Sunday, April 17, 2011
Saturday, April 16, 2011
Some more Buffettisms
"The best thing that happens to us is when a great company gets into temporary trouble...
We want to buy them when they're on the operating table."
" Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum,it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet."
"The best thing that happens to us is when a great company gets into temporary trouble...
We want to buy them when they're on the operating table."
" Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum,it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet."
Sunday, April 03, 2011
munger ross school of business
Oct 2010
Q state of the economy
A Let me start with a qualification.Warren and I have not made our way in life by makign succesful macro economic predictions. Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. By and large we don't try to predict the tides, since we plan to play for a long time. I'd recommend you all to do the same. Its a standard delusion to think one can outguess the macro
economic cycles. Very few people do it succesfully and many do it by accident.Why not try the other way, where you swim as best you can over a long life you'll have your share of good tides and bad tides.
Some of you are going into an environment that doesn't have easy employment. My advice to you is to have the attitude, "so what?" If you cope with competecncy and grace with whatever life deals you and just keep doing it, your share of the honors and monuments of civilization in due time are very likely to come.That is if you deserve the monumnets. Of course thats the other advice, the best way in life to get what you want is to deserve what you want. How could it be otherwise ? So you just keep plugging, so I wouldn't be discouraged.
There are two things in my long life that I've discovered.One is you should never feel sorry for yourself. The other thing you never what to have is envy. If you just go through life, everlastingly just plugging away
Kipling: Quote
Just keep your head down and do your best.
the job market is nowhere near as bad as it was in the 1930s.
This is heave compared to the thirties. There was no scial safety
net in the 30s, you know what people did, they moved into each otyhers
houses. thats what families were for. It was a confucian system
still more pain in timber and real estate
Q what do you think about the guys on wall street ?
A If you are in a miasma of competition, and you have greed
you attract very copetitive people and you throw them into this
miasma, of course there will be this very regrettable
behavior.
It wasn't good for WS to have this really easy money, and idiots and
knaves were making fortunes selling these shoddy mortgages
and the adults (accountants) totally failed us
PArtly its the establishment accountants wanting to please the people
who are writing the checks and partly the academic
accountants who have overdosed on mathematics,
They're too mathematical and not rational enough in
dealing with their fellow humans.
You can';t really give the average WS CEO leanient standards
The accountants have to be adults, but they don't want to be
since they don't want the responsilibility, or
liababilty, they have to be good at things they're not sure
they know, there are lot of reasons why they shrink from it.
We lost the referee.
Q It sounds like the CEOs are bad
A I do think the CEO culture promotes people who are
very competitive, and very agressive and very driven
at accomplishing what they want to do so they want to
be like the guy downn the street,
I don't believe in being that competetive. If someone
else is making a lot money, let them. Its this envy
that's pernicious.
You think they were really earning money? Look at the write-offs!
Q You think Washington's efforts to reform have been for naught?
A No, what we have is way better than nothing.
In particular if you take most of the rules that most of my party
object to, especially the ones for commercial nbanks to regulate
things they know nothing about like checking accounts has
been good.
My only opbjection to Elizabeth Warren who is not from
my political party is that she' isn't tough enough.
Q Why doens't your party agree with you on this ??
A : All politicians tend to behave badly under the peculiar pressures of their trade
I thhink theyve chosen a profession where its hard to
behave well. You';re in a maiasma of wrong incentives so
its hard to behave well.
ytou can't really tell the truth because you'll offend the varios
people who are important to you,.
28:33
Two things work beautifully to ruin an aggrepgation of peple:
all the best people
leave and you have the raminder left under a a crazy bunch of people.
I don't think we needed the last round of tax cuts.
Nor do I think hedge fund operators should pay less taxes than
a taxi driver as a percentage of their income
In terms of the jobs, I lived through the thirties and
I was a very observant young man.
And I found it very interesting to see the economy which had
25% unemployment for a long long long time, and I mean
real unemployment, in which an architect classified as
a laundry man was considered fortunate.
And I watched this whole thing dragged out of the recession
by the accidental Keynesianism of the second world war.
But there we had a spare tire, we had centuries of reputable
financial behavior.
If you ask me what I would do if I were the benevolent despot
of the United States, I would have the biggest infra structure project
in the United States that you ever saw. to get pwoer from renewable sources.
And by that I don't mean corn, that was the most asinine idea
in the history of the world.
But the idea of going to the sun and having an infrastructure to extract
energy is a thoroughly sound idea. I think the people
would get behind it if they had the sensse to concentrate of something large and important
and sensible. The infrastructure if sure to be very useful
in the future, its sure to be needed, its going in the right direction
I think global warming is not the main problem,
to me the main problem is using the hydrocarbons to fast.
I think its irresponsibly unconservative not to slow
down on the use of hydrocarbons.
The sun rocks! Copious..
I like the culture here at Michigan school. I liked the culture back
then 70 years ago and I think they've made it better.
And they've done this while all teh civilization 60 miles from here
was sinking into a swamp of difficulty. not its fault btw,
it was fate.
You go into the hospital at the univ of machigan.
and somebody makes a maistake, nurse doctor anything
there is nobody trying to avoiud blame for the mistake
we're terribly sorry and we want to make amends.
at michigan, they admit they screwed up and the first thing they
want to do is make a fair adjustment to the patient and
then they look as to how to prevent the next one..
without a lot of recrimination. Isn't that a wonderful system?
Its hard to fix human problems without fixing human incentives.
The current system is quite perverse. a system is perverse when
good people go bad.
Don't think the irresponsible short-term incentivization will change,
You young people will have to live in it the way it is and try change it pece by peice
.
I don't think its required because the rest of teh world cares
terribly about the next quarter's earnings,
Berkshire doesn't care , so its not everybody that cares.
Now you can say we carefully structured our lives
and our system so we didn';t have to be under crazy incentives
Much better to set yourself up so the temptations are low.
The more you pay the directors, the more they'll pay the
CEO.
I do think that if you get into a crazy place with a lot of
competition and a lot of perverse incentives, its hard
to keep your own sanity.
Keep your head when all about you are losing theirs.
If you avoid trouble, seek out the right places to work,
you're very unlikely to go south.
You know this stuff about where the culture is crazy, you
don't have to eneter.
And if you find you;'ve accidentally entered, you can
leave. But even ebtter if you;'re shrewed, you can see
where the culture is not going to tempt you.
where you;'re working with people you admire, and the values are
sound and its fun to do.
If you really figure the people you really like to be with
and work for and you tell them so and why, its likely to
cause a favorable result.
Q What happened to the accounting profession
A Too much optimistic accounting.
Q Are stocks teh right place ?
A The best place where Iwo uld put my money is common stocks
ebtter than government bonds at current rates.
Look at what happened in the last 100 years. Electricity, vaccines,
air trvale, air conditioning and enormous improvement in living stabndards
Do =I think the next 100 years will bring as much
advancement, less likely. We're getting into foo-foo landwhen such basic
needs have been met. I mean after having the right temperature, food and
basics, what other areas can the human condition be impreoved?
Its a good time to be alive, in terms of liberties for the underclass
, for women half of the population, its just incredible what happened.
I mean to look back and see all that and be discouraged is to
underestimate your species and civilization.
The black death was good for the survivors.
I don't think its at all the time to be discuraged.
Q My concern is that our best people have not gone into match and science.
A your generation will be fine.
I don't have the slighterst interest in gold.
I have an interest in understanding human systems and how
they work. If you understand the way the world works, you
have an obligation to be rational.
I don't know how you become rational hoarding gold.
even if it works, you're a jerk.
I think we'll do better than japan, even though we casnnot
handle trouble like them
Japan is a very courteous, submissive kind of place so bore it well.
If we do have that kind of statis without growth here in the United States,
would it be a big tragedy? I don't think so.
Q Iam not currently a student but am a berkshire/wesco shareholder so
Y Its always good to see you here and in Pasadena.
You mean youre a groupie who followed me here?
Pension liabilities/health reform
A
There were deep moral and behavioral problems. The system
was abused by various manipulative tricks
You make it easy to steal, and people will steal.
The present value of our unfunded obligations is greater
than out national debt. If we get into a japan-like staglation situation
there will be a lot of social unrest.
I personally would not touch social security.
I think net, its been a credit to our civilization.
and its worked with low administrartive costs, and low fraud
andd its given a lot of peoplke dignity.
VAT us a a very desirable tax.
It subsidizes exports,.
