"Charlie Munger on the Medical System"

We've been fans for longer than some of our readers have been alive.
And no, I'm not as old as Charlie.
From Farnam Street:

Long a fount of wisdom, Charlie Munger provided us fascinating insight on everything from energy policy and mental models to how good gamblers think and making effective decisions.

At the Daily Journal Meeting (held March 25th 2015), Munger answered a question on Obamacare:

Of course the system of medical care, as evolved under the United States, has much wrong with it.

On the other hand, it has much that’s good about it. All the new drugs and devices, and new operations, medicine has taken more territory in my lifetime than it took in the whole previous history of mankind. It’s just amazing what’s been done.

A lot of it is obvious and simple, like inoculating the children against infantile paralysis, scraping the tartar off your teeth so you don’t wear plates when you’re 55 years old, and so on. People now take those benefits for granted, but I lived in a world where a lot of children died. Every city had a tuberculosis sanitarium, and half the people who got tuberculosis died. It’s amazing how well medicine has worked.

On the other hand, compared to the best it can possibly be, the American system is pretty peculiar. It’s very hard to fix. One kind of insanity is to say, “We’ll pay you so much a month for taking care of the people, and everything you save is yours.”

That is the system the government uses in dealing with the convalescent homes. That’s a great name, a convalescent home. You convalesce in heaven. You don’t convalesce them at home. [laughs] It’s attempting to have a euphemistic name.

That creates huge incentives to delay care and keep the money....MORE

Some of our previous posts on Mr. Munger: 
May 2009 
Here's the Story on Berkshire's Munger (BRK.A)
Sept. 2010
Munger Says `Thank God' U.S. Opted for Bailouts Over Handouts (But What About General Electric, Charlie?) BRK.B; GE
July 2015 
"Charlie Munger on “Loading Up,” Tracking Error, and Value Investing"
May 2009 
Berkshire Hathaway's Munger on Cap-and-Trade ("Monstrously Stupid Right Now...Almost Demented"); Warren and Charlie on Wind and Solar (BRK.A)
Aug. 2013 
The SEC and Charlie Munger's Stock Pickery (DJCO)
May 2010 
Climateer Line of the Day: Berkshire Hathaway's Charlie Munger on Age, Inflation and Solar Energy Edition (BRK.B; BRK.A)
Nov. 2015 
"Why and how do Munger and Buffett “discount the future cash flows” at the 30-year U.S. Treasury Rate?"
May 2009
An Interview with Berkshire Hathaway's Charlie Munger (BRK. A)
Aug. 2015 
Berkshire Hathaway's Charlie Munger On Mental Models

And dozens, if not hundreds, more. Use the search blog box if interested.

"Think about it a little more and you will agree with me because you're smart and I'm right."

-Charlie Munger, Vice-Chairman, Berkshire Hathaway

The best senior management 'all purpose turn-around' I've ever seen.

Here's the Story on Berkshire's Munger (BRK.A)

This story appeared in Friday's Wall Street Journal. I will be referring to it in a post planned for next week and thought I'd bookmark it on the blog. From the WSJ:

Warren Buffett is synonymous with Berkshire Hathaway Inc., getting credit for billions of dollars in big deals that have made him an icon to investors around the world. But on the one day a year when he faces his shareholders, at his side will be his longtime partner, Vice Chairman Charles Munger.

On Saturday, the partners will take their decades-old act back to the stage in Omaha, Neb., telling thousands of loyal shareholders that they see huge opportunities amid the financial crisis that drove Berkshire to its worst performance since Mr. Buffett took it over 44 years ago.

The two men, Mr. Munger, 85 years old, and Mr. Buffett, 78, speak frequently and confer about most deals, but there are differences. Mr. Munger is laconic; Mr. Buffett loquacious. Mr. Munger leans Republican; Mr. Buffett tilts Democratic. Mr. Munger will pay hefty price tags for businesses; Mr. Buffett likes safe, dirt-cheap stocks.

Mr. Munger's views have pushed Berkshire into some surprising directions. Several years ago, Mr. Munger learned of an obscure Chinese maker of batteries and automobiles called BYD Inc., which hopes to create a cheap, functional electric car....MORE

From the Nightly Business Report:

One on One with Charlie Munger, Vice Chairman Berkshire Hathaway

SUZANNE PRATT: Warren Buffett says he wants tough questions from shareholders at Berkshire Hathaway's annual meeting tomorrow. Investors will certainly ask about the company's stock. It has tumbled more than 30 percent in the past year. Also answering questions, Charlie Munger, Buffett's business partner for half a century and Berkshire's vice chairman. Munger keeps a low profile, but today in Omaha, he sat down for an interview with Susie Gharib. She began by asking him what he'll say to shareholders tomorrow to restore confidence in Berkshire.

CHARLES MUNGER, VICE CHAIRMAN, BERKSHIRE HATHAWAY: I think the reality is that if you hold a stock for a long long term even though it's screamingly successful as an investment, you will have huge declines in the value of that stock two or three times in half a century. And I don't think that should bother long term holders all that much.

GHARIB: Mr. Munger, shareholders will certainly have questions tomorrow on why Berkshire took such large positions in derivatives especially since you and Mr. Buffett have warned for years that derivatives are dangerous investments. What are you going to tell them?

MUNGER: We think the bets we made were intelligent bets. That's why we took the positions. It's just that simple. We also think that the system which allowed derivative bets to be so widely available was bad public policy. There's nothing inconsistent in those two actions....MORE

BYD: "Warren Buffett dumps stake in Chinese Tesla rival amid £31bn exodus"

Charlie Munger done good when he pitched Warren to buy BYD.

From The Telegraph, September 22:

Berkshire Hathaway’s sell-off leaves car giant BYD’s shares down 29pc from May high 

Warren Buffett’s investment giant has sold off its entire stake in BYD as investors lose faith in China’s Tesla rival.

Berkshire Hathaway revealed in its latest filings that its shareholding in BYD fell to zero in the second quarter, down from $415m (£308m) at the end of last year.

Mr Buffett’s exit led to the carmaker’s shares falling by 3.4pc in Hong Kong on Monday, fuelling a £31bn drop in BYD’s valuation since May.

Nicknamed the Oracle of Omaha, Mr Buffett first bought shares in BYD in September 2008 after the company was recommended by Charlie Munger, his long-term business partner, who died in 2023.

The company’s share price has since risen by more than 4,500pc, although it has been losing steam over the past six months.

Mr Buffett has been selling down his stake since 2022, a move that other Western investors have followed in recent months.

The carmaker’s top five stakeholders – Vanguard, BlackRock, JP Morgan, Fidelity and Citigroup – sold a combined 222m Hong Kong-listed shares in the second quarter, worth around £2.6bn....

