually like it when I destroy a bad idea. I know so many people whose main problem in life is that old ideas displace the entry of new ideas that are better.  That is the absolute standard outcome in life.  There is an old German folksaying “we’re too soon old and too late smart”. That’s everybody’s problem”

“It’s a very important habit getting rid of the dumb ideas.  Everytime I get rid of a much beloved idea I pat myself on the back.  The price we pay for being able to accept a new idea is awesomely large”

Ideas …

“A few good ideas is all you need. And when you find the few of course you have to act aggressively.  That’s the Munger system.  You’re not going to find a million good ideas.”

On Valeant..

“Interesting thing is how many high grade people it took in. It was too good to be true.  There was a lot wrong with Valeant.  It was so aggressive and it was drugs people needed…  I don’t think capitalism requires you to make all the money you can.  I think there times when you should be satisfied with less.  Valeant looked at it like a game of chess, they didn’t think of any human consequences.  They just stepped way over the line and in the end of course they were cheating”

On diversification..

“Am I comfortable with a non-diversified portfolio.  I care about the Mungers.  The Munger’s have three stocks.  We have a block of Berkshire, a block of Costco, a block of LiLu’s fund and the rest is dribs and drabs…  Am I comfortable? Am I securely rich? Your damn right I am… Is three stocks enough? What is the chances that CostCo is going to fail?, Berkshire is going to fail? What are the chances LiLu’s portfolio in China’s going to fail.   Chances of any one is almost zero.”

“I’ve never for one moment believed this boulder-dash they teach about wide diversification. If you are a no-nothing investor of course you should own the average.  If your capable of figuring out something that will work better you’re just hurting yourself looking for 50, when three will suffice, one will suffice if you do it right.  Once cinch, what else do you need in life..  To think we are teaching these professors to teach this crap to our young.  People are getting paid for teaching boulder-dash”

On Banks and the investment in Irish bank investment in 2008..

“That was a mistake we shouldn’t have made.    Both Warren and I know you can’t really trust any of the numbers put out by the banking industry.  People who run banks are subject to enormous temptations.  It’s easy to make a bank report more earnings.   Even if you are really good at something, you can drift into a dumb mistake.”

On India..

“India is grossly defective because they have taken the worst elements of our culture.  They forged their own chains and put them on themselves. I do not like the prospects of India compared to the prospects of China”

 On market declines..

“I regard it as a part of manhood.  If you’re going to be in this game for the long haul which is the way to do it.  You better be able to handle a 50% decline without fussing too much.  Conduct your life so you can handle a 50% decline with aplomb and grace. Don’t try to avoid it.  It will come.  And if it doesn’t come I’d say your not being aggressive enough”.

On China..

“What I like about China is they have some companies that are very strong and still selling at low prices.  The Chinese are formidable workers and they make wonderful employees and there is a lot of strength in that system.  The Chinese government helps its businesses, it does not behave like the government of India which doesn’t help its businesses at all. That’s what I like about China.  I have to admire taking up a billion and a half people in poverty that fast,  that was never done in the history of the world.  What they have done is just an incredible achievement.  They have taken a poor nation and saved half their income when they are poor.  It was unbelievably admirable and effective”

“Chinese people only have one problem, they believe in luck.  That is stupid.  Your want to believe in odds.  Some reason in the culture too many people believe in luck and gamble.  That’s a national defect”

On adversity..

“The idea that life is a series of adversities and each one is an opportunity to behave well instead of badly is a very very good idea”

On Manager fees..

“If your advising other people you oughta be pretty rich pretty soon.  Why would I take a lot of advice from somebody who couldn’t himself get pretty rich pretty soon.  And if you’re pretty rich why shouldn’t you put your money alongside your investors and go up and down with them.  And if it’s a bad stretch why should you scrape money of the top when they are going down a notch.  I like the Buffett system.”

On being rational ..

 “Rationality is a moral duty.  If your capable of being reasonable it’s a moral failure to be unreasonable when you have the capacity to be reasonable”

 On Complex systems..

“If your dealing with a complex system, the rules of thumb that worked in the complex system in year 1 may not work in year 40.  The laws of physics you can count on, but the rules of thumb in a complex civilisation changes.  Who would want to live in a state of sameness, you may as well be dead”

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