-2 things were best to ruin an aggregate of people. 1) all the best people leave and 2) The ones
left behind are a bunch of crazy people like the nut in North korea kim jong il. you have people
starving in the dark in north korea in the year of our lord 2010.. That's what communism can do for you
Q: Let's talk about solutions to get out current economic woes. The President has put forth some
plans including taz cuts. Waht do you think?
A well, again Iam cort of against my own party. I think my tazes are little too low and I don't think
we needed the last round of tax cuts, nor do I think hedge fund operators deserve to pay lower
tazes than taxi drivers as a percentage of income.
As for the jobs, now I lved through the thirties, and I was a very observant young boy and man.
There was real unemployement of 25% for a really long long time. When an architect worked as a laundry
man and he counted himself as one of the fortunate ones. And I watched that thing being opulled
out of its state by the accidental keynseism of world war 2
If I were the beneveloent despot of the United States, I would have the largest infrastructure program
you ever saw.
Tapping into the vast energies of the sun and solar energy is a thoroughly sound idea. And it can be done now.
The country would stand behind it if they had the sense to focus on something so large and important and sensible
37:44
=====
BQ
It’s a difficult economy to gauge… but what is your best guess when it comes to the
economy?
CM
We have not made our way in life by making macro-bets. We swim as best we can, whether
the tide is with or against us… we don’t predict the tide b/c we’re in the game for a long
time, and we suggest you the same… very few can predict macro-econ correctly, and some
do it thru luck.
With that qualification, I would be surprised if employment bounces back with wonderful
speed. I see almost all businesses rationalize in order to protect balance sheets and
earnings power, while employing fewer people. It is a bad market for easy employment,
relative to recent decades.
I think you should say ‘so what’ (to the bad employment market). If you constantly stand
well by your own generation, and cope with competence and grace, your share of
monuments and honors are due to come… if you deserve the monuments. The best way to
get what you want in life, is to deserve it.
I told an example of a REAL bad economy. My uncle graduated from Harvard architecture
school, and made a successful living during the 1920’s. When the 30’s came, the
architecture permits dried up, with almost zero work to do. He moved to CA, and took
drafting hours at low rates… and when it got worse, he went to the county and worked as a
laundryman, for lower pay, in order to do drafting work. He never complained, but coped as
best he could. He got paid $101.08 per month.
He later became the chief architect of the FHA in LA. He had a long career doing that. He
never got discouraged, and never wailed about his work, or said it was below him… ‘woe is
me’. There are two things never to do: 1) never feel sorry for yourself 2) never have envy
(only deadly sin that is no fun having)
Kipling
has gone out of style, and nobody knows him anymore, but it’s still good
advice/poetry… good message!
Why not take these opportunities/hardships to make a man/person of yourself? Just keep
your head down and do your best. Just keep plugging until the favorable tide comes.
I do think the job market will continue to be lousy for a long time. And the worst of troubles
in some markets are not yet over.
BQ
Which markets?
CM
Universities thoughts there were making successful investments in timber, and they’re still
in for some disappointment, along with many real estate ventures. In many things, plenty of
unpleasantness still to come.
BQ
Is the job market as bad as the 30’s?
CM
No, this is hog-heaven compared to 30’s. In the 30’s, people moved to one another’s
houses… it was the Confucian system. My grandfather cut his house in half and let my
uncles move in. It was difficult. But the people who kept going, eventually did fine. It may
be an advantage to have some trouble…
BQ
Why do you think the job market will be lousy?
CM
Its like the car that has to run thru the desert without a spare tire… we have already used up
our standard tricks, and we still have the desert to go across! But why fret about what we
can’t fix?
BQ
There’s a sense that wall-street is a bad place. What do you think about that?
CM
If you’re a miasma of competition… to use the word greed… and you attract very
competitive people, and they’re thrown into this miasma, of course there will be more
regrettable behavior than a monestary. Of course wall-street has more regrettable
behavior.
Easy money corrupts, and really easy money corrupts absolutely. It was not good for money
to have this torrent of really easy money when idiots and knaves were making money selling
mortgages with ridiculous theories, and it was regrettable. It was the easy money that
allowed it.
The accountants (adults) allowed it. They utterly failed it. There is no sign of intelligent
reversal in that profession. I have not many accountants ashamed for our recent troubles.
Just look at what happened to Enron. The SEC allowed Enron to do whatever they wanted!
How could anybody have respectable understanding of human nature and not realize what
people would do with lax accounting standards!
Accounting is not addition. Our current system is insane!
BQ
Why is it like this?
CM
The establishment accountants want to please those who write the check, and the academic
accountants overdosed on math, and they want everything to be in balance. They don’t
think that’s not rational for creating rules for human behavior system. They’re too
mathematical and not rational w/ regards to fellow humans. You can’t give wall-street
leninent standards and expect good results. The accountants must be the adults who
prevent disaster. They don’t’ want ot be adults b/c they have liabilitiy, and they have to
understand things they don’t know… there are a lot of reasons why they shrink from it, but
it’s their duty under God, and they failed us terribly. We lost our referee
BQ
That makes it sound like CEO’s wont act well unless there’s someone with a stick to beat
them back inline?
CM
Well I do think the CEO culture is likely to promote people who are very
competitive/driven/aggressive. That means if the guy down the street is reporting better
earnings, they want to be more like them. They can’t help it. They’re competitive. They
don’t listen to Kipling. Envy is pernicious!
Putting numbers on balance sheets is not real earnings. It’s an irresponsible system. You
can’t blame the miscreants as much as the adults whose job it is to watch them. You don’t
blame the tiger, u blame the zookeeper!
BQ
Does that mean we should look to Washington?
CM
I have a rule… “the politicians are never so bad, you don’t live to want htem back!”
BQ
Do you think all the discussion/regulation from Washington lately has been for naught?
CM
No, it’s far better than nothing! They have made rules that made commericial banks better,
and rules that protect fiscalholics who can’t balance their checkbook. My objection to Liz
Warren is that she’s not tough enough!
I think all politicians behave badly, b/c they’ve chosen a profession where it’s tough to
behave well. We’re lucky the system as performed as well as it has! Only extreme nuts are
allowed to legislate, and the moderates get voted out by the extremists! It’s a miracle that
it works, and it’s barely better than absolute despotism!
BQ
Have you see the news that Cuba will cut 500k jobs?
CM
We’re way better than Cuba. Talk about disfunction! In Easy Germany, where the best
people left, and the remainder were under communism, I said “it would ruin even
Germans”… and it did. Two things ruin things well: 1) make the best leave 2) put rest
under a bad system (ie North Korea)
People will starve if you work at communism hard enough!
BQ
What are some solutions then? The president has unveiled his plans, do you think those are
right?
CM
I’m against my own party. I think my taxes are too low, and I don’t think we needed the last
round of tax cuts, nor that hedge fund operators pay less than taxi drivers (% of income).
When it’s that crazy, it’s serious. And so, I’m not wild about tax proposals.
As for jobs, I lived thru 30’s and I was very observant boy. I found it interesting that the
economy (at 20% unemployment) be pulled out by accidental keynesiasm of WWII… but
there we had a spare tire: Centuries of reputable behavior on which to draw. Now, we are
out of weapons, and its dangerous to continue using those weapons. That’s what I’m afraid
of!
I would have the biggest infrastructure program you ever saw, in favor of renewable sources
(NOT CORN)! The idea of rapidly going ot the sun and creating the infrastructure todo it is
thoroughly sound. We have the capability to do it, and the country would get behind it. We
need the stimulus, and we need the infrastructure. We still have that opportunity.
The entire growth rate of China has been achieved with 3-5x percentage of GDP spent on oil
and gas than the U.S. As Freeman Dyson
said, the idea that we need cheap oil/gas is
twaddle! He’s right (and as old as I am).
I think it would be a net plus, if we borrowed the money to create infrastructure. It is more
dangerous to shovel money at people. The infrastructure is sure to be useful and needed.
Global warming is not the main problem. The main problem is using hydro-carbons. We
need them to feed current population (insecticides, weed control, fertilizer, nitro-fixation),
and there are no good substitutes.
BQ
There are still questions about storing the sun’s energy for night use…
CM
They are solvable problems, if we commit enough of GDP to it. I think the big lithium battery
is that it will take a lot of charges/discharges… it is better than anything we know of. The
long-term picture is the best it’s ever been. The main technological problem of mankind is
energy. With energy, there is no shortage of water. We are looking at the technological
solution of this energy problem. And the cost, considering our need, is not that great!
BQ
Are you OK w/ the presidents plan for infrastructure to build bridges/tunnels/rail?
