Value Investing

2018 Daily Journal Meeting Notes – Three Key Themes

By Jesse Koltes Thecharlieton.com

The Daily Journal hosted its annual shareholders meeting on Wednesday, February 14, 2018 in Los Angeles, California. The meeting was hosted by Charlie Munger, and attracted a crowd of approximately 600 shareholders and fans.

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Mr. Munger briefly addressed the business of the Daily Journal before opening the floor to two hours of question and answer.

While I did not take stenographer-grade notes this year, I did live tweet the entire meeting with the aim of capturing the event’s most memorable quotes.

I think a thematic summary will more useful to those that did not attend, and will be more useful to me as a method of internalizing what I learned.

Theme #1: Total Integrity as a Creed

Integrity is such an overused word that it can seem a little cheap. For Munger and company, it comes up so often that to breeze past it would miss something essential about what makes Munger and the Daily Journal so special.

Peter Kaufman, a DJCO board member and editor of Poor Charlie’s Almanac singled out “total integrity” as the first of the “five aces” that people should seek in their investment managers. Without integrity, everything else, from hard work, to raw intelligence, can lead you on a road to nowhere.

Munger’s emphasis on integrity is part of a strict code of conduct that feels downright religious, and perhaps even a little cult-like. In fact, I think denying that Munger’s code can seem like a “business religion” is counter-productive.

Value investing of the Buffett-Munger type is a quasi-religion in that it is universal, strict, and prescriptive of a certain type of behavior. That is clearly part of the draw for Munger fans like myself, and part of what makes him annoying to those who dislike him.

As an avowed fan, I thought of Munger when I read the following David Foster Wallace quote:

“In the day-to day trenches of adult life, there is actually no such thing as atheism. There is no such thing as not worshipping. Everybody worships. The only choice we get is what to worship. And the compelling reason for maybe choosing some sort of god or spiritual-type thing to worship — be it JC or Allah, be it YHWH or the Wiccan Mother Goddess, or the Four Noble Truths, or some inviolable set of ethical principles — is that pretty much anything else you worship will eat you alive.”

While “worshipping” Munger may be a stretch, what he does provide, for me at least, is a set of “inviolable ethical principles” that help me to navigate the trenches of daily life with more clarity.

And if you follow the quotes logic, if you don’t end up choosing something like a set of ethics to guide you, you’ll probably ending up venerating something like yourself, the money you earn, or your fleeting power, all of which can easily lead you to ruin—especially in finance.

Theme #2: Deep Fluency Built by Keeping at It

Deep Fluency, or mastery of the subject material you’re dealing with, was the second of Peter’s Kaufman’s “investment aces” and a recurring theme in the talk generally.

When asked how to build deep fluency, Mr. Munger’s advice was simple:

“My whole system of life is keeping at it. The task of life is not to see clearly in the distance but to do the task at hand.”

My whole system of life is keeping at it. The task of life is not to see clearly in the distance but to do the task at hand

Mr. Munger pointed out that the Daily Journal’s government division has carved out a niche for itself by consistently applying itself to winning the trust of slow-moving government bureaucracies.

The business isn’t sexy and the going is slow, but by gradually earning the trust of the courts the Daily Journal is digging a moat around its business that should generate satisfactory earnings for the long haul.

In contrast, Munger was critical of General Electric’s lauded management rotational program, wherein young men and women are shuttled amongst various departments in order to build a diverse understanding of the business as quickly as they can.

That sort of mile wide and an inch-deep approach to management doesn’t seem to work as well as Berkshire’s method of leaving executives within one operation, Munger said. By leaving managers within one company, the executives gain the deep fluency that can only come with from hard work over a long stretch of time.

The same procedure can be applied to building a fluency in whatever you’re doing. It’s the slow layering on of knowledge and skill that builds deep fluency. There’s no way to build it except by keeping at it.

Theme #3: Self-Mastery and Leading by Example

Many of the questions directed to Mr. Munger were about how he would go about changing something. With very little variation, Mr. Munger would often say that he had no idea how he could change something, whether that thing was a government agency, a business culture, or the United States health care system.

Changing things, Munger said, is hard.

“If they made me CEO of a company with a million employees and said ‘change the culture Charlie’ I would regard that as a sentence to hell. I think it would be hard to change the culture of a restaurant.”

If they made me CEO of a company with a million employees and said ‘change the culture Charlie’ I would regard that as a sentence to hell. I think it would be hard to change the culture of a restaurant

In that quote I see a theme. Munger does not see himself as a master of the universe that can bend reality to his will. Instead, he tasks himself with deeply understanding reality as it is, with all of its complications and complexities. In many cases, he concludes that he cannot change anything, even if he were to try his hardest.

Given the difficulty of change, I sense that Charlie’s advice is not to seek to master others, but to master one’s self, and to seek out those willing to try to do the same.

You can find a full transcript of the meeting at Value Walk.