....MUCH MORE 

Over the last few months:
"China's top leaders vow crackdown on price wars as deflation risks mount"

...As pointed out introducing June 24's Dear Europe: "China’s BYD expands car-carrier fleet to bolster EV exports amid furious domestic competition"it was the auto sector that caught our attention most recently:

BYD doesn't sell in the U.S. and there aren't very many markets that can absorb the overproduction.

And the government does not want the price war for the domestic market to get any more cut throat:

May 28 - "Chinese EV Stocks Tumble After BYD Slashes Prices Up to 35%"

Nay 29 - Whoa!—Chinese Electric Vehicles: "The Evergrande of the automotive industry already exists; it just hasn't collapsed yet."

June 3 - Chinese Government Warns Against Electric Vehicle Price War

But since the covid reopening it has been apparent what is going on in the wider economy...

Whoa!—Chinese Electric Vehicles: "The Evergrande of the automotive industry already exists; it just hasn't collapsed yet.": 

"BYD’s shares sharply lower after China EV maker’s earnings miss" 

"BYD’s $45 Billion Stock Wipeout Raises Doubts on China Outlook"

 And on Charlie+BYD:

April 2009 - Better Batteries: General Electric, A123 and the Power Grid. Plus Warren Buffett Does a Drive-by (Charlie too!)

Here's Fortune on Mr. Buffett and BYD:
Warren Buffett takes charge

Warren Buffett hasn't just seen the car of the future, he's sitting in the driver's seat. Why he's banking on an obscure Chinese electric car company and a CEO who - no joke - drinks his own battery fluid.

Warren Buffett with BYD's E6.
The car came straight to Omaha from the Detroit auto show.

Warren Buffett is famous for his rules of investing: When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact. You should invest in a business that even a fool can run, because someday a fool will. And perhaps most famously, Never invest in a business you cannot understand.

So when Buffett's friend and longtime partner in Berkshire Hathaway (BRKB), Charlie Munger, suggested early last year that they invest in BYD, an obscure Chinese battery, mobile phone, and electric car company, one might have predicted Buffett would cite rule No. 3 above. He is, after all, a man who shunned the booming U.S. tech industry during the 1990s.

But Buffett, who is 78, was intrigued by Munger's description of the entrepreneur behind BYD, a man named Wang Chuan-Fu, whom he had met through a mutual friend. "This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it.">>>MORE

May 2009 - Here's the Story on Berkshire's Munger (BRK.A)

....The two men, Mr. Munger, 85 years old, and Mr. Buffett, 78, speak frequently and confer about most deals, but there are differences. Mr. Munger is laconic; Mr. Buffett loquacious. Mr. Munger leans Republican; Mr. Buffett tilts Democratic. Mr. Munger will pay hefty price tags for businesses; Mr. Buffett likes safe, dirt-cheap stocks.

Mr. Munger's views have pushed Berkshire into some surprising directions. Several years ago, Mr. Munger learned of an obscure Chinese maker of batteries and automobiles called BYD Inc., which hopes to create a cheap, functional electric car....MORE

August 2009 - China's BYD says Buffett wants to raise stake (BRK.A: 1211.HK)

[this comment did not please Buffet or Munger - Don't be tellin' people to go frontrun our buying] 

May 2023 - Berkshire Hathaway Cut Stake In China's BYD Because The Don't Want To Compete Against Elon Musk (TSLA)

January 2024 - "China could be on track to dominate the world’s EV market, even if not in the U.S."

Elon Musk, who seems to have some insight into the industry, says there will be 10 surviving manufacturers, 9 of them Chinese....

***** 

....In the case of BYD, its manufacturing prowess had long impressed Berkshire Hathaway vice chairman Charlie Munger, who passed away this week. While Berkshire generally steers clear of the auto industry—it declined to invest in Tesla—Munger led an enormously successful investment in BYD. He called the carmaker’s founder and CEO Wang Chuanfu a “natural engineer,” adding that “the guy at BYD is better at actually making things than Elon is.”....

And many, many more. It was an important story and we just happened to bookend it. 

Munger Says `Thank God' U.S. Opted for Bailouts Over Handouts (But What About General Electric, Charlie?) BRK.B; GE

UPDATE: EconblogReview has some similar thoughts, link below.
UPDATE II: 
"Munger Tells 25 Million Americans To "Suck It In", And To "Thank God For Bank Bailouts" As BRK Benefits From $95 Billion Of TARP Funding" (BRK.B)

Original post:
Long time readers know that not only am I a fan of the Warren and Charlie show*, I've read enough of their writings to be able to pull an appropriate quote when I need to.

Being a billionaire does not make Charlie a genius, it makes him rich.**

This piece seems a bit odd, I'll let you judge after the the Andrew Ross Sorkin interview.
First up, Bloomberg:

Charles Munger, the billionaire vice chairman of Berkshire Hathaway Inc., defended the U.S. financial-company rescues of 2008 and told students that people in economic distress should “suck it in and cope.”

“You should thank God” for bank bailouts, Munger said in a discussion at the University of Michigan on Sept. 14, according to a video posted on the Internet. “Now, if you talk about bailouts for everybody else, there comes a place where if you just start bailing out all the individuals instead of telling them to adapt, the culture dies.” 

Bank rescues allowed the U.S. to avoid what could have been an “awful” downturn and will help the country as it deals with the housing slump, Munger, 86, said. He used the example of post-World War I Germany to explain how the bailouts under Presidents George W. Bush and Barack Obama were “absolutely required to save your civilization.”

“Hit the economy with enough misery and enough disruption, destroy the currency, and God knows what happens,” Munger said. “So I think when you have troubles like that you shouldn’t be bitching about a little bailout. You should have been thinking it should have been bigger.”

Germany was unable to stabilize its financial system in the 1920s, and, Munger said, “We ended up with Adolf Hitler.”

Taxpayer funds injected into banks helped insulate bond investors from losses and cushioned stock declines for equity holders. U.S. programs designed to ease the burden for distressed mortgage holders didn’t prevent foreclosures from rising to a record. One out of every 381 households received a foreclosure filing in August, according to RealtyTrac Inc.

Angry Public

“Charlie Munger is misrepresenting history, and that’s why the public is angry at Wall Street,” said Joshua Rosner, an analyst at research firm Graham Fisher & Co. “We could have wiped out the equity holders before we wiped out the taxpayer.”...MORE

 From NPR's Weekend Edition September 18, 2010
Inside The Minds Of Wall Street Execs
Guest host Robert Smith talks to New York Times reporter Andrew Ross Sorkin, author of "Too Big to Fail," about the second anniversary of the U.S. financial meltdown. Sorkin looks back on the causes for the meltdown and his worries about the next big crisis.

...Mr. SORKIN: To give you a flavor of it, there were a couple things that happened that week that I think actually went underreported, one being that Morgan Stanley almost went out of business, the next being that Goldman Sachs was the domino after that, the next being that actually there was worries inside the Treasury Department that General Electric was going to have to go bankrupt.