CM
Im in favor of needed infrastructure, but the one that really turns me on is changing the
power of mankind in a very massive way. Take Burlington North, they double decked all
their trains (razing tunnels to raise height). The stuff that’s really needed is pretty massive
and is located in energy sector. I personally want to keep hydro-carbons, and not use them
all up. The rest of you may be so smart, that you’re sure man can grow crops without hydro-
carbons… but I’m not so sure… but why take that risk?
If we hadn’t gotten so diverted by going into these great miasmas, we might have gotten
the big one done.
BQ
How close (BYD) are we to finding solutions?
CM
Solar power will get cheaper. Like Dyson said, it doesn’t matter if it costs another 5% of
GDP. I wish it had come faster and with more rationality. I think we’ve been distracted a lot.
Someone as technologically ignorant as Al Gore should not be entitled to speak on the
subject.
BQ
Is there hope that we get passed idea that everyone is pushing their own idea/agenda (ie
wind/nuclear etc)
CM
I think we will end up with more of everything. But in the end, we have to go solar. There is
limited supply of uranium. There’s a lot to be said for going directly to the sun. Thank God
it’s as copious as it is. People on Easter Island did not have the sun to solve their problems,
and they perished when they ran out of resources. The young people ought to be rejoicing
that the main problem is solved, and they just have to work out the details.
BQ
Has it been 69 years since Michigan?
CM
I left 70 years ago… and I came here 69 years ago! I like the culture. I think the people
here have made it better, while the civiliaiton 60 miles away has been sinking into a swamp.
Not its fault, but it was fate.
The university hospital of Michigan is amazing. When someone makes a mistake, the
nurse/doctors don’t try to cover it. They admit the mistake and try to make amends. Do
you know what percent handle malpractice the same way? It’s tiny!
Most times, the insurers and the hospitals try to blame each other! Michigan just tries to
make amends, and find the mistake to try to avoid the next one! This is not the standard
culture of the world! There is a lot that’s good here. It’s hard to tell stories about wall-street
like the story of hospital Michigan.
Audience
Many problems are rooted with our culture’s short-term incentive system. How do u
propose to get passed that?
CM
Of course we have a terrible problem. If you combine these ST incentives with bad morals,
of course you have a problem. You’re right to focus on the incentives, and the current
system is quite perverse. It is perverse when good people go bad b/c of incentives.
If you run a store, and you make it easy for people to steal, then good people will go bad. It
is perverse. You people will have to live in it the way it is, and attack it piece by piece.
Berkshire is structured not to worry about short-term. I don’t trust myself enough to have
perverse incentives to do bad things. I suggest you structure your life similarly. I don’t think
it’s good to pay directors a lot, b/c the more you pay them, the more they will pay CEO.
Rules of social psychology require that result. We think everyone else is crazy!
BQ
The idea that you are not near wall-street, does that make it easier to operate in your own
manner?
CM
We like to think that, being mid-western boys, we have a better culture. If you get in a crazy
place with crazy/perverse incentives, it’s hard to maintain ur sanity.
My father was a graduate of Harvard law, and a practicing lawyer. He always went up to SD
to shoot pheasants. Everyone was signing up as SD resident to save $5 on the license (it
was a lot of money back then). He almost signed it, and he said “my god, this is perjury and
im a practicing lawyer!”
When everyone else around you is doing wrong, its hard to resist. That’s why Kipling is so
important. That’s why my motto is “everyone is wrong except Charlie!” It’s created a lot of
trouble for me, but it’s also given me a lot of advantages.
If you avoid it yourself, and seek out good places to work, you’re unlikely to go south. You
don’t have to go to the slums of India to resist temptation. But if you go to a place where
everyone else is mad, its very hard to not get sucked, as my father was in signing perjury
applications for SD hunting licenses. We’re all susceptible.
I have seen two college presidents go down for laxity in expense accounts. And many
ministers go down for various miscreancies. We’re all subject, and its easy to drift. If
there’s a big whirlpool, you don’t want to barely miss it, you want to go around by 500 yds!
Work with people you admire, and where its fun!
will give you a tip how to do that. The first good matter I brought in as a lawyer was
getting a guy rehired at a VC firm. I never heard from them. One day I said “I’m too
damned shy”. I walked into the office, and I said “I like working with you guys, and you’re
just the kind people I like”, and they had another big problem to solve for me.
If you find people you like working for, and you tell them why, it’s likely to cause a favorable
result.
Audience
What happened to the accounting profession and what can be done to fix it?
CM
Partly they sold out, and partly they generally feared the liabilities that would come if they
had to make difficult judgments. It can be fixed by changing laws/rules, but not without
upheaval (which woulud be a plus). 99% of problems come from accounting which is too
optimistic. It is better to be too pessimistic than too optimistic.
Accounting should become way more pessimistic. Enron’s mark to myth accounting was
blessed.
Audience
Given that your outlook is dire, would you recommend someone who is young to put money
into the market given the longterm horizon?
CM
I’d rather own common stocks than government bonds. What you should do, depends on
your own opportunity costs, like how likely it is that you’ll need the money. In the last 100
years, the net increases in living standards and options were simply AWESOME, in the big
picture view. Widely distributed electricity, television/radio, personal automobiles, cheap
travel by jet all over the world, AC in places with unendurable summers, widely distributed
information… its unbelievable. No previous 100 yrs had anything comparable happened.
I don’t think the next 100 yrs will do as much. But I think there will be more improvements
and options, and big tragedies and death rates. It will be very interesting. It’s a good time
to be alive. The big picture continues to be encouraging.
Even if there is a 25% death rate, it will be tragic, but the Black Death was good for the
survivors. So, I don’t think it’s a time to be discouraged.
Audience
Do you think the current generation is up to the challenge?
CM
Yes, I think so. More people may look Asian, in terms of contribution to solutions, but you’ll
be up to it. Caltech has a rubric cube contest. One year, someone solved three cubes while
juggling them. Then, a slender young woman asked for two cubes, then just looked at t
he put one in her left/right hand each, and put them behind her back. She solved it, and
nobody has topped it yet.
Audience
Do you think there is a chance that the U.S. could follow Japan’s path in stagflation? And
would you recommend holding gold or other commodities?
CM
I don’ thave the slightest interest in gold. I like understating what works/doesn’t in human
systems. Tha’ts not optional. That’s a moral obligation. If you’re capable, you have a moral
obligation ot be rational. Gold is not rational. Even if it works, you’re a jerk. I advise you to
get involved in equities.
The U.S. could follow Japan’s path of stagflation. I think we’ll do better. But if we have
trouble, we won’t handle it as well. Japan is courteous/submissive. No people would handle
a long period of problems as well. They have the right behavioral ethos. We would have
more tension here. But even if it happened, with our current living standards, it would not
register as a major human tragedy. They tried every Keynesian trick to man, but it didn’t
work.
Audience
I’m a BRK shareholder (CM: you mean the groupies have followed me?). We have significant
pension/healthcare liabilities. How do we fix the pension liabilities given how underfunded
municipalities are?
CM
It’s a terrible problem, and there were deep moral failures. If you make it easy to steal,
people will steal. Making $600K off a community of poor latinos is stealing, even if he hires
lawyers to call it otherwise. If we get into Japan’s situation with no growth, there will be
severe social tensions. It will be very interesting for you young people.
I personally, would not touch social security and present promises. It has been a net add to
society, with relatively low costs. It has given many people dignity in old age. The world will
not end if we support those promises with value added tax. I think it’s a very desirable tax,
because it subsidizes exports (by exempting domestics).
BQ
It’s regressive though…
CM
But there can be exemptions and credits. There’s different ways to organize the tax system.
I don’t think in our modern democratic civilization that its feasible to do a lot to tweak social
security.
BQ
What about gradually raising the retirement age?
CM
I personally wouldn’t do it. I would leave it alone, and deal with the rest. Reasonable minds
can disagree. There are bigger problems to deal with. It’s a bad allocation of goodwill &
time. I think we have to change our system of taxation. I think a 50% tax on a busy
surgeon is plenty for the man to pay. I think the existing income tax rate is right.
Unearned income currently favors hedge funds way too far. It’s not just a 15% tax, but they
also use foreign tricks. I’m disappointed in all the math/science people going into
derivatives trading. I knew someone who was brilliant, who for six years had made money
using trading algorithms. He wrote me a letter, acknolweding it’s a sick system. It’s a huge
misuse of talent. I would pass laws that would get those people selling apples on the street
or doing other things more productive.
