Daily Journal Annual Shareholders Meeting Notes 2016

Here are our Daily Journal 2016 Meeting Notes with Charlie Munger (February 10, 2016). No claim of accuracy or completeness, some non-questions and non-answers not included, notes made while standing. (Meeting tip: go early). Munger’s comments before the Q&A session were quite brief, unlike in previous years.

It was great meeting some of you at the event. We hope to see you all next year!

Charlie Munger Q&A:

Q: Favorite investing story – Previously untold per Munger. In 1962 Munger bought oil royalties being put up for auction. Only bidders were oil royalty brokers (“cheap bastards”). Bid slightly higher than $1000 each with partner, getting $100k royalties 50 years later.

Q: Wesco success – Driven by only 4-5 transactions. If you try to do a zillion small bets it won't work. Some of the businesses were doomed (trading stamps, etc) but worked out well. 

Q: BYD – They are in a position on purpose to depend on electrification and electric cars. BRK did it by accident but hope it works.

Q: Returns, what discount rate should be used for different industries? – In line with previous Munger answers (i.e. limited). Government bond returns are relevant. Need to look at relative returns. We don’t use formulas (DCF models) that way. It is just one of many factors. 

Q: How can you reduce daily errors? - Two things: #1 We (Munger and Buffett) spend a lot of time thinking, don't have crowded schedules. We look like academics more than businessmen. Sift life for opportunities and get a few of them. #2 multitasking is good for nurses, not good for investors.

Q: How did you get comfortable with buying Wells Fargo through BRK and at Daily Journal? - Huge in real estate, real estate was failing. BRK bought in to Wells because we knew the lending officers, knew Wells bankers were superior/shrewder.. Knew they weren't going to lose as much money as others thought. We had an information advantage. Purchase #2 at Daily Journal - world was coming unglued when bought, but knew they were better off than themarket implied. Noted that banking is a field where you can delude yourself into fictitious profits. Also bought Bank of America, but state this was more of an old school value play where it was just below intrinsic value.

Munger Life strategy: For most people - figure out a specialty and become very very good at it. Problem is you make mistakes outside of your narrow field of expertise. Life rewards specialists, but Munger took his route in life and does not know what else he would have done. 

Munger Comment: Life approach - Don't go where the standard result is poor – i.e. avoid self pity, anger, jealousy. Mentioned Kippling – “If” poetry.

Q: Valeant, any other companies you don’t like at the moment? - Extreme example of poor behavior. 

Q: Cars – The industry has all the signs of a commoditizing business. Everyone is building extremely reliable cars with similar features that last a long time. 

Q: Oil - If you forced me to bet I would not have bet on where oil has gone (note: now ~$30/bbl). Commodities can do very strange things. Weird period, nature of the human condition - but that's the nature of things. 

Q: Question about how to be found and meet people. Asked how Munger found Ron Burkle (Staters Brothers grocery store buyout, BRK put up 49%, Burkle 51%). Ron’s father was connected to the last customer of one of a Munger’s companies (unclear). Munger met Ron Burkle through Ron’s father by chance. 

Q: Silicon Valley, thoughts? – Munger can't pick winners but market shows signs of manipulated finance. Venture capitalists doing financing rounds but sneaking in new clauses where "new money gets out first" and it is being deliberately obscured. Very unethical and sounds like a ponzi scheme. Large amounts of easy money cause problems. 

Q: Markets today -Is value investing less relevant? High frequency traders, thoughts? – HFTs are rats in a granary. Value investing will never be dead, it is basic arithmetic. 

Q: People you admire – People who excel, take surgeons or actors who become the best at what they do.