SMITH: General Electric? I hadn't heard that.

Mr. SORKIN: No. That was real. And there were projections that the Federal Reserve was making that we could be headed for 25 percent unemployment in this country. So you know, we talk about 10 percent - hovering around 10 percent today. And the last piece was, there was a rumor that McDonald's franchisees weren't going to be able to make payroll the next Tuesday because Bank of America, which financed McDonald's and effectively rolled their paper, quote-unquote, was going to stop rolling their paper. So all of a sudden the kid on the corner who is flipping burgers was being impacted by the guy on pinstripes on Wall Street....

So they bailed GE out. I'll write about it before month end. Oh, and Berkshire invested a few billion into GE after Buffett decided it was Too Big to Fail.


*"I didn't set out in life to become the assistant leader of a cult."
-Mr. Munger at the 2007 Wesco annual meeting as recorded
by T2 Partners' Whitney Tilson

**"Think about it a little more and you will agree with me because you're smart and I'm right."
--Mr. Munger quoted in "Damn Right: Behind the Scenes with..."

UPDATE:
Is Berkshire's Charles Munger Still Making Sense?

There is much with which to disagree in Mr. Munger's sentiments. For one, it would seem that the U. S. in fact had an "awful" downturn despite the bailouts. For another, it is difficult to see how a managed bankruptcy of Citigroup or Bank of America (or both) would have destroyed civilization as we know it. For a third counterexample, shouldn't the corporations have adapted, such as by wiping out the common shareholders as appropriate and having the bondholders convert their bonds into equity?...

UPDATED--(Bonus) Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. IV (BRK.B; BRK.A)

UPDATE here.
Original post:
Okay, there were actually six live blogs. We've linked to four and may get to the other two on Monday.
From the Wall Street Journal's Deal Journal:

LIVE BLOG: The Berkshire Hathaway Annual Meeting

The Berkshire Hathaway annual meeting, known as the “Woodstock for capitalists,” convenes today just one month after the surprise resignation of David Sokol, one of Warren Buffett’s top lieutenants.
Nearly 40,000 people are expected to pack into the Omaha, Neb., Qwest Center to hear Buffett and investing partner Charlie Munger talk about Sokol, the economy, the health of Berkshire Hathaway and everything else under the sun. People have flown in from as far away as Australia to take in the words of the Oracle of Omaha.

The Sokol scandal hangs over what tends to be a raucous, light-hearted affair. Buffett hasn’t commented on the matter since announcing Sokol's resignation on March 30 but pledged he will answer any and all questions today. Your Deal Journal team will be live-blogging the day-long event in real time. You’ll almost be able to taste the See’s Candies....

...Time to Retire This Joke:
Buffett, in talking about Berkshire keeping its cash in very safe places, says he wants assurance just in case Ben Bernanke runs off to South America with Paris Hilton. Where have we heard this joke before? Oh, pretty much everywhere Buffett shows up. Also, Warren, you need a new celebrity ingenue reference. Megan Fox, maybe?

Berkshire Is Cash Conservative
A shareholder wants to know what Berkshire does with its billions of dollars in cash, given the low yields for cash right now. "He's certainly right that all the choices are lousy for short term money right now," Buffett replies.

He says most of Berkshire's cash is parked in Treasurys. It's not a great return, Buffett concedes, but at least we know well get our car back.

In Berkshire's latest annual report, Buffett said he was glad Berkshire didn't invest in commercial paper when that typically safe market imploded during the financial crisis. He also relayed a story about his grandfather, who owned an Omaha grocery store and urged his children to keep at least $1,000 in cash in a safe deposit box just in case.

Berkshire's version of a $1,000 in a safe deposit box? The $34.8 billion in cash and cash equivalents the company had on its books, as of Dec. 31.

And now, for another dig at bankers.

Yes, Warren Buffett doesn't like Wall Street bankers. Buffett says he's never seen an investment bankerâs financial predictions for a company that didn't show earnings going higher. I don't pay attention, he says, and compares it to asking the barber if you need a haircut. This is a frequent Buffett trope.

Buffett says that he and Munger keep financial projections in their heads, rather than rely on the bankers' spreadsheets. Munger's advice for those in business school: At least until you're out of school you have to pretend to do it their way.

Treats!
If we could find areas of growth for See's Candies, it would be very, very profitable, Buffett says. I've lost count how many times Buffett has mentioned See's and its profits today.
Meanwhile, Buffett and Munger have picked up their pace of eating and drinking post-lunch. Munger has a box of treats right in front of him. The box is orange, like his fetching tie. These guys clearly didn't coordinate their wardrobes today. Buffett's cravat is bright pink, very clashing.

Buffett on Nukes
There have been question marks about the future of nuclear power since the crisis in Japan. "I think nuclear power is safe," Buffett said. "Nuclear power is an important part of the world's equation in dealing with problems of harmful emissions from traditional energy sources, he said.
(Buffett does admit there is and will be public resistance to nuclear power after the Japan crisis.)
Buffett has long feared nuclear war, and has lavished charitable contributions on anti-nuke programs. So it's interesting to hear him defend nuclear energy so firmly.

Buffett: Don't Worry About the U.S. Debt
"The United States is not going to have a debt crisis as long as the country issues notes in its own currency, Buffett says. He also proclaimed to have little patience for the bare-knuckle debates in Washington over whether to raise the ceiling on U.S. debt levels.

It seems such a waste of time," Buffett said. In the end, he says, theres no chance that they don't increase the debt ceiling. And Buffett said he'd like to see Washington eliminate the ceiling altogether because it leads to periodic political showdowns that can cripple the federal government.

Speed Isn't Everything:
A shareholder asks Buffett for advice to young people on how to read quickly. (Buffett is a voracious reader. He has said he reads five newspapers a day and lots of the voluminous corporate annual reports.) Buffett does admit now that he doesn't read as quickly as he once did, a rare admission of age-related weakness from the Oracle of Omaha.

It's a huge advantage to be able to read fast," Buffett says, but says he doesn't really believe in speed reading courses or techniques.

Then the Oracle relays a joke from Woody Allen Buffett's second reference today to the film director  about how he speed read War and Peace," leading to a not-great recall of the book. It's about Russia," Allen jokes.

Does Buffett Have an Unfair Advantage?
Berkshire Hathaway doesn't muck about fighting over nickels and dimes with companies Buffett wants to buy. If an acquisition target wants to open itself up to multiple possible buyers, Buffett says no thanks. That's why Berkshire was the only suitor for Lubrizol before Berkshire reached a $9 billion acquisition agreement. Typically, to ensure shareholders the best price possible, a company will offer itself for sale to multiple bidders.