Audience
What are your thoughts on social impact investments? Some of your colleagues are part of
the Giving Pledge, which aims to solve societal problems through charity. There are others
that try to solve problems through investments with societal and economic returns.
CM
That’s not my particular pathway. I think Costco doe smore for for society than the
Rockefeller Foundation. When brilliant people get together to do good, I immediately get
suspicious and start to squirm
So much stupidity and folly has come of our philanthropic groups, including the world bank.
That’s my personal opinion. But if I’m right, and you’re smart, you’ll end up like me.
Audience
Regarding the series of booms/busts we’ve had, are looking to face more booms/busts in the
near future?
CM
I think you will face more, but how big and with that cyclicality I don’t know. Just keep your
head down and behave well.
My mother’s grandfather was a pioneer who came out to Iowa and lived in a mall house with
his young wife. It was a cave. He literally was a pioneer with nothing, and rose to control
the leading bank in the town. My great-grandmother made him a generous man, and give
away a lot back to society.
Having arrested this success from troubles and struggles, he had a theory. He owned farms,
and leased them to Germans. You can’t lose money leasing ot Germans. He believed that
real opportunities that come to you are few. Most people just get a few times to make a
difference, when you find one, you can clearly recognize it. Seize it boldy. I have adopted
his point of view, and it has worked wonderfully. I assume your major opportunities are few.
Don’t hang back when it comes
If you take out the 20 best transactions of BRK, our record is a joke. 20 some transactions
over 40 some years, that’s 1 every 2 years. And we work at it all the time. You can’t bathe
in opportunities.
Audience
Undecipherable
CM
The rise of asia is an awesome forest. It will be very hard on manufacturing places like
Michigan. During Hyundai’s initial competition against Michigan, the Korean workers were
better on average than Americans, whether it’s the Confucian ethos or poverty. The terms
of their engagement were as follows: come into the factory, work 80hrs/week with no
overtime. That’s going ot be hard to beat. Just when the Koreans were getting rich, billions
of Chinese & Vietnamese start doing it. This is a disruptive tidal force.
In terms of education, in California the objective standards are better htan ever. But there
are more Asians. Berkeley engineering is 75% Asian. I am the chairman of a bad hospital in
a bad area. It’s a bad hand I choose to play, because I’ve had so many good hands. In good
Samaritan hospital, I look around and I see Dr Ho, Dr Chung, and a PHD from china doing
programming work.
I think you’re in for rapid changes in the world, where Asians become way more important. I
don’t worry about the competition for the Mungers? If the Mungers can’t compete, then let
them lose. I like meritocracies, particularly when there’s so much achievement. When I was
it young, it was Germans, then it was Japanese.
I welcome it, but I do think you will have to adjust to the tidal forces that are rising. It will
look more and more like Good Samaritan Hospital. My hospital works better. What the hell
do I care if the name is Wilson or Chung. All of us face it, and we better get used to it. Part
of enjoying life is face it as it is and adopt, whether you like it or not. Reality is Michigan will
not dominate autos like it did before. The baton has been passed. Athens and Rome and
London’s time has come and gone. If you’re a leader, you have to eventually pass the
baton. That’s the iron rule of human systems.
Audience
Do you think we’re starting ot see some of the social fracturing in this country?
CM
Of course! There’s a Harvard professor who studied this. He says homogonous societies are
easier to run. Politics are more difficult in society than Japan’s. We’re just seeing part of it.
If we are in for some economic stasis, there will be a lot more social tension. Economic
wealth submerges many social problems. Removing the wealth/riches unveils many issues.
Audience
Were the bailouts used wisely? Or should the money have gone directly to people instead of
Wall Street?
CM
The bailouts were absolutely required to save civilization. You shouldn’t resent it, you
should thank God they did it. We don’t know what would have happened, but it would have
been very awful.
The Germans were a very civilized people. Einstein got a completely free education from
the Catholic Church in Germany. That’s pretty civilized. Then, they had Adolf Hitler.
Destroying the economy and currency leads to huge problems. There comes a place where
the culture dies, if we bailout everyone. You have to say “suck it in and cope buddy”.
In the 30’s, families moved into the same house and wore the same clothes. That’s coping.
We don’t want a civilization where in every hardship people go to the government and ask
for money, because life is ‘not what they expected’. We’re now short of money, and people
need to suck it in and cope.
Audience
At what point does debt funded economies become a ponzi scheme?
CM
If we just shovel money at people, that’s dangerous, like Greece, because you need
credibility. But, if we issue IOU’s to do things that are reasonable, then it’s a lot safer. How
you spend the money and reputation matter greatly. The U.S.’s reputation could withstand
a major use of credit to do something worthwhile. The danger is shoveling money to people
who say that need it, without limit.
Audience
What do you think of the future direction of the healthcare sector in the U.S. and China?
CM
China is spending a tiny % of GDP on healthcare, and we’re spending more. In an
aging/affluent economy, I don’t think it matters if we spend 20%. Healthcare is a whole
different can of worms, but I don’t think it’s our main problem at all. I think its natural in our
particular civilization to spend a fair amount on healthcare. If that’s the way civilization
wants to spend the money, I don’t consider it a crazy choice. The current system is crazy,
with perverse incentives. There’s a lot of abuse in healthcare. The people in power must
exercise it to prevent the abuse. It’s a huge mistake not to criticize people.
Doctors fish people out of nursing homes to put them on beds so they can walk by and bill
them. It’s theft, and it brings infectious diseases into the hospital. For evil to triumph in the
world, all that is necessary is for good men to do nothing. You have to identify bad doctors,
and eliminate them, and be willing to take the ill-will.
Audience
I have sometimes felt “why did I go into law, and not study science”. In a positive science,
we have questions about what useful role we can play. The legal profession as a whole, any
ideas how to change it?
CM
Well, the legal profession has abeen a way out of people who don’t want to run through the
gauntlets of science. It offers a lot of flexibility. The legal profession has been bifurcated in
America. The ordinary lawyer makes $60K a year in divorce court. It’s demanding/difficult.
The lawyers in the powerful firms, working 70-80hrs/week for nine years, then make
partner…they make a lot of money. Is there abuse in a culture mad about billing hours?
Yes.
Bankruptcy cases remind me of hyenas feeding on a carcass in Africa. It does not resemble
a learned profession. But there’s still a lot right about it.
We have an amazingly clean judiciary. Every judge performs better on the bench, than
before, and they were good people before. The legal system as a whole is a pretty
reputable system. But the part of the legal system closely entwined with wall-street gets a
bit more hazy. Enron and future enrons will not lack for able attorneys. Net, I think it’s a
very interesting career. I like systems where good people get power and exercise it well.
Trying big patent cases in front of juries is obscene. Don’t let people shop for ignorant
judges/juries.
Abe Lincoln personally handled 5000 cases. He was active, practicing, and credible.
BQ
How would your career be different if you went to Business instead of Law school?
CM
If I drifted into my present life at an earlier stage, I’d have more money now, but SO WHAT?
When I die, people will say, Charlie left all. Piling it up is not a big deal, when you have to
part with it at the end. Regret is bad, as envy is. I don’t second-guess the past; I try to
learn from it to make better decisions for the future.
Audience
If you could design a system, how would you take into account human nature to encourage
rationality?
CM
Plato failed at this question. It’s a very interesting problem that our founders coped with.
My favorite political system, in terms of being adapted to its particular situation, is
Singapore. They’ve taken a swamp and turned it into a creditable place. I’m sorry they’re
doing derivatives trading, so even Heaven makes mistakes.
I think the Singaporeans like to tackle problems before they become unfixable. U.S. likes to
wait till problems are unsolvable before tackling them. We have an irresponsible system.
And I think our central cities are the hardest to govern, on average. Eventually, there’s a
tipping point when the better people leave. Then, you can’t solve the problem. I don’t think
it’s a pure democracy.
I’m an unusual kid. I think I know better than the professor… not a social winner. I take
political science from a leftist professor. They teach that when more people vote, the
system is better. Being a contrarian, I suspect that when less people vote, its better. I
wrote a paper on it, and got an A. U of M handles wiseass kids pretty well.
Singapore copied the military’s drug policy… random drug tests and compulsory
punishment. It’s 70% Chinese, and 30% Malaysian. The leader passed a law that abolishes
declaration of nationality. It infringes free-speech, but terribly useful. Successful men in
asian culture marry beautiful women wth less intellect. The leader married the woman who
was smarter than him in high school, not the beautiful woman with big boobs. Their son is
now the prime minister of Singapore.
