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MONEYBEAT
A Fireside Chat With Charlie Munger
By JASON ZWEIG
Sep 12, 2014 1:10 pm ET
Among investors and admirers of Berkshire Hathaway, Charles T. Munger is famous as
the laconic foil to the company’s chairman, the voluble Warren Buffett. At the annual
shareholders’ meeting in Omaha each spring, Mr. Buffett speaks in long paragraphs; Mr.
Munger speaks in zingers and, most often, simply says: “I have nothing to add.”
But, without the need to play straight man to Mr.
Buffett, Mr. Munger likes nothing better than to
hold listeners rapt in attention. At the annual
meeting in Los Angeles this Wednesday of Daily
Journal, the small publishing and software
company that he chairs, the 90-year-old Mr.
Munger spoke to investors for more than two
hours over an open mike.
He rarely paused for breath and never took so
muchas a sip of water.
Then Mr. Munger went straight into presiding
over the company’s board meeting, which lasted
over three hours. After that, he still wasn’t talked
out. Mr. Munger had an associate invite a waiting
Wall Street Journal reporter into the boardroom, #00!s6% news
where he spoke for another hour or so.
Tall and trim with a handshake like a warm vise, Mr. Munger shows his age only in the
slight quaver that has crept into his baritone voice. A reporter’s notes can only
approximate the subtlety and complexity of Mr. Munger’s conversation, but here is an
Intpblogs.ms.camimoneybea2014091125-rsido-chatwith-charlle-mungot? 1ara2o16 ‘A Fireside Chat With Charlie Munger - MoneyBeat - WSJ
edited summary of what he had to say.
On how Warren Buffett influenced him:
Warren talked me into leaving the law business, and that was a very significant influence
on me. Iwas already thinking about becoming a full-time investor, and Warren told me I
was far better suited to that. He was right. Iwould probably have done it myself, but he
pushed me to it. Ihave to say,
build up a significant career, as [had done, and then to destroy that career on purpose.
[Mr. Munger left the law firm he founded, Munger, Tolles & Olson LLP, in 1965 to serve as
Mr. Buffett’s right-hand man at Berkshire and to run a private investment partnership.]
That would have been a lot harder to do ifnot for Warren’s influence on me.
t isn’t an easy thing to work very hard for many years to
It wasn’t a mistake. [Laughter.] It worked out remarkably well for both of us and for a lot
of other people as well [the investors in Berkshire].
On Benjamin Graham, the great investor who was Warren Buffett’s revered
mentor:
I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to
Warren — who discovered him at such a young age and then went to work for him — Ben
Graham’s insights changed his whole life, and he spent much of his early
years worshiping the master at close range. But I have to say, Ben Graham had a lot to
learn as an investor. His ideas of how to value companies were all shaped by how the Great
Crash and the Depression almost destroyed him, and he was always a little afraid of what
the market can do. It left him with an aftermath of fear for the rest of his life, and all his
methods were designed to keep that at bay.
I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good
as Iam. Buying those cheap, cigar-butt stocks [companies with limited potential growth
selling at a fraction of what they would be worth in a takeover or liquidation] was a snare
and a delusion, and it would never work with the kinds of sums of money we have. You can’t
do it with billions of dollars or even many millions of dollars. But he was a very good
writer and a very good teacher anda brilliant man, one of the only intellectuals ~ probably
the only intellectual — in the investing business at the time.
On firms like Berkshire partner 3G Capital, which takes big companies and
streamlines them:
I'm sensitive to the issue of cutting costs, which usually means a lot of people losing jobs.
Rich people end up getting richer and a lot of people get fired. But ultimately, I think we
don’t do the world a favor by employing more people than we need for companies to run
efficiently. On the whole we advance civilization when companies run better.
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On what he and Mr. Buffett call “the circle of your competence”:
Confucius said that real knowledge is knowing the extent of one’s ignorance. Aristotle and
Socrates said the same thing. Is it a skill that can be taught or learned? It probably can, if
you have enough ofa stake riding on the outcome. Some people are extraordinarily good at
knowing the limits of their knowledge, because they have to be. Think of somebody who's
been a professional tightrope walker for 20 years - and has survived. He couldn't survive
as a tightrope walker for 20 years unless he knows exactly what he knows and what he
doesn’t know. He’s worked so hard at it, because he knows if he gets it wrong he won't
survive. The survivors know.
Knowing what you don’t know is more useful than being brilliant.
On how innovative Berkshire Hathaway has been:
There isn’t one novel thought in all of how Berkshire is run. It’s all about what [Mr.
Munger’s friend] Peter [Kaufman] calls ‘exploiting unrecognized simplicities.’ We [Messrs.
Buffett and Munger, their shareholders and the companies they have acquired] have
selected one another. It’s a community of like-minded people, and that makes most
decisions into no-brainers. Warren and I aren’t prodigies. We can’t play chess blindfolded
or be concert pianists. But the results are prodigious, because we have a temperamental
advantage that more than compensates for a lack of IQ points.
Nobody has a zero incidence of bad news coming to them too late, but that’s really low at
Berkshire. Warren likes to say, ‘Just tell us the bad news, the good news can wait.’ So
people trust us in that, and that helps prevent mistakes from escalating into disasters.
When you’re not managing for quarterly earnings and you're managing only for the long
pull, you don’t give a damn what the next quarter's earnings look like.
On how he sank tens of millions of dollars into bank stocks in March 2009:
We just put the money in. It didn’t take any novel thought. It was a once-in-40-year
opportunity. You have to strike the right balance between competency or knowledge on the
one hand and gumption on the other. Too much competency and no gumption is no good.
And if you don’t know your circle of competence, then too much gumption will get you
killed. But the more you know the limits to your knowledge, the more valuable gumption is.
For most professional money managers, if you've got four children to put through college
and you’re earning $400,000 or $1 million or whatever, the last thing in the world you
would want to be worried about is having gumption. You care about survival, and the way
you survive is just not doing anything that might make you stand out.
On accounting:
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