Does this mean Lubrizol abdicated its duties to get the best deal for its shareholders?
Buffett and Munger say an emphatic NO.

Buffett said Lubrizol got a rich sale price, and Berkshire simply would have walked away from the acquisition if the company sought to auction itself. Munger is clearly annoyed at this question.
"Anybody else have an easy question?" Munger snapped.

Say Goodbye to $100k
Warren Buffett makes a salary of $100,000 a year. Whoever takes over for him as Berkshire’s CEO is going to make a whole lot more, he says.
I think the next CEO will make a lot of money."

Is Buffett Getting Impatient?
Munger was giving a lengthy answer in response to a request for a case study of a company that did something right, and a cautionary corporate tale of imprudent action. Munger, as Buffett predicted, begins with praise of Costco. After a few more examples, Buffett interrupts with a dark joke about a recent hijacking attempt of him and Munger.

Buffett digs in: When asked for last requests before they are executed, Munger says;Â "Id like to give one more speech on the virtues of Costo, with illustrations."And what's your last request, Mr. Buffett? "I said, 'Shoot Me First.'"

Sorry, AOL
Oh, Warren way to kick a company when it's already dead. In response to a question about the accounting treatment of goodwill, he takes a potshot at AOL Time Warner, perhaps the worst acquisition in corporate America....

...MUCH MORE

Earlier:

Motley Fool
Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. III (BRK.B; BRK.A)

Morningstar
Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. II (BRK.B; BRK.A)

DealBook
Better than a Transcript: Three Live-blogs of the Berkshire Hathaway Annual Meeting Pt. I (BRK.B; BRK.A)

The SEC and Charlie Munger's Stock Pickery (DJCO)

From DealBreaker:

The SEC Thought Charlie Munger Was Hiding A Hedge Fund In Some Newspapers 

 Here’s a neat little story from Bloomberg: Charlie Munger, Warren Buffett’s long-time right-hand man at Berkshire Hathaway, moonlights as the chairman of the board of a wee newspaper company called Daily Journal. Daily Journal owns a collection of newspapers so dull that they “specializ[e] in public notice advertising,” particularly notices of foreclosure sales. It also owns $128 million in marketable securities, virtually all of it ($121mm) in common stocks. This is noteworthy because, one, Charlie Munger is the one picking the stocks, and two, Daily Journal’s total book assets are only $173.8mm, its book equity is $106mm, and its market cap is around $190mm. For every dollar you invest in Daily Journal, you’re getting around 33 cents of foreclosure notices and 67 cents of Charlie Munger’s stock-picking. Charlie Munger’s stock-picking: pretty good, as it happens, and in any case a commodity that some people desire.¹

Which led to an amusing exchange with the SEC where:

• the SEC asked Daily Journal, “hey wait are you just a front for a Charlie Munger stock-pickery?,” and
• Daily Journal replied (1) no but (2) the Charlie Munger stock-pickery worked out pretty well for us, huh?

The reason for the question is that you can’t just go around having a public company whose business is investing in stocks picked by Charlie Munger, or anyone else of course. To be a public company whose business is stock-picking, you need to be a mutual fund, which entails various registrations, restrictions on investments and leverage, disclosure requirements, etc.² Or of course you could be a hedge fund, which avoids many of those requirements, but at the cost of (1) limiting your fund-raising to accredited investors, which is somewhat liquidity-reducing, and (2) normally, abiding by the custom that hedge fund capital is not locked up permanently the way public equities tend to be....MORE

"Charlie Munger on “Loading Up,” Tracking Error, and Value Investing"

From Alpha Architect:

Back in 1994, Charlie Munger gave a talk to students at the USC Business School (a copy is here), covering topics ranging from mathematics and behavioral psychology, to pari-mutuel systems and investment management. As usual, it was a wide-ranging and fascinating speech.
One thing that’s interesting about many of the things that emanate from Charlie Munger’s mouth is that they reflect an understanding of deep truths in the world, and these truths often stand the test of time.

Despite that this talk occurred over 20 years ago, we were particularly intrigued by a few aspects related to investment management and value investing.
From Munger’s talk:

…we’re way less diversified. And I think our system is miles better. However, in all fairness, I don’t think a lot of money managers could successfully sell their services if they used our system. But if you’re investing for 40 years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else’s so long as it’s all going to work out well in the end? So what if there’s a little extra volatility?

Munger is referring here to the notion of diworsification and “tracking error.” When you take concentrated, less diversified positions, you are doing something different from the crowd, and your returns are therefore going to be very different from the average – sometimes on the downside. For this reason many are deeply fearful of taking concentrated positions. Yet this is critical if you want to be a successful value investor. The value investing funds – like Munger’s – that perform best over the long run take concentrated positions and don’t hold 100+ stock portfolios.

Munger continues:

In investment management today, everybody wants not only to win, but to have a yearly outcome path that never diverges very much from a standard path except on the upside. Well, that is a very artificial, crazy construct. That’s the equivalent in investment management to the custom of binding the feet of Chinese women. It’s the equivalent of what Nietzsche meant when he criticized the man who had a lame leg and was proud of it. That is really hobbling yourself.

Leave it to Charlie Munger to refer to Nietzsche in the context of asset management. What is he driving at?

In “Thus Spoke Zarathustra,” Nietzsche preaches the value of educating yourself, being faithful to yourself, and ignoring convention and the crowd in the marketplace. Munger’s “man with the lame leg” represents this ignorant crowd....MORE

As Close to a Transcript of the 2009 Berkshire Hathaway Annual Meeting as You're Going to Find* (BRK.A)

From the Omaha World-Herald:

8:41	The Berkshire Hathaway annual movie has begun. It started with a cartoon of Warren Buffett, Charlie Munger and other executives acknowledging a difficult year in 2008 and pledging to work hard in 2009. Not even Berkshire escaped the global recession unscathed.

8:45

The Qwest Center Omaha is packed to the rafters. The arena seats more than 18,000 people. About 35,000 shareholders are in Omaha this year, many of them spilling out into the exhibition hall at the adjoining convention center. The annual meeting is piped into the hall and other rooms so people can watch and hear it.

8:52

Late night television and other comedians were highlighted in one snippet of the annual movie, joking about the recession and government efforts to revive the economy. One was David Letterman proclaiming it was a good time to buy stocks, playing off Buffett's advice at one point in the crisis. Letterman suggested that instead of that latte you are accustomed to buying, folks should pick up a few shares of GM.

9:03

Another segment has Buffett in Berkshire-owned Nebraska Furniture Mart taking a nap on a mattress, checking "product quality." A manager steps up and tells him the days of sleeping until the phone rings are over, given the stock plunge for Berkshire in 2008. Buffett agrees and tries to sell a mattress to a customer, saying the board of directors suggested he find something else to do. Buffett told the customer it had something to do with a downgrade in Berkshire's credit rating. He gets her to buy a mattress called the "Nervous Nellie," a big seller since the Dow Jones industrials dropped. The mattress features pockets into which can be placed cash and other valuables. The woman goes off to buy the mattress and Buffett takes out all the cash displayed in the mattress, along with a Nebraska Cornhuskers football, magazines and other items. He calls Charlie Munger to set up delivery.