Study the life and work of Lee Kuan Yew, one of the greatest stories in the history of
mankind. It will be useful in your old life, and it was better than Athens.
From
http://war-on-poverty.blogspot.com/2010/09/charlier-munger-q-transcript-u-of.html
Q state of the economy
A Let me start with a qualification.Warren and I have not made our way in life by makign succesful macro economic predictions. Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. By and large we don't try to predict the tides, since we plan to play for a long time. I'd recommend you all to do the same. Its a standard delusion to think one can outguess the macro
economic cycles. Very few people do it succesfully and many do it by accident.Why not try the other way, where you swim as best you can over a long life you'll have your share of good tides and bad tides.
Some of you are going into an environment that doesn't have easy employment. My advice to you is to have the attitude, "so what?" If you cope with competecncy and grace with whatever life deals you and just keep doing it, your share of the honors and monuments of civilization in due time are very likely to come.That is if you deserve the monumnets. Of course thats the other advice, the best way in life to get what you want is to deserve what you want. How could it be otherwise ? So you just keep plugging, so I wouldn't be discouraged.
There are two things in my long life that I've discovered.One is you should never feel sorry for yourself. The other thing you never what to have is envy. If you just go through life, everlastingly just plugging away
Kipling: Quote
Just keep your head down and do your best.
the job market is nowhere near as bad as it was in the 1930s.
This is heave compared to the thirties. There was no scial safety
net in the 30s, you know what people did, they moved into each otyhers
houses. thats what families were for. It was a confucian system
still more pain in timber and real estate
Q what do you think about the guys on wall street ?
A If you are in a miasma of competition, and you have greed
you attract very copetitive people and you throw them into this
miasma, of course there will be this very regrettable
behavior.
It wasn't good for WS to have this really easy money, and idiots and
knaves were making fortunes selling these shoddy mortgages
and the adults (accountants) totally failed us
PArtly its the establishment accountants wanting to please the people
who are writing the checks and partly the academic
accountants who have overdosed on mathematics,
They're too mathematical and not rational enough in
dealing with their fellow humans.
You can';t really give the average WS CEO leanient standards
The accountants have to be adults, but they don't want to be
since they don't want the responsilibility, or
liababilty, they have to be good at things they're not sure
they know, there are lot of reasons why they shrink from it.
We lost the referee.
Q It sounds like the CEOs are bad
A I do think the CEO culture promotes people who are
very competitive, and very agressive and very driven
at accomplishing what they want to do so they want to
be like the guy downn the street,
I don't believe in being that competetive. If someone
else is making a lot money, let them. Its this envy
that's pernicious.
You think they were really earning money? Look at the write-offs!
Q You think Washington's efforts to reform have been for naught?
A No, what we have is way better than nothing.
In particular if you take most of the rules that most of my party
object to, especially the ones for commercial nbanks to regulate
things they know nothing about like checking accounts has
been good.
My only opbjection to Elizabeth Warren who is not from
my political party is that she' isn't tough enough.
Q Why doens't your party agree with you on this ??
A : All politicians tend to behave badly under the peculiar pressures of their trade
I thhink theyve chosen a profession where its hard to
behave well. You';re in a maiasma of wrong incentives so
its hard to behave well.
ytou can't really tell the truth because you'll offend the varios
people who are important to you,.
28:33
Two things work beautifully to ruin an aggrepgation of peple:
all the best people
leave and you have the raminder left under a a crazy bunch of people.
I don't think we needed the last round of tax cuts.
Nor do I think hedge fund operators should pay less taxes than
a taxi driver as a percentage of their income
In terms of the jobs, I lived through the thirties and
I was a very observant young man.
And I found it very interesting to see the economy which had
25% unemployment for a long long long time, and I mean
real unemployment, in which an architect classified as
a laundry man was considered fortunate.
And I watched this whole thing dragged out of the recession
by the accidental Keynesianism of the second world war.
But there we had a spare tire, we had centuries of reputable
financial behavior.
If you ask me what I would do if I were the benevolent despot
of the United States, I would have the biggest infra structure project
in the United States that you ever saw. to get pwoer from renewable sources.
And by that I don't mean corn, that was the most asinine idea
in the history of the world.
But the idea of going to the sun and having an infrastructure to extract
energy is a thoroughly sound idea. I think the people
would get behind it if they had the sensse to concentrate of something large and important
and sensible. The infrastructure if sure to be very useful
in the future, its sure to be needed, its going in the right direction
I think global warming is not the main problem,
to me the main problem is using the hydrocarbons to fast.
I think its irresponsibly unconservative not to slow
down on the use of hydrocarbons.
The sun rocks! Copious..
I like the culture here at Michigan school. I liked the culture back
then 70 years ago and I think they've made it better.
And they've done this while all teh civilization 60 miles from here
was sinking into a swamp of difficulty. not its fault btw,
it was fate.
You go into the hospital at the univ of machigan.
and somebody makes a maistake, nurse doctor anything
there is nobody trying to avoiud blame for the mistake
we're terribly sorry and we want to make amends.
at michigan, they admit they screwed up and the first thing they
want to do is make a fair adjustment to the patient and
then they look as to how to prevent the next one..
without a lot of recrimination. Isn't that a wonderful system?
Its hard to fix human problems without fixing human incentives.
The current system is quite perverse. a system is perverse when
good people go bad.
Don't think the irresponsible short-term incentivization will change,
You young people will have to live in it the way it is and try change it pece by peice
.
I don't think its required because the rest of teh world cares
terribly about the next quarter's earnings,
Berkshire doesn't care , so its not everybody that cares.
Now you can say we carefully structured our lives
and our system so we didn';t have to be under crazy incentives
Much better to set yourself up so the temptations are low.
The more you pay the directors, the more they'll pay the
CEO.
I do think that if you get into a crazy place with a lot of
competition and a lot of perverse incentives, its hard
to keep your own sanity.
Keep your head when all about you are losing theirs.
If you avoid trouble, seek out the right places to work,
you're very unlikely to go south.
You know this stuff about where the culture is crazy, you
don't have to eneter.
And if you find you;'ve accidentally entered, you can
leave. But even ebtter if you;'re shrewed, you can see
where the culture is not going to tempt you.
where you;'re working with people you admire, and the values are
sound and its fun to do.
If you really figure the people you really like to be with
and work for and you tell them so and why, its likely to
cause a favorable result.
Q What happened to the accounting profession
A Too much optimistic accounting.
Q Are stocks teh right place ?
A The best place where Iwo uld put my money is common stocks
ebtter than government bonds at current rates.
Look at what happened in the last 100 years. Electricity, vaccines,
air trvale, air conditioning and enormous improvement in living stabndards
Do =I think the next 100 years will bring as much
advancement, less likely. We're getting into foo-foo landwhen such basic
needs have been met. I mean after having the right temperature, food and
basics, what other areas can the human condition be impreoved?
Its a good time to be alive, in terms of liberties for the underclass
, for women half of the population, its just incredible what happened.
I mean to look back and see all that and be discouraged is to
underestimate your species and civilization.
The black death was good for the survivors.
I don't think its at all the time to be discuraged.
Q My concern is that our best people have not gone into match and science.
A your generation will be fine.
I don't have the slighterst interest in gold.
I have an interest in understanding human systems and how
they work. If you understand the way the world works, you
have an obligation to be rational.
I don't know how you become rational hoarding gold.
even if it works, you're a jerk.
I think we'll do better than japan, even though we casnnot
handle trouble like them
Japan is a very courteous, submissive kind of place so bore it well.
If we do have that kind of statis without growth here in the United States,
would it be a big tragedy? I don't think so.
Q Iam not currently a student but am a berkshire/wesco shareholder so
Y Its always good to see you here and in Pasadena.
You mean youre a groupie who followed me here?
Pension liabilities/health reform
A
There were deep moral and behavioral problems. The system
was abused by various manipulative tricks
You make it easy to steal, and people will steal.
The present value of our unfunded obligations is greater
than out national debt. If we get into a japan-like staglation situation
there will be a lot of social unrest.
I personally would not touch social security.
I think net, its been a credit to our civilization.
and its worked with low administrartive costs, and low fraud
andd its given a lot of peoplke dignity.
VAT us a a very desirable tax.
It subsidizes exports,.
-2 things were best to ruin an aggregate of people. 1) all the best people leave and 2) The ones
left behind are a bunch of crazy people like the nut in North korea kim jong il. you have people
starving in the dark in north korea in the year of our lord 2010.. That's what communism can do for you
Q: Let's talk about solutions to get out current economic woes. The President has put forth some
plans including taz cuts. Waht do you think?
