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1/ You probably expect me to write about what Charlie Munger said today at the DJCO meeting. cnbc.com/2019/02/14/wat… That would be correct. A few takes on Twitter on what Munger said today are a bit off the mark, so I’m going to add a few things he has said before to clarify.
2/ Lower your expectations about the investment returns that are possible. Many places where an investor could catch fish are gone. This includes "cigar butt" style investors. Munger said he was lucky to be born when he was when opportunities to outperform a market were greater.
3/ Investors must find new places “where fish are since that is the best way to improve the odds of catching fish.” He has found China to be such a place but he has acted on that opportunity via an extraordinary manager (Munger said the only one he has used in his entire life).
4/ Munger told a story about someone who was able to find an untapped stock of fish in the form of African Banks traded on pink sheets. But after a while those banks were discovered by others. This is a natural cycle. No edge over the market lasts forever. You must find new fish.
5/ Munger said that he puts anything that doesn't represent or create a special advantage for him in a "too hard" basket. Most everything he evaluates, especially anything sent to him by a promoter, goes into a too hard basket. He says he is "sitting on his ass" most of the time.
6/ Berkshire is in the business of making easy predictions. If an investment looks too hard they don’t do it. Part of having what he calls “uncommon sense” is being able to tune out folly as opposed to having intelligence or wisdom. Being not stupid is a huge advantage in life.
6/ Munger told this story to make the point about the importance of understanding motivations of sellers: “A man says to a veterinarian: ‘Can you help me? Sometimes my horse walks just fine and sometimes he limps.’ The vet replies: ‘No problem. When he’s walking fine, sell him.”
7/ Great investment opportunities don’t appear that you will be able to recognize often (maybe 2 or 3 times a year). When they do appear they won’t last long so you must be aggressive when the time is right. They are hard to find but by consistently working hard you may find them
8/ On health care, Munger believes single payer will inevitably come when the Democrats are in power. He said the changed systems would have upside and downside. I don't believe he said he was for single payer or against it, but rather that it was inevitable and would be hard.
9/ Munger said Berkshire has not invested more in healthcare since they mostly don't understand it and what they do understand it they don't find it attractive. Munger said complementary things about Atul Gawandethe who is CEO of the healthcare joint venture.
10/ Something is not a competency if you don’t know the edge of it. Munger believes ability to do this is significantly innate. He has also said: A manager with an IQ of 160 and thinks it’s 180 will kill you. A manager with an IQ of 130 who thinks its 125 could serve you well.
11/ Munger said he hasn't been successful teaching investing to his children. “ He says his ideas are so simple people keep asking for mysteries, when all they are is the most elementary ideas (work hard, save, honesty, don’t do stupid things etc.). "If it is trite, it is right.”
12/ Munger said it's always a mistake to marry for money and it's really stupid if you're already rich (h/t Buffett). Avoid things that seem like a good idea at the time (e.g., a person who conceived a child with a person they just met when they had a few minutes between trains).
13/ "The great defect of scale, which makes the game interesting—so that the big organizations don’t always win—is that as you get big, you get bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature. The incentives are perverse.”
14/ Munger said envy is a really stupid sin because it’s the only one you could never possibly have any fun at. Munger loves Mozart's music. But don’t do what made Mozart’s life so unhappy (e.g, spend less than you earn and don’t let yourself be consumed with envy and self-pity).
15/ Munger said Buffett belives he can beat the market going forward. He has said before: “We’re not crying wolf at how hard it is to compound at the old rates—it can’t be done. Look how tough it is to earn $100M pretax doing anything; few ever accomplish it." It is harder now.
16/ Munger also said previously: “Warren said [at the Berkshire annual meeting] that he hoped to do modestly better than the market. 15% would be a hell of a number, so the target is the 6-15% range. You’re in the same boat we are.” It isn't easy to outperform. Few people will.
17/ Munger: "People need to ask, 'How do I play the hand that has been dealt me?' The world is not going to give you extra return just because you want it. You have to be very shrewd and hard working to get a little extra. It’s so much easier to reduce your wants.”
18/ “A small percentage of managers can deliver value added. But brilliance alone is not enough to do it. You have to have the discipline of calling your shots and loading up if you want to maximize your chances of providing above average real returns for clients." [typo fixed]
19/ Trivia contest: DJCO added a new board member today. I am told by somone who knows her that she is a "terrific and experienced businessperson" and is a fantastic addition to the board. Who is she and what is her family connection to Charlie Munger/Berkshire?
20/ My last tweetstorm tweet is a question for you: What is the answer to the first question that Charlie Munger asked up front in the talk today, but intentionally did not directly answer?
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