9:17

Viewers of the annual movie learned the history of Geico auto insurance company's advertising icon Gecko. The lizard was not like other gecko's, the story goes, and hung out with a family cutting out coupons to help save people money. Then the Gecko left a note with the family, saying he wanted to strike out on his own, to bigger and better things. His lonely life changed when he received calls from people confusing him with Geico. He visited Geico's offices and the chief of marketing realized the Gecko wanted to help save people money, just like Geico tries to do with auto insurance. Geico sounds like Gecko, and the advertising legend was born.

9:21

Like last year, a comedy sketch is featured this year, with an investment banker interviewed about the complex financial instruments that backed bad home mortgages. Asked what caused the setup to unravel, the investment banker said people started to ask what the mortgages were actually worth. "Oh for the good old days," the banker sighs.

9:24	The annual movie is over.

9:27	Warren Buffett and Charlie Munger have taken their seats. Buffett says questions and answers will be different this year, with journalists alternating questions e-mailed by shareholders with those posed by shareholders in the audience.

9:33	Buffett notes that U.S. Treasury bonds recently have had negative yields. He said people might not see that phenomenon again in their lifetimes.

9:33	Journalist Carol Loomis says more than 5,000 questions were relayed to three journalists involved.

9:40

Journalist Carol Loomis said more than 5,000 questions were submitted via e-mail. The first question relates to derivatives and whether those financial deals are good for Berkshire. Buffett says over time, Berkshire expects to make money on the current deals. Buffett says the only money that crossed hands in the stock market deals so far has been $4.9 billion given to Berkshire in premiums. Buffett says the company can use that money for the next 15 to 20 years. And the stock markets on which the deals are made are expected to be higher than when the deals were struck.

9:47

tt

9:52	Buffett and Munger said the government's response to the financial crisis has not been perfect but it has been reacting the best it can. Munger said given the emegency the government should be judged with some leniency.

10:08

Journalist Andrew Ross Sorkin of the New York Times says about 300 shareholders had a similar question: Why does Berkshire keep a high investment in Moody's at a time that credit agencies are being criticized for conflict of interest and using flawed history based models? And why not use Berkshire's clout to change the behavior of the credit agencies. Buffett says the big mistake ratings agencies, Congress, bankers and buyers of homes made was thinking housing prices would continue to rise _ and then they collapsed. Buffett says ratings agencies continue to be a good business because there are not many of them and they deal with a large part of the capital markets. Buffett said Berkshire also does not buy stocks in companies to change their behavior. Buffett says in fact he has tried to influence behavior in the past, and never has been very successful.

10:17

Buffett is asked how the four investment managers chosen as possible successors to him did in 2008, a very difficult year. Buffett says there are three candidates as CEO, all are internal candidates. There are four possible investment successors, and one or more could be chosen. They are from inside and outside Berkshire. The four investment managers did no better than match the S&P 500. In 2008 they did not cover themselves with glory, Buffett says, but neither did he, so he is tolerant. Munger says any investment manager he knows who is regarded as intelligent and the rest, they all got creamed last year. Buffett says the investment managers over 10 years have done better. Buffett says he has not changed the list of four possible investment managers, either. Buffett says the CEO job is different, that person needs to step right in if something happens to Buffett. But Buffett says one or more investment managers do not have to actions right away. Buffett says an announcement should not be expected right away on investment managers if something happens to him. But within a month or so, an announcement might be made.

10:24

Becky Quick of CNBC says a question about three candidates for CEO successor: What are benefits of bringing in CEO early to give that person a chance to get used to the job? Buffett says he has heard that question before. Buffett says if there was a good way to inject someone into a role that would that person a better CEO for Berkshire, they would do that. But he says the three CEOs are running major businesses right now, and to sit in the office while Buffett is reading or on the telephone -- there is really nothing to do. He says "it would be a waste of talent." Buffett says the three candidates are 100 percent ready for the job right now. He says the biggest job they will have is developing relationships with potential buyers of businesss, with the world at large, with the shareholders. He says that will take time, though not a great deal of time. He says they know how to run businesses, and they probably would do some things better than he would. Munger says a lot of models that have worked well in the world, like Johnson and Johnson, work something like Berkshire and these talents pop up in the subsidiaries.

10:32

A shareholder asks Buffett to explain his investment strategies, like value investing, and how teach young people. Buffett says he brings in college students to talk with them each year. Buffett says he tells them it is important to know how to value a business and to know how to judge the markets. He says there would be nothing about modern portfolio theory or anything like that. He says it is important to know your circle of competence, start small and learn as you go along. Buffett says some accounting principles also are important. And then learn about market fluctuations and learn that the market is there to serve you. And that is not an issue of a high IQ, but rather an emotional stability and inner peace about the decisions you have made. Munger says there is the basic problem of always having half the future investors in the world in the bottom 50 percent. Munger says largely people should reduce the nonsense. Buffett and Munger agree that emotional makeup is more important than a high IQ. Buffett says he is asked by college students, "what are we being taught that is wrong?" Munger asks how Buffett can handle that question in just one session.

10:36

Buffett is asked how he would replace someone like Ajit Jain in the insurance division. Buffett says you don't, that Jain is unique. But authority does not go to the position -- it goes to the person.

10:46

A shareholder asks how Buffett views the markets' valuation of Berkshire shares. The market has it down 30 percent, while earnings were not down that far. Buffett says the shareholder put his finger on something there. Buffett says the investments are what they are in the stock market, so he does not have a problem with that side of the equation. Buffett says the earning power of businesses were down last year and will not do as well this year. But they are by and large good businesses. He says a few of them have problems, others will do very well. Buffett says Berkshire was cheaper in the stock market last year than its intrinsic value would indicate, but most companies were in the same boat. Buffett says over time, both stock price and intrinsic value will increase. And he hopes the operating companies over time will do better. Munger says last year was a bad year for a float business, making the owner of the float (insurance premiums held by Berkshire that can be invested) appear to be worth less than the owner will be worth over time. Munger says Berkshire's casualty insurance business is probably the best in the world. He says other companies in Berkshire's holdings also rank high in the world. Munger says if you think it is easy to get in the position that Berkshire occupies, you are living in a different world than the one that I occupy. Buffett says Berkshire's insurance business is remarkable, with remarkable managers. Buffett says with the economic meltdown, like the China Syndrome or something, it hurt jewerly and NetJets and other businesses, American Express, etc. But the meltdown also caused the phones to ring more at Geico. Buffett says all of a sudden saving money became very important. Buffett says that builds a lot of value over time. Buffett says Geico is now the third largest auto insurer in the country this year and the fundamentals are in place to take Geico much higher.