A well, again Iam cort of against my own party. I think my tazes are little too low and I don't think
we needed the last round of tax cuts, nor do I think hedge fund operators deserve to pay lower
tazes than taxi drivers as a percentage of income.
As for the jobs, now I lved through the thirties, and I was a very observant young boy and man.
There was real unemployement of 25% for a really long long time. When an architect worked as a laundry
man and he counted himself as one of the fortunate ones. And I watched that thing being opulled
out of its state by the accidental keynseism of world war 2
If I were the beneveloent despot of the United States, I would have the largest infrastructure program
you ever saw.
Tapping into the vast energies of the sun and solar energy is a thoroughly sound idea. And it can be done now.
The country would stand behind it if they had the sense to focus on something so large and important and sensible
37:44
=====
BQ
It’s a difficult economy to gauge… but what is your best guess when it comes to the
economy?
CM
We have not made our way in life by making macro-bets. We swim as best we can, whether
the tide is with or against us… we don’t predict the tide b/c we’re in the game for a long
time, and we suggest you the same… very few can predict macro-econ correctly, and some
do it thru luck.
With that qualification, I would be surprised if employment bounces back with wonderful
speed. I see almost all businesses rationalize in order to protect balance sheets and
earnings power, while employing fewer people. It is a bad market for easy employment,
relative to recent decades.
I think you should say ‘so what’ (to the bad employment market). If you constantly stand
well by your own generation, and cope with competence and grace, your share of
monuments and honors are due to come… if you deserve the monuments. The best way to
get what you want in life, is to deserve it.
I told an example of a REAL bad economy. My uncle graduated from Harvard architecture
school, and made a successful living during the 1920’s. When the 30’s came, the
architecture permits dried up, with almost zero work to do. He moved to CA, and took
drafting hours at low rates… and when it got worse, he went to the county and worked as a
laundryman, for lower pay, in order to do drafting work. He never complained, but coped as
best he could. He got paid $101.08 per month.
He later became the chief architect of the FHA in LA. He had a long career doing that. He
never got discouraged, and never wailed about his work, or said it was below him… ‘woe is
me’. There are two things never to do: 1) never feel sorry for yourself 2) never have envy
(only deadly sin that is no fun having)
Kipling
has gone out of style, and nobody knows him anymore, but it’s still good
advice/poetry… good message!
Why not take these opportunities/hardships to make a man/person of yourself? Just keep
your head down and do your best. Just keep plugging until the favorable tide comes.
I do think the job market will continue to be lousy for a long time. And the worst of troubles
in some markets are not yet over.
BQ
Which markets?
CM
Universities thoughts there were making successful investments in timber, and they’re still
in for some disappointment, along with many real estate ventures. In many things, plenty of
unpleasantness still to come.
BQ
Is the job market as bad as the 30’s?
CM
No, this is hog-heaven compared to 30’s. In the 30’s, people moved to one another’s
houses… it was the Confucian system. My grandfather cut his house in half and let my
uncles move in. It was difficult. But the people who kept going, eventually did fine. It may
be an advantage to have some trouble…
BQ
Why do you think the job market will be lousy?
CM
Its like the car that has to run thru the desert without a spare tire… we have already used up
our standard tricks, and we still have the desert to go across! But why fret about what we
can’t fix?
BQ
There’s a sense that wall-street is a bad place. What do you think about that?
CM
If you’re a miasma of competition… to use the word greed… and you attract very
competitive people, and they’re thrown into this miasma, of course there will be more
regrettable behavior than a monestary. Of course wall-street has more regrettable
behavior.
Easy money corrupts, and really easy money corrupts absolutely. It was not good for money
to have this torrent of really easy money when idiots and knaves were making money selling
mortgages with ridiculous theories, and it was regrettable. It was the easy money that
allowed it.
The accountants (adults) allowed it. They utterly failed it. There is no sign of intelligent
reversal in that profession. I have not many accountants ashamed for our recent troubles.
Just look at what happened to Enron. The SEC allowed Enron to do whatever they wanted!
How could anybody have respectable understanding of human nature and not realize what
people would do with lax accounting standards!
Accounting is not addition. Our current system is insane!
BQ
Why is it like this?
CM
The establishment accountants want to please those who write the check, and the academic
accountants overdosed on math, and they want everything to be in balance. They don’t
think that’s not rational for creating rules for human behavior system. They’re too
mathematical and not rational w/ regards to fellow humans. You can’t give wall-street
leninent standards and expect good results. The accountants must be the adults who
prevent disaster. They don’t’ want ot be adults b/c they have liabilitiy, and they have to
understand things they don’t know… there are a lot of reasons why they shrink from it, but
it’s their duty under God, and they failed us terribly. We lost our referee
BQ
That makes it sound like CEO’s wont act well unless there’s someone with a stick to beat
them back inline?
CM
Well I do think the CEO culture is likely to promote people who are very
competitive/driven/aggressive. That means if the guy down the street is reporting better
earnings, they want to be more like them. They can’t help it. They’re competitive. They
don’t listen to Kipling. Envy is pernicious!
Putting numbers on balance sheets is not real earnings. It’s an irresponsible system. You
can’t blame the miscreants as much as the adults whose job it is to watch them. You don’t
blame the tiger, u blame the zookeeper!
BQ
Does that mean we should look to Washington?
CM
I have a rule… “the politicians are never so bad, you don’t live to want htem back!”
BQ
Do you think all the discussion/regulation from Washington lately has been for naught?
CM
No, it’s far better than nothing! They have made rules that made commericial banks better,
and rules that protect fiscalholics who can’t balance their checkbook. My objection to Liz
Warren is that she’s not tough enough!
I think all politicians behave badly, b/c they’ve chosen a profession where it’s tough to
behave well. We’re lucky the system as performed as well as it has! Only extreme nuts are
allowed to legislate, and the moderates get voted out by the extremists! It’s a miracle that
it works, and it’s barely better than absolute despotism!
BQ
Have you see the news that Cuba will cut 500k jobs?
CM
We’re way better than Cuba. Talk about disfunction! In Easy Germany, where the best
people left, and the remainder were under communism, I said “it would ruin even
Germans”… and it did. Two things ruin things well: 1) make the best leave 2) put rest
under a bad system (ie North Korea)
People will starve if you work at communism hard enough!
BQ
What are some solutions then? The president has unveiled his plans, do you think those are
right?
CM
I’m against my own party. I think my taxes are too low, and I don’t think we needed the last
round of tax cuts, nor that hedge fund operators pay less than taxi drivers (% of income).
When it’s that crazy, it’s serious. And so, I’m not wild about tax proposals.
As for jobs, I lived thru 30’s and I was very observant boy. I found it interesting that the
economy (at 20% unemployment) be pulled out by accidental keynesiasm of WWII… but
there we had a spare tire: Centuries of reputable behavior on which to draw. Now, we are
out of weapons, and its dangerous to continue using those weapons. That’s what I’m afraid
of!
I would have the biggest infrastructure program you ever saw, in favor of renewable sources
(NOT CORN)! The idea of rapidly going ot the sun and creating the infrastructure todo it is
thoroughly sound. We have the capability to do it, and the country would get behind it. We
need the stimulus, and we need the infrastructure. We still have that opportunity.
The entire growth rate of China has been achieved with 3-5x percentage of GDP spent on oil
and gas than the U.S. As Freeman Dyson
said, the idea that we need cheap oil/gas is
twaddle! He’s right (and as old as I am).
I think it would be a net plus, if we borrowed the money to create infrastructure. It is more
dangerous to shovel money at people. The infrastructure is sure to be useful and needed.
Global warming is not the main problem. The main problem is using hydro-carbons. We
need them to feed current population (insecticides, weed control, fertilizer, nitro-fixation),
and there are no good substitutes.
BQ
There are still questions about storing the sun’s energy for night use…
CM
They are solvable problems, if we commit enough of GDP to it. I think the big lithium battery
is that it will take a lot of charges/discharges… it is better than anything we know of. The
long-term picture is the best it’s ever been. The main technological problem of mankind is
energy. With energy, there is no shortage of water. We are looking at the technological
solution of this energy problem. And the cost, considering our need, is not that great!
BQ
Are you OK w/ the presidents plan for infrastructure to build bridges/tunnels/rail?
CM
Im in favor of needed infrastructure, but the one that really turns me on is changing the
power of mankind in a very massive way. Take Burlington North, they double decked all
their trains (razing tunnels to raise height). The stuff that’s really needed is pretty massive
and is located in energy sector. I personally want to keep hydro-carbons, and not use them
all up. The rest of you may be so smart, that you’re sure man can grow crops without hydro-
carbons… but I’m not so sure… but why take that risk?
