Image source: Pixabay
Image source: Pixabay
Image source: Pixabay
Image source: Pixabay
Image source: Pixabay
Image source: Pixabay
Image source: Pixabay
Image source: Pixabay
By Investment Master Class
This Year’s Daily Journal meeting contained lots of wit and wisdom from Charlie Munger, Warren Buffett’s partner. He’s got a cracking sense of humour at 93 years young.
Some of the more interesting comments Mr Munger made where around the evolution of Warren Buffett as an investor. Buffett has recently purchased positions in airlines and Apple, two things he would never have done in the past given his dislike of the airline industry and his lack of understanding of tech.
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Mr Munger also detailed the need for multi-disciplinary thinking, his thoughts on diversification and the need to rely on quality people.
Here are the key points from the meeting ..
On Picking Managers ..
“We are doing something that’s quite difficult. We are judging people because we don’t understand what the people do. And that’s what Andrew Carnegie did. He didn’t know anything about making steel, but he knew a lot about judging whether the people he was trusting making steel were any good at it. And of course that’s what Berkshire’s done, if you stop to think about it. We have a lot of businesses in Berkshire that neither Warren or I could tell you much about, but we’ve been pretty good at judging which people are capable of running those businesses”
On Capex …
“If it makes sense over the long term we just don’t give a damn what it looks like over the short term”
On Wells Fargo ..
“They made a business judgement that was wrong. They got so caught up in cross-selling and so forth, they got incentive systems so aggressive that some people reacted badly and did things they shouldn’t. And then they used some misjudgement in reacting to the trouble they got in. I don’t think there is anything fundamentally wrong for the long haul with Wells Fargo. They made a mistake and it was an easy mistake to make”
“I don’t regard getting the incentives a little aggressive at Wells Fargo as the mistake , I think the mistake was when the bad news came they didn’t recognise it.”
“I don’t think it impairs the future of Wells Fargo, in fact I think they’ll be better for it. One nice thing about doing something dumb is you probably won’t do it again”
On choosing what to do in life ..
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“In terms of picking what to do .. In my whole I life I’ve never succeeded much in what I wasn’t interested in. So I don’t think your going to succeed if what you’re doing all day doesn’t interest you. You’ve got to find something your interested in because it’s to much to expect from human nature that your going to be good as something you deeply dislike doing. That’s one big issue. And of course you have to play in a game where you’ve got some unusual talents. If your 5 foot one you do not want to play basket ball against a guy that’s 8 foot 3.”
About Amex/Payments Systems…
“If you think you understand exactly what’s going to happen to payments systems ten years out, your probably under some state of delusion. It’s very hard to know. They are doing the best they can, they have some huge advantages. It’s a reasonable bet, but nobody knows… I don’t think those things are knowable, think about how fast they change.”
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On multi-disciplinary learning…
“You have to know the big ideas in all the disciplines to be safe if you have a life lived outside a cave”
“Frequently the problem in front of you is solvable if you reach outside the discipline. The idea is just over the fence. But if you’re trained to stay within the fence you won’t find it. I’ve done that so much of my life, it’s almost embarrassing. It makes me seem arrogant because I will frequently reach into the other guys discipline and come up with an idea he misses.. I do not observe professional boundaries”
On Buffett changing..
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“If you’re in a game and your passionate about learning more all the time and getting better and honing your skills etc, of course you get better over time and some people are better at that than others. It’s amazing what Warren has done. Berkshire would be a very modest company now if Warren never learned anything… But what really happened was we went out into fields like buying whole businesses and bought into things like Iscar that Warren never would have bought.
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Ben Graham would never had bought Iscar. We paid 5X book for Iscar and it wasn’t in the Graham play. And Warren learned under Graham, he just learned better over time. And I’ve learned better. The nice thing about the game is you can keep learning. And were still doing that.
Imagine, we’re in the press now for all of sudden buying airline stocks. What had we said about the airline business. We thought it was a joke it was such a terrible business. Now if you put all those stocks together we own one minor airline. We did the same thing in railroads, we said railroads were no damn good. Too many of them and truck competition, and we were right for about 80 years. Finally they get down to four main railroads and it was a better business. And something similar is happening in the airline business”
On Investing now and the need for change …
“It’s got harder and harder, now we get little edges when before we had golden cinches. We don’t make the same returns we made when we could pick this low hanging fruit”
“Warren bought Exxon as a cash substitute. He would never have done that in the old days. We have a lot of cash and we thought it was better than cash over the short term. That’s a different kind of thinking from the way Warren came up. He’s changed. He’s changed when he buys airlines and Apple. Think of the hooey we’ve done over the years over high tech as outside our competency and the worst business in the world is airlines. And we now appear in the press with Apple and a bunch of airlines. I don’t think we’ve gone crazy, I think we’re adapting reasonably to a business that has got a lot more difficult. I don’t think we have a cinch due to those positions, I think we have the odds a little bit in our favour. And if that’s the best advantage we can get we’ll have to live with it”
On Indexing with a small index …
“When you have a small index and it gets popular it’s a self defeating situation. When the nifty fifty were all the rage, JP Morgan talked everybody into buying these 50 stocks. They didn’t care what price the stocks were they just bought those 50 stocks. In time they forced up the stocks to 60X where upon it broke down and everything went down by 2/3rds quite fast. If you get too much faddishness in one sector or one narrow index of course you can get catastrophic changes like they had with the