10:59

A shareholder asks about the federal stimulus bill, saying only 8 percent is aimed at infrastructure. He asks should not more of that bill go to real assets and put numerous people to work? Munger says "Let me answer that one. Yes!" Buffett says that should be the goal. Buffett says anytime government or anything else throws a lot of resources into something, there is a lot of slop. Buffett says the intent though, is to get a lot of money into action and used smartly. Buffett says when the consumer pulls back the way they have, government needs to step in. Buffett also says there will be consequences. "I think we should be doing it, but we shouldn't think its a free ride.">>>MORE

The Q&A went on until 3:00p.m., there is some fascinating stuff in here.
I copied the balance and will post it should they put it behind a paywall.
Otherwise, the OWH is THE place to get an amazing piece of reportage.
HT chain: Motley Fool via Kempton ideas Revolutionary
*BRK did file a partial transcript with the SEC as an 8K for Mr. Buffett's comments on the company's earnings, here's the exhibit:

Transcript of Warren E. Buffett’s Comments Regarding First Quarter 2009 Operating Results

Climateer Line of the Day: Berkshire Hathaway's Charlie Munger on Age, Inflation and Solar Energy Edition (BRK.B; BRK.A)

I was tempted to title this post "Assistant Leader of a Cult Edition".*
From "As close to a Transcript of the 2010 Berkshire Hathaway Shareholders Meeting as you're likely to find (BRK.A; BRK.B)":

• • 3:21 pm
  • by Erik Holm
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  ...Munger, generally a grumpy fellow, is optimistic about the ability of humanity to solve its biggest problems. He sees solar energy as an answer to many of our problems... eventually. For now, when he does construction,
  

• "I never miss an opportunity to pass up putting them in" because they're currently too expensive.

• • 3:27 pm
  • by Erik Holm
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  • Add a Comment

  Buffett and Munger are asked about the reasons for their optimism for the future. Munger says the fact that we're close to solving our energy problems is important. Then he says: "If I can be optimistic when I'm nearly dead, the rest of you can handle a little inflation."...

*Last November I juxtaposed some Charlieism's in Q&A style:
Berkshire Hathaway's Charlie Munger on Cap-and-Trade and When He Started Liking Trains (BRK.A; BNI):

I had planned to post this on Tuesday when word came out that Charlie and Warren were getting some new trains to play with.
Herewith a compilation of Charlieisms:

"Mr. Munger, welcome. You had some strong words on the proposed global warming policy solutions. Could you boil down your thinking for us?"

CM: "Monstrously Stupid Right Now...Almost Demented"

"That seems a bit harsh."

CM: "Think about it a little more and you will agree with me because you're smart and I'm right."

"At the annual meeting..."

CM: "I didn't set out in life to become the assistant leader of a cult."*

"At the annual meeting you shared some thoughts on alternative energy, what did you say?"

CM: Who knows, Warren was stepping all over my straight lines. Here's the Omaha World-Herald live-blog-

"Munger says harnessing the sun's power and changing sea water to fresh, other changes are for the better. Munger says he sees very good things for the future, including enough energy generation to solve a lot of other problems along with it."

*Whitney Tilson’s 2007 Wesco Annual Meeting Notes, Opening Remarks

And for the rail-curious, Mr. Tilson took down this note:
...Berkshire’s investment in railroads...

An Interview with Berkshire Hathaway's Charlie Munger (BRK. A)

From law.stanford.edu:

Charles T.Munger is a man of many interests, much like his hero Benjamin Franklin. Self taught in a range of disciplines, he’s a strong advocate for interdisciplinary education saying, “If I can do it, many people can.” A student of physics and mathematics before entering law school, he left his mark on the legal profession early in his career by co-founding Munger, Tolles & Olson in 1962—a firm that is today consistently ranked at the top of its field. Now an icon of the business world, he joined forces with Warren Buffett in the mid-1960s—leaving law to become vice chairman of Berkshire Hathaway and a partner in one of the most successful firms in the world.

Over the years Munger has gained a reputation as something of a no-nonsense voice for sound investment strategies and responsible business practices—as well as simple common sense. But lately it is the mythical Greek character Cassandra who is much on his mind. After living through the Great Depression, serving in WWII, and entering the business world in an era of restraint and sensible regulation, he is irritated by what he calls “the asininities” of today’s government and business leaders that led to the current crisis. He saw the financial train wreck coming and voiced his concerns loudly.

But almost no one shared them. “It is painful to see the tragedy coming, to care about all the people who are going to be clobbered, and not to be able to do one damn thing about it,” said Munger, as we prepared for the interview that follows. As the nation navigates through this crisis, entering waters previously uncharted, perhaps the powers that be will be more willing to address issues previously ignored.....MORE (6 page PDF)

HT: Calculated Risk who highlights:

...And on derivatives:

Grundfest: You and your partner, Warren Buffett, have for years warned about the dangers of the modern derivatives markets, particularly credit derivatives, and about interest rate swaps, currency swaps, and equity swaps.

Munger: Interest rate swaps have enormous dangers given their size and the accounting that has been allowed. But credit default derivatives took that danger to new levels of excess—from something that was already gross and wrong. In the ’20s we had the “bucket shop.” The term bucket shop was a term of derision, because it described a gambling parlor. The bucket shop didn’t buy any securities. It just enabled people to make bets against the house and the house furnished little statements of how the bets came out. It was like the off-track betting system.

Grundfest: Until the house lost its money and suddenly disappeared. Or the house made its money and suddenly disappeared.

Munger: That is right. Derivatives trading, with no central clearing, brought back the bucket shop, because you could make bets without having any interest in the basic security, and people did make such bets in the billions and billions of dollars. Some of the most admired people in finance — including Alan Greenspan — argued that derivatives trading, substituting for the old bucket shop, was a great contribution to modern economic civilization. There’s another word for this: bonkers. It is not a credit to academic economics that Greenspan’s view was so common.

There is much more.