If we hadn’t gotten so diverted by going into these great miasmas, we might have gotten
the big one done.
BQ
How close (BYD) are we to finding solutions?
CM
Solar power will get cheaper. Like Dyson said, it doesn’t matter if it costs another 5% of
GDP. I wish it had come faster and with more rationality. I think we’ve been distracted a lot.
Someone as technologically ignorant as Al Gore should not be entitled to speak on the
subject.
BQ
Is there hope that we get passed idea that everyone is pushing their own idea/agenda (ie
wind/nuclear etc)
CM
I think we will end up with more of everything. But in the end, we have to go solar. There is
limited supply of uranium. There’s a lot to be said for going directly to the sun. Thank God
it’s as copious as it is. People on Easter Island did not have the sun to solve their problems,
and they perished when they ran out of resources. The young people ought to be rejoicing
that the main problem is solved, and they just have to work out the details.
BQ
Has it been 69 years since Michigan?
CM
I left 70 years ago… and I came here 69 years ago! I like the culture. I think the people
here have made it better, while the civiliaiton 60 miles away has been sinking into a swamp.
Not its fault, but it was fate.
The university hospital of Michigan is amazing. When someone makes a mistake, the
nurse/doctors don’t try to cover it. They admit the mistake and try to make amends. Do
you know what percent handle malpractice the same way? It’s tiny!
Most times, the insurers and the hospitals try to blame each other! Michigan just tries to
make amends, and find the mistake to try to avoid the next one! This is not the standard
culture of the world! There is a lot that’s good here. It’s hard to tell stories about wall-street
like the story of hospital Michigan.
Audience
Many problems are rooted with our culture’s short-term incentive system. How do u
propose to get passed that?
CM
Of course we have a terrible problem. If you combine these ST incentives with bad morals,
of course you have a problem. You’re right to focus on the incentives, and the current
system is quite perverse. It is perverse when good people go bad b/c of incentives.
If you run a store, and you make it easy for people to steal, then good people will go bad. It
is perverse. You people will have to live in it the way it is, and attack it piece by piece.
Berkshire is structured not to worry about short-term. I don’t trust myself enough to have
perverse incentives to do bad things. I suggest you structure your life similarly. I don’t think
it’s good to pay directors a lot, b/c the more you pay them, the more they will pay CEO.
Rules of social psychology require that result. We think everyone else is crazy!
BQ
The idea that you are not near wall-street, does that make it easier to operate in your own
manner?
CM
We like to think that, being mid-western boys, we have a better culture. If you get in a crazy
place with crazy/perverse incentives, it’s hard to maintain ur sanity.
My father was a graduate of Harvard law, and a practicing lawyer. He always went up to SD
to shoot pheasants. Everyone was signing up as SD resident to save $5 on the license (it
was a lot of money back then). He almost signed it, and he said “my god, this is perjury and
im a practicing lawyer!”
When everyone else around you is doing wrong, its hard to resist. That’s why Kipling is so
important. That’s why my motto is “everyone is wrong except Charlie!” It’s created a lot of
trouble for me, but it’s also given me a lot of advantages.
If you avoid it yourself, and seek out good places to work, you’re unlikely to go south. You
don’t have to go to the slums of India to resist temptation. But if you go to a place where
everyone else is mad, its very hard to not get sucked, as my father was in signing perjury
applications for SD hunting licenses. We’re all susceptible.
I have seen two college presidents go down for laxity in expense accounts. And many
ministers go down for various miscreancies. We’re all subject, and its easy to drift. If
there’s a big whirlpool, you don’t want to barely miss it, you want to go around by 500 yds!
Work with people you admire, and where its fun!
will give you a tip how to do that. The first good matter I brought in as a lawyer was
getting a guy rehired at a VC firm. I never heard from them. One day I said “I’m too
damned shy”. I walked into the office, and I said “I like working with you guys, and you’re
just the kind people I like”, and they had another big problem to solve for me.
If you find people you like working for, and you tell them why, it’s likely to cause a favorable
result.
Audience
What happened to the accounting profession and what can be done to fix it?
CM
Partly they sold out, and partly they generally feared the liabilities that would come if they
had to make difficult judgments. It can be fixed by changing laws/rules, but not without
upheaval (which woulud be a plus). 99% of problems come from accounting which is too
optimistic. It is better to be too pessimistic than too optimistic.
Accounting should become way more pessimistic. Enron’s mark to myth accounting was
blessed.
Audience
Given that your outlook is dire, would you recommend someone who is young to put money
into the market given the longterm horizon?
CM
I’d rather own common stocks than government bonds. What you should do, depends on
your own opportunity costs, like how likely it is that you’ll need the money. In the last 100
years, the net increases in living standards and options were simply AWESOME, in the big
picture view. Widely distributed electricity, television/radio, personal automobiles, cheap
travel by jet all over the world, AC in places with unendurable summers, widely distributed
information… its unbelievable. No previous 100 yrs had anything comparable happened.
I don’t think the next 100 yrs will do as much. But I think there will be more improvements
and options, and big tragedies and death rates. It will be very interesting. It’s a good time
to be alive. The big picture continues to be encouraging.
Even if there is a 25% death rate, it will be tragic, but the Black Death was good for the
survivors. So, I don’t think it’s a time to be discouraged.
Audience
Do you think the current generation is up to the challenge?
CM
Yes, I think so. More people may look Asian, in terms of contribution to solutions, but you’ll
be up to it. Caltech has a rubric cube contest. One year, someone solved three cubes while
juggling them. Then, a slender young woman asked for two cubes, then just looked at t
he put one in her left/right hand each, and put them behind her back. She solved it, and
nobody has topped it yet.
Audience
Do you think there is a chance that the U.S. could follow Japan’s path in stagflation? And
would you recommend holding gold or other commodities?
CM
I don’ thave the slightest interest in gold. I like understating what works/doesn’t in human
systems. Tha’ts not optional. That’s a moral obligation. If you’re capable, you have a moral
obligation ot be rational. Gold is not rational. Even if it works, you’re a jerk. I advise you to
get involved in equities.
The U.S. could follow Japan’s path of stagflation. I think we’ll do better. But if we have
trouble, we won’t handle it as well. Japan is courteous/submissive. No people would handle
a long period of problems as well. They have the right behavioral ethos. We would have
more tension here. But even if it happened, with our current living standards, it would not
register as a major human tragedy. They tried every Keynesian trick to man, but it didn’t
work.
Audience
I’m a BRK shareholder (CM: you mean the groupies have followed me?). We have significant
pension/healthcare liabilities. How do we fix the pension liabilities given how underfunded
municipalities are?
CM
It’s a terrible problem, and there were deep moral failures. If you make it easy to steal,
people will steal. Making $600K off a community of poor latinos is stealing, even if he hires
lawyers to call it otherwise. If we get into Japan’s situation with no growth, there will be
severe social tensions. It will be very interesting for you young people.
I personally, would not touch social security and present promises. It has been a net add to
society, with relatively low costs. It has given many people dignity in old age. The world will
not end if we support those promises with value added tax. I think it’s a very desirable tax,
because it subsidizes exports (by exempting domestics).
BQ
It’s regressive though…
CM
But there can be exemptions and credits. There’s different ways to organize the tax system.
I don’t think in our modern democratic civilization that its feasible to do a lot to tweak social
security.
BQ
What about gradually raising the retirement age?
CM
I personally wouldn’t do it. I would leave it alone, and deal with the rest. Reasonable minds
can disagree. There are bigger problems to deal with. It’s a bad allocation of goodwill &
time. I think we have to change our system of taxation. I think a 50% tax on a busy
surgeon is plenty for the man to pay. I think the existing income tax rate is right.
Unearned income currently favors hedge funds way too far. It’s not just a 15% tax, but they
also use foreign tricks. I’m disappointed in all the math/science people going into
derivatives trading. I knew someone who was brilliant, who for six years had made money
using trading algorithms. He wrote me a letter, acknolweding it’s a sick system. It’s a huge
misuse of talent. I would pass laws that would get those people selling apples on the street
or doing other things more productive.
Audience
What are your thoughts on social impact investments? Some of your colleagues are part of
the Giving Pledge, which aims to solve societal problems through charity. There are others
that try to solve problems through investments with societal and economic returns.
