Recently, Munger, who turns 100 in two months, was interviewed by the technology podcast Acquired for the first time in the form of a podcast, talking about his investment philosophy and the thinking mode behind his decisions over the past 99 years, and also including his views on the hot topics of the moment: what’s wrong with today’s global securities market, how to look at investment opportunities in China, and a few suggestions for the young people.
CITIC Books is the first to edit and share with you the wisdom of Munger, who is about to enter his 100th year of life.
I. Rather look stupid than go bankrupt
Stock trading is similar to gambling**
For many Americans, retail stock trading is similar to gambling. In psychology, humans are followers of natural trends. People don’t know anything about companies or anything that has price fluctuations, and retail traders are simply chasing the price up and down.
The easiest trade is to know ahead of time what you know, they increase their leverage year after year for returns, making it higher and higher, trading more and more, but making smaller and smaller profits. Having huge leverage is the only way they can get these huge returns - and if you’re already rich, this will drive you crazy.
When faced with an investment quagmire, we’d rather look stupid than broke. If I were running the world, I’d tax short term traders heavily and drive those speculators out of the market.
II. Real estate only gets two or three chances in a century
In good business, every decision is easy and you don’t even have to think about it; in bad business, every decision is difficult and you are always in and out and struggling. Berkshire’s investment in real estate in Japan is demonstrably good business.
If you’re as smart as Warren Buffett, the idea springs to mind two or three times per century. Interest rates in Japan have only been 0.5 per cent a year for a decade. And the companies are really entrenched, old-fashioned companies that own all these cheap copper mines and rubber bases, so you can borrow all that money ten years in advance, go buy shares and pay a 5% dividend.
A lot of cash flow without having to invest or think about it, and how often do you find an opportunity like that? You’d be lucky enough to get one or two such opportunities in a century. We can sense that no one else but Berkshire could have done it, and it took a long time to invest $10 billion. But it’s like God opened the window, and making money is very easy indeed.
Entrepreneurs tend to hate VCs
I think it’s almost impossible to make VC investments over and over again. “All the oil gets piping hot”, you have to make decisions quickly, and people involved in VC (venture capital) are gambling.
Venture capital doesn’t work as well for society as it should. If I could design the perfect financing system, it would have to be a legitimate business first and foremost, and by developing the right people to tap into their power, I could help them run their business, but not interfere with them too much.
Overall, after a lot of exposure to people from VCs, entrepreneurs actually tend to hate the VCs. they don’t feel that the VCs are their partners, they don’t feel that the VCs are helping them. Instead, they think that VCs only care about their own interests.
At Berkshire, we won’t sell even if some jerk banker offers a 20x P/E on some bad business. If it’s a problem business that we’ve been unable to fix, we’ll sell. Sticking to what helps us has been a Berkshire principle for years. You don’t want to make money by cheating investors, which is what a lot of venture capital does.
The next 20 years, China is a rich mine of investment
For China, you’re really seeing a whole big country, going from agrarian poverty to modern civilisation in a very short period of time, and no big country can develop that fast, a small country like Singapore did it, but no big country does.
My view on investing in China is that one, the Chinese economy has better prospects than almost any other large economy over the next 20 years; and two, the giant companies in China are stronger and much cheaper than anywhere else. So naturally, I’m willing to take some risk from Chinese companies in my portfolio, whether it’s 18% or higher, it’s not a problem for me.
Plus, I’m kind of a “hardcore BYD fan” and they keep me on my toes while being aggressive at the same time. We can’t tell who will win with the hot money in the auto industry. All the answers are still up in the air, and there are probably only one or two brands that will make money.
Wang Chuanfu is a natural engineer and production manager, and I’ve never seen anyone like him who can make anything happen.
He has a PhD in engineering, and compared to Musk, Wang Chuanfu is much better at hands-on practical work and closer to the roots of manufacturing. When he sees someone else’s part, he can manufacture that part, and so efficiently that he can look at it in the morning and make it in the afternoon.
It’s a rich mine: it’s valuable to have so many talented people in one place, and it solves almost all the problems that electric cars have in terms of motors, acceleration, brakes, and so on.
III. My favourite company: Costco
My top three investments are Berkshire, Lee Records, and Costco. warren once joked that “two terrorists hijacked the plane we were on, claiming they could grant one last wish before executing us, only to have Munger say can I tell you what’s so great about Costco one more time, and me say, kill me first! “
Costco’s strengths are many:
Trying to save customers money in every way possible, if you see an item at Costco you are pretty sure you are getting the best price;
Employee wages are almost twice as much as the competition, with employees who push carts or stock in the car park making over $22 an hour;
No mass sales, special benefits for consumers in the form of reward points to build up a reputation as a member;
Exceptionally spacious parking spaces, all of which are 10 feet wide;
Not letting vendors get paid until the item is sold.
Costco’s low SKU counts and high inventory turns put these advantages together perfectly, and it’s the magic of the business model and corporate culture that requires great execution to make it work. You have to really get down to business and then keep sticking to the basics every day, every week, every year for 40 years, and it’s not that easy. Buy a great company like Costco and don’t bother thinking about exiting.
IV A young man knows the rules, an old man knows the exceptions
On investing: always bet heavily on the best investments
Take a card, in this card, can only play 20 holes, each hole represents an investment, make an investment, play a hole. 20 holes are played, a lifetime of investment opportunities are used up. For a mindful and disciplined investor, making only 20 investments in a lifetime will surely result in a better rate of return in the end.
When you hold a particular stock for 5 years, you may slowly get into it or understand it better. When you’re sure you’re right, be sure to bet heavily on the best investments, even though the best bets are more or less heavy. This is not something business school will teach -read more, think more, see more of the world.
On work: put in intellectual effort, work hard, and pray for good luck
You have to work hard to try to make yourself rich, but what you sell has to be useful to someone else who would buy it if you were a customer instead. Don’t make money by selling things that are bad for people, if you do, no amount of money earned from the virtues you’ve thrown away will help. If I were to start all over again, I would give just as much intellect, work just as hard, and pray for good luck as I do now.
On partners: a good partnership is one that lets everyone play to their strengths
Most partnerships that work well over time don’t deliver. The best partners still need to like each other, but I wouldn’t use any one formula to describe the relationship. It’s best to let everyone excel and at the very least like what they’re doing.
On family: building trust with a good spouse
You have to have a happy family, and as I always say, “The best way to have a good spouse is to have one you deserve”, and it is essential to build trust with your spouse, especially when it comes to educating your children, as well as to have a good relationship with everyone and to help each other through the difficult times.
V. 100th Birthday Plan
Last question: Charlie, turning 100 in two months, any plans?
Charlie Munger: I’m going to California for a big party.