Berkshire Hathaway's Munger on Cap-and-Trade ("Monstrously Stupid Right Now...Almost Demented"); Warren and Charlie on Wind and Solar (BRK.A)

First up, Mr. Munger on Cap-and-Trade with CNBC's Becky Quick.
Friday, May 2:

From the Omaha World-Herald live-blog of the Q&A session:

1:30

A shareholder says he has seen windfarms in Iowa made by MidAmerican Energy and when will there be a return on investment for that. Buffett says wind cannot be counted on for a baseload of electricity, but Iowa has been receptive to wind energy and MidAmerican has been happy to cooperate with that. Buffett says a return on wind energy investment is being had, part of it is a tax credit given to anyone in the country who develops wind power generation. Buffett says we love the idea of putting in more wind. Buffett says one advantage Berkshire has is it is a big taxpayer, so the tax credit is certain to help. Munger says anything that make sense for a utility, MidAmerican will be involved. Buffett says Berkshire will be involved in more utilities, and would have cut the Constellation deal. Buffett says a phone call at noon or 1 p.m. one day turned into a firm deal by 5 p.m. frrom Berkshire to Constellation in Baltimore that same day. Buffett says that kind of dealmaking ability will help Berkshire in the future, even though that particular deal did not get closed for Berkshire. Buffett says Berkshire always has the money, and it has the managers who can deliver on the property. He says that is a "huge, huge advantage."

2:12

A shareholder asks what questions about the world economy Buffett and Munger ask each other. Buffett says the world always has problems but unfortunately it is the only world we have. Buffett says over time, the United States has a great system and people will be better off in the future compared with the present. Buffett says the system unleashes human potential. Buffett says China went for a long time with a system that didn't unleash human potential. Buffett says that has changed, and China's system does unleash human potential. Buffett says capitalism always will have bad years. Buffett says overall the world moves ahead and really it is at a pretty rapid rate. Munger says the closer he moves to death the more cheerful he feels about the world's potential. Munger says harnessing the sun's power and changing sea water to fresh, other changes are for the better. Munger says he sees very good things for the future, including enough energy generation to solve a lot of other problems along with it.

"The best wit and wisdom from Warren Buffett and Charlie Munger at Berkshire Hathaway’s annual meeting" (BRK)

From CNBC, May 6:

Berkshire Hathaway’s annual shareholder meeting on Saturday included dozens of questions spanning topics such as investing strategy, artificial intelligence and politics for the legendary investors at the helm of the conglomerate: Chairman Warren Buffett and Vice Chairman Charlie Munger

But it wasn’t all strictly business. Buffett and Munger — who are 92 and 99 years old, respectively — cracked jokes and shared wisdom from decades in the investing world throughout the more than five hours spent answering questions.

Here’s some of the best moments from the “Oracle of Omaha” and Munger:

King Charles and King Charlie

Buffett referenced the coronation of King Charles III in England also scheduled for Saturday as he introduced Munger. Charles was the 40th monarch to be crowned at Westminster Abbey in a tradition that dates back to 1066, according to NBC News.

When I woke up this morning, I realized that we had a competitive broadcast going out somewhere in the U.K. ... They were celebrating a ‘King Charles,’ and we’ve got our own ‘King Charles’ here today.

More people do ‘dumb things’

Munger said value investors should be prepared to get smaller returns as competition intensifies. But Buffett said there’s still opportunities given so many people have a short-term view and often do stupid things in a panic....

....MUCH MORE

CNBC and Yahoo Finance usually do the most wide-ranging coverage of "Buffettpalooza" while the local newspaper, the Omaha World-Herald used to cover the Question & Answer part of the meeting so in-depth that we once called it "Better-than-a-transcript." but since Berkshire sold the paper the coverage seems to be a bit less resource-intense, still insightful though:

Buffett expresses confidence in bank deposits before full house of shareholders in Omaha

And back to CNBC, you'll find most of their stories in: "Here’s a full recap of everything Warren Buffett and Charlie Munger said at Berkshire’s annual meeting" 

If you click through, they have almost an hour of video as well.

The placard in front of Buffet reads "Available for sale. That in front of Charlie: "Held to maturity."

Tomorrow, some of the tidbits from Yahoo Finance.

Berkshire Hathaway's Charlie Munger On Mental Models

Via Value Investing World:

From Charlie Munger: The Complete Investor (which according to Amazon, is now being shipped for end-of-week deliveries):

No one can know everything, but you can work to understand the big important models in each discipline at a basic level so they can collectively add value in a decision-making process. Simply put, Munger believes that people who think very broadly and understand many different models from many different disciplines make better decisions and are therefore better investors.

Recently on the Charlie channel:
"Thought of the day" Munger Edition
"Charlie Munger on “Loading Up,” Tracking Error, and Value Investing"
"Charlie Munger on how he invested when younger compared to today, and how he reads books"
Charlie Munger on Ernst & Young: Something About Fishing Around in the Groin

"Why and how do Munger and Buffett “discount the future cash flows” at the 30-year U.S. Treasury Rate?"

From 25iq:

Buffett and Munger use several methods which are at odds with traditional financial theory. Here is one of those nontraditional approaches:

Buffett: “We don’t discount the future cash flows at 9% or 10%; we use the U.S. treasury rate. We try to deal with things about which we are quite certain. You can’t compensate for risk by using a high discount rate.”

There is no law of nature requiring that a capital allocation process account for risk, uncertainty and ignorance by adjusting the interest rate. Buffett and Munger instead use the concept of margin of safety. Having a margin of safety and also adjusting the interest rate would be redundant in their view. They: 

1. Assemble options to invest that involve businesses which have a future that is “quite certain” and is within their circle of competence
2. Use the 30 year rate to do the DCF in their head on all these opportunities
3. Apply a margin of safety
4. Compare every option available to then anywhere on Earth and chose the best one.

This makes some people nuts since they were trained to adjust the interest rate to account for risk. I’m not taking a personal position here and am instead trying to better explain the Buffett/Munger approach.

The two methods are different ways of accomplishing the same thing, so why do Buffett and Munger use their own approach? I believe they prefer their method since it frames the ultimate question in a way that they prefer. They hate the idea of someone saying “invest in X since the return is above your hurdle rate” since that decisions can be made only by looking at every other alternative in the world. By using the same 30 year US Treasury rate for every DCF he has created a “system to compare things.” The things Buffett compares side-by-side must be “quite certain” and available to buy at a significant discount to intrinsic value reflecting a margin of safety.

My friend John Alberg a co-founder of http://www.euclidean.com/ puts it this way:

“Another way of saying it is that all investments share the same discount rate. You can’t apply a different discount rate to company A than company B because $1 in the future is worth the same amount of money regardless of whether it comes from company A or B. So instead an investor should focus on the cash that a business can generate within a margin of safety and compare them by that measure. With respect to DCF, the reason that it can be “done in the head” is because it simplifies to a simple ratio when you use margin of safety. That is, if most future cashflows from company A are going to be greater than some number c_A and the discount rates are going to be greater than some other value r then the quantity c_A / r is less than the result you would get from a DCF. Put another way, the quantity c_A / r is a lower bound on the DCF or it is an estimate of intrinsic value with a margin of safety. But notice that if you are comparing the intrinsic value of two companies with cashflows of at least c_A and c_B then the discount rate r is constant between the two and therefore not the important part of the equation.”