CM
That’s not my particular pathway. I think Costco doe smore for for society than the
Rockefeller Foundation. When brilliant people get together to do good, I immediately get
suspicious and start to squirm
So much stupidity and folly has come of our philanthropic groups, including the world bank.
That’s my personal opinion. But if I’m right, and you’re smart, you’ll end up like me.
Audience
Regarding the series of booms/busts we’ve had, are looking to face more booms/busts in the
near future?
CM
I think you will face more, but how big and with that cyclicality I don’t know. Just keep your
head down and behave well.
My mother’s grandfather was a pioneer who came out to Iowa and lived in a mall house with
his young wife. It was a cave. He literally was a pioneer with nothing, and rose to control
the leading bank in the town. My great-grandmother made him a generous man, and give
away a lot back to society.
Having arrested this success from troubles and struggles, he had a theory. He owned farms,
and leased them to Germans. You can’t lose money leasing ot Germans. He believed that
real opportunities that come to you are few. Most people just get a few times to make a
difference, when you find one, you can clearly recognize it. Seize it boldy. I have adopted
his point of view, and it has worked wonderfully. I assume your major opportunities are few.
Don’t hang back when it comes
If you take out the 20 best transactions of BRK, our record is a joke. 20 some transactions
over 40 some years, that’s 1 every 2 years. And we work at it all the time. You can’t bathe
in opportunities.
Audience
Undecipherable
CM
The rise of asia is an awesome forest. It will be very hard on manufacturing places like
Michigan. During Hyundai’s initial competition against Michigan, the Korean workers were
better on average than Americans, whether it’s the Confucian ethos or poverty. The terms
of their engagement were as follows: come into the factory, work 80hrs/week with no
overtime. That’s going ot be hard to beat. Just when the Koreans were getting rich, billions
of Chinese & Vietnamese start doing it. This is a disruptive tidal force.
In terms of education, in California the objective standards are better htan ever. But there
are more Asians. Berkeley engineering is 75% Asian. I am the chairman of a bad hospital in
a bad area. It’s a bad hand I choose to play, because I’ve had so many good hands. In good
Samaritan hospital, I look around and I see Dr Ho, Dr Chung, and a PHD from china doing
programming work.
I think you’re in for rapid changes in the world, where Asians become way more important. I
don’t worry about the competition for the Mungers? If the Mungers can’t compete, then let
them lose. I like meritocracies, particularly when there’s so much achievement. When I was
it young, it was Germans, then it was Japanese.
I welcome it, but I do think you will have to adjust to the tidal forces that are rising. It will
look more and more like Good Samaritan Hospital. My hospital works better. What the hell
do I care if the name is Wilson or Chung. All of us face it, and we better get used to it. Part
of enjoying life is face it as it is and adopt, whether you like it or not. Reality is Michigan will
not dominate autos like it did before. The baton has been passed. Athens and Rome and
London’s time has come and gone. If you’re a leader, you have to eventually pass the
baton. That’s the iron rule of human systems.
Audience
Do you think we’re starting ot see some of the social fracturing in this country?
CM
Of course! There’s a Harvard professor who studied this. He says homogonous societies are
easier to run. Politics are more difficult in society than Japan’s. We’re just seeing part of it.
If we are in for some economic stasis, there will be a lot more social tension. Economic
wealth submerges many social problems. Removing the wealth/riches unveils many issues.
Audience
Were the bailouts used wisely? Or should the money have gone directly to people instead of
Wall Street?
CM
The bailouts were absolutely required to save civilization. You shouldn’t resent it, you
should thank God they did it. We don’t know what would have happened, but it would have
been very awful.
The Germans were a very civilized people. Einstein got a completely free education from
the Catholic Church in Germany. That’s pretty civilized. Then, they had Adolf Hitler.
Destroying the economy and currency leads to huge problems. There comes a place where
the culture dies, if we bailout everyone. You have to say “suck it in and cope buddy”.
In the 30’s, families moved into the same house and wore the same clothes. That’s coping.
We don’t want a civilization where in every hardship people go to the government and ask
for money, because life is ‘not what they expected’. We’re now short of money, and people
need to suck it in and cope.
Audience
At what point does debt funded economies become a ponzi scheme?
CM
If we just shovel money at people, that’s dangerous, like Greece, because you need
credibility. But, if we issue IOU’s to do things that are reasonable, then it’s a lot safer. How
you spend the money and reputation matter greatly. The U.S.’s reputation could withstand
a major use of credit to do something worthwhile. The danger is shoveling money to people
who say that need it, without limit.
Audience
What do you think of the future direction of the healthcare sector in the U.S. and China?
CM
China is spending a tiny % of GDP on healthcare, and we’re spending more. In an
aging/affluent economy, I don’t think it matters if we spend 20%. Healthcare is a whole
different can of worms, but I don’t think it’s our main problem at all. I think its natural in our
particular civilization to spend a fair amount on healthcare. If that’s the way civilization
wants to spend the money, I don’t consider it a crazy choice. The current system is crazy,
with perverse incentives. There’s a lot of abuse in healthcare. The people in power must
exercise it to prevent the abuse. It’s a huge mistake not to criticize people.
Doctors fish people out of nursing homes to put them on beds so they can walk by and bill
them. It’s theft, and it brings infectious diseases into the hospital. For evil to triumph in the
world, all that is necessary is for good men to do nothing. You have to identify bad doctors,
and eliminate them, and be willing to take the ill-will.
Audience
I have sometimes felt “why did I go into law, and not study science”. In a positive science,
we have questions about what useful role we can play. The legal profession as a whole, any
ideas how to change it?
CM
Well, the legal profession has abeen a way out of people who don’t want to run through the
gauntlets of science. It offers a lot of flexibility. The legal profession has been bifurcated in
America. The ordinary lawyer makes $60K a year in divorce court. It’s demanding/difficult.
The lawyers in the powerful firms, working 70-80hrs/week for nine years, then make
partner…they make a lot of money. Is there abuse in a culture mad about billing hours?
Yes.
Bankruptcy cases remind me of hyenas feeding on a carcass in Africa. It does not resemble
a learned profession. But there’s still a lot right about it.
We have an amazingly clean judiciary. Every judge performs better on the bench, than
before, and they were good people before. The legal system as a whole is a pretty
reputable system. But the part of the legal system closely entwined with wall-street gets a
bit more hazy. Enron and future enrons will not lack for able attorneys. Net, I think it’s a
very interesting career. I like systems where good people get power and exercise it well.
Trying big patent cases in front of juries is obscene. Don’t let people shop for ignorant
judges/juries.
Abe Lincoln personally handled 5000 cases. He was active, practicing, and credible.
BQ
How would your career be different if you went to Business instead of Law school?
CM
If I drifted into my present life at an earlier stage, I’d have more money now, but SO WHAT?
When I die, people will say, Charlie left all. Piling it up is not a big deal, when you have to
part with it at the end. Regret is bad, as envy is. I don’t second-guess the past; I try to
learn from it to make better decisions for the future.
Audience
If you could design a system, how would you take into account human nature to encourage
rationality?
CM
Plato failed at this question. It’s a very interesting problem that our founders coped with.
My favorite political system, in terms of being adapted to its particular situation, is
Singapore. They’ve taken a swamp and turned it into a creditable place. I’m sorry they’re
doing derivatives trading, so even Heaven makes mistakes.
I think the Singaporeans like to tackle problems before they become unfixable. U.S. likes to
wait till problems are unsolvable before tackling them. We have an irresponsible system.
And I think our central cities are the hardest to govern, on average. Eventually, there’s a
tipping point when the better people leave. Then, you can’t solve the problem. I don’t think
it’s a pure democracy.
I’m an unusual kid. I think I know better than the professor… not a social winner. I take
political science from a leftist professor. They teach that when more people vote, the
system is better. Being a contrarian, I suspect that when less people vote, its better. I
wrote a paper on it, and got an A. U of M handles wiseass kids pretty well.
Singapore copied the military’s drug policy… random drug tests and compulsory
punishment. It’s 70% Chinese, and 30% Malaysian. The leader passed a law that abolishes
declaration of nationality. It infringes free-speech, but terribly useful. Successful men in
asian culture marry beautiful women wth less intellect. The leader married the woman who
was smarter than him in high school, not the beautiful woman with big boobs. Their son is
now the prime minister of Singapore.
Study the life and work of Lee Kuan Yew, one of the greatest stories in the history of
mankind. It will be useful in your old life, and it was better than Athens.
From
http://war-on-poverty.blogspot.com/2010/09/charlier-munger-q-transcript-u-of.html