Buffett and Munger have a flow of deals that cross their desks. We don’t see them but Byron Trott recently said that many investors would cry over losing what they turn down. That flow established their opportunity cost. 30-year US treasury rates can be 3%, but if they have a flow of deals that return 10% that is “sort of” their hurdle rate.

Munger: “We’re guessing at our future opportunity cost. Warren is guessing that he’ll have the opportunity to put capital out at high rates of return, so he’s not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we’d change. Our hurdles reflect our estimate of future opportunity costs.”...

...MUCH MORE

HT: Value Investing World

"Teaching people to trade stocks is like starting them on heroin" — Munger

And you know what they say about heroin: "It's so good don't even try it once",

From The Evidence Based Investor:

Warren Buffett may be the most famous advocate of low-cost index funds, but his sidekick Charlie Munger has been just as insistent over the years that, for most people, indexing is the best way to invest.

Munger, who’s now aged 95, gave a two-hour address yesterday at the Daily Journal annual meeting, and below is a downloadable link to a full audio recording.

In his address, Munger said it was time for active money managers to face up to the fact that their expertise simply isn’t worth the fees they charge.

“They have a horrible problem they can’t fix so they just treat it as non-existent,” he said. “This is a very stupid way to handle a problem.”

“It’s wrong to have all these people in a state of denial and doing what they always did year after year, and hoping the world will keep paying them for it even though an unmanned index is virtually certain to do better.”

Munger also warned that encouraging active trading is causing investors harm.

“People are trying to teach you to come in and trade actively in stocks,” he told his audience. “Well, I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin.”

Here are some other highlights from Charlie Munger’s address:
Munger on finance and investing

On passive versus active

“These index funds have come along and they’ve basically beaten everybody. Not only that, the amount by which they beat everybody is roughly the cost of running (an active management) operation. So we’ve got a whole profession that is being paid for accomplishing practically nothing.”

On the problem managers face

“If your game is money management, you have a serious problem, and I don’t have any solution.”

On managers quitting the industry

“These people who were used to winning and are now just quitting the profession — that’s a very understandable thing to do. I regard it as more noble than staying in and playing along with the denial.”

On financial chicanery

“There has always been chicanery… People just seek out the weaknesses of their fellow men and take advantage. You have to wise up enough so you avoid them all.”...

...MUCH MORE

Omaha World-Herald Coverage of the 2010 Berkshire Hathaway Annual Meeting (BRK.B; BRK.A)

Last year the "As close to a transcript..." link went to the World-Herald. This year MarketBeat took the nod.
If I recall correctly, an Omaha friend once told me there were forty families worth $100 million or more based on their Berkshire holdings.
He died, so I can't verify the quote.
His estate was in nine figures.
UPDATE: I just checked with a friend who said there were a dozen centi-millionaires and another 2-3 dozen worth $10-99 million.
Here's the World-Herald:

Fun and games with Berkshire

The financial industry needs regulation to control the innate human tendencies of greed and envy, Warren Buffett and his longtime business partner, Charlie Munger, said Sunday at the end of their Berkshire Hathaway Inc. shareholders' weekend.

Munger, vice chairman of Berkshire, likened some of today's Wall Street activity to a circus where the tiger has gotten loose and is “acting like a tiger.” The solution, he said, is not to beat up the tiger but rather to improve the “tiger-trainer” so the animal will be under control.

At the same time, he and Buffett, chairman and CEO of Omaha-based Berkshire, continued their defense of New York City's Goldman Sachs Inc., which they said is the best investment banking firm in the country and the one least involved in casino-like dealings.

It's up to Congress, the two men said during a press conference at the Omaha Marriott hotel, to enact laws that will restrain Wall Street firms from what they called “high-IQ asininity.”

That's when smart executives ignore common sense and good judgment and make decisions that lead to disaster, not just for themselves but for the entire economy, Buffett said.

He and Munger also discussed a wide range of topics, including how to choose someone to eventually assume Buffett's investment decision-making, the chances of big railroad mergers and, according to Munger, the need for China to end corruption and discourage excessive gambling among its people.

Buffett and Munger had the 100 or so journalists and others at the press conference laughing at times. Early on, Buffett bit open a plastic wrapper so the two could snack on peanut brittle. Munger drank diet Coca-Cola, and Buffet drank regular Coke.

They repeated some of their regular jokes. Munger said envy is the worst of the “seven deadly signs” because “you can't have any fun doing it.”

“You take gluttony and lust, and you can have a hell of a weekend,” Buffett said....MORE

More at the World-Herald:

• Berkshire: In for the long haul
• Buffett reassures the faithful
• Excerpts from past Berkshire meetings
• Earlier coverage
• Photo Showcase: 2010 Berkshire...
• The Oracle Archive
• Omaha.com's "Warren Watch" page

"Munger Comments on Potential for Wesco to Become Wholly Owned by Berkshire" (WSC; BRK.B; BRK.A)

From The Rational Walk:

Wesco Financial Corporation held its 2010 annual meeting in Pasadena, California on May 5. Wesco Financial is a 80.1 percent owned subsidiary of Berkshire Hathaway. While the Berkshire Hathaway annual meeting attracted approximately 37,000 attendees on May 1, the Wesco meeting is a much lower key event. The main attraction is the opportunity to listen to Charlie Munger’s views on business, the economy, and a variety of other topics.

Will Wesco Become a Wholly Owned Berkshire Subsidiary?

According to a 8-K SEC report filed today, Mr. Munger had the following to say about the possibility of Berkshire eventually acquiring the remaining 19.9 percent interest in Wesco:

At the Company’s Annual Meeting of Shareholders, the Company’s Chairman and Chief Executive Officer, Charles T. Munger, who is also vice-chairman of Berkshire Hathaway Inc. (“Berkshire”), which owns 80.1% of the Company’s outstanding stock, said that it would be logical for the Company to ultimately become wholly owned by Berkshire. Mr. Munger cautioned, however, that such a combination transaction, to the extent it would involve stock consideration, would only make sense if there was an appropriate relationship between the relative values and prices of Berkshire’s stock and the Company’s stock, and that such a relationship does not currently exist. Mr. Munger did not state any particular time frame for such a transaction. No combination transaction of any kind has been proposed or presented to the Company. The Company’s Board of Directors has not discussed or considered any such transaction and neither has Berkshire’s Board of Directors.

This statement is interesting primarily because it contains a reference to the relative valuation between the common stock prices of Wesco and Berkshire and suggests that the companies are currently trading at different levels relative to intrinsic value.

Valuation of Berkshire vs. Wesco

Reflecting on Mr. Munger’s statement, the desire to have both Berkshire and Wesco trade at similar levels relative to their respective intrinsic values makes perfect sense given the desire of management to treat all parties to the transaction fairly. To the extent that Berkshire stock is used to compensate Wesco shareholders, each side should receive as much intrinsic value as they are giving up....MUCH MORE