How is Charlie Munger Doing? – Daily Journal 2021 Annual Meeting Key Highlights

A few weeks ago, the Daily Journal held their annual AGM. The little-known company’s annual shareholder meeting has turned into a mini-Berkshire Hathaway AGM for the super nerds out there, because its Chairman is the brilliant and blunt Charlie Munger, who also happens to be Vice Chairman of Berkshire Hathaway and Warren Buffett’s right hand man. We have been before and wanted to attend again but unfortunately live attendance was cancelled due to COVID.

We were happy to spend a few virtual hours with him and glad to see he is doing so well even at the age of 97! Here are a few key highlights:

What is Value Investing? Value investing the way I regard it will never go out of style, because value investing the way I conceive it is always wanting to get more value than you pay for when you buy a stock. And that approach will never go out of style. Some people think that value investing is you chase companies which have a lot of cash and they're a lousy business or something, but I don't define that as value investing. I think all good investing is value investing. It's just that some people look for values in strong companies and some look for values in weak companies, but every value investor tries to get more value than he pays for.

On concentrated/focused investing - What is interesting is that in wealth management a lot of people think that if they have a hundred stocks they're investing more professionally than they are if they have four or five. I regard this as insanity absolute insanity. I find it much easier to find four or five investments where I have a pretty reasonable chance of being right that they're way above average. I think it's much easier to find five than it is to find a hundred. I think the people who argue for all this diversification - by the way I call it deworstification - which I copied from somebody – and I'm way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage.

Rules to a happy life – The first rule of a of a happy life is low expectations and that is one you can easily arrange. If you have unrealistic expectations, you're going to be miserable all your life. I was good at having low expectations and that helped me. Also, if when you get reverses, you just suck it in and cope that helps and you don't just fretfully stew yourself into a lot of misery. There are certain behavioral rules - Rose Blumpkin [founder of Nebraska Furniture Mart, bought by Berkshire Hathaway] had quite an effect on Berkshire culture. She created a business with like 500 depression dollars that became a huge business. You know what her mottos were? Always tell the truth and never lie to anybody about anything. Those are pretty good rules and they're pretty simple. A lot of the good rules of life are like that, they're just very simple. Do it right the first time [Lee Kwan Yew – key founder of Singapore] is really good rule.

Full video here.

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More Charlie – Intro to Charlie 101

Our favorite Charlie Munger interview is still from Ross University back in 2017. If you don’t know him, this is a great place to start to. – http://www.canadianvalueinvestors.com/home/2018/1/19/charlie-munger-talk-at-ross-university-2017-full-transcript

And of course, we continually re-read his Standard Causes of Human Misjudgment. “When I saw this patterned irrationality [in life], which was so extreme, and I had no theory or anything to deal with it, but I could see that it was extreme, and I could see that it was patterned, I just started to create my own system of psychology, partly by casual reading, but largely from personal experience, and I used that pattern to help me get through life.” – See here http://www.canadianvalueinvestors.com/charlie-mungers-list

Berkshire Hathaway AGM Coming Up May 1st!

Also, for those that missed it, Warren Buffett announced that the Berkshire 2021 AGM will be in Los Angeles this year as mentioned by Warren in the 2020 BRK letter:

And now – drum roll, please – a surprise. This year our meeting will be held in Los Angeles...and Charlie will be on stage with me offering answers and observations throughout the 31⁄2-hour question period. I missed him last year and, more important, you clearly missed him. Our other invaluable vice-chairmen, Ajit Jain and Greg Abel, willbe with us to answer questions relating to their domains.

We did indeed Warren! Though this will be an online affair. A few of us were scheduled to attend the 2020 AGM in person, but I guess we will have to wait until 2022.

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Daily Journal 2019 AGM Meeting Video and Notes

Some spent Valentine’s Day with their partner after winning them over with roses and chocolates. Others (understandably so) went to see our favorite 95 year-old Charlie Munger talk about business, investing, and life for 2 hours. This year, CNBC taped the Daily Journal AGM on February 14, 2019.

Below are some of our notes:

  • The Daily Journal’s newspaper business is earning approximately $1m pretax but will decline for the foreseeable future. The other side of the business is software that automate courts processes from different jurisdictions around the world. This software business is very difficult because it involves dealing with different bureaucracies and is very customer service centric, but can also be an enormous market. On the flip side, most big companies aren’t interested in it because it is so difficult to do. Main competitor is Tyler Technologies which is a large public company.

  • In the world of disruption this and innovation that, we thought this quote was notable: “The idea of taking on the whole world when the Chairman is 95, the Vice Chairman is 89, and the Chief Executive is 80 and uses a cane – it’s a very peculiar place.”

  • Munger discussed a large investment fund company, which created a new fund with every manager’s best idea. While it sounded great in theory, it turned out poorly, even though they tried it many times. Why did it fail? Why wouldn’t an intelligent group of people coming together with their best ideas result in success?

  • Munger does not answer, but he later gives a hint: if anyone asked Buffett every year for his best ideas, he might only have 1 or 2, and if you followed just those you would do very well.

    • Our thoughts: An individual’s best idea might not be the best overall idea, particularly since most fund managers specialize in certain industries that might not be attractive altogether (never mind office politics). Therefore, the best ideas get drowned out and watered down.

  • On education - “By the way, my definition of being properly educated is being right when the professor is wrong. Anyone can spit back what the professor tells you. The trick is to know when they are right and they are wrong.”

  • Active Investing VS Passive – “If everyone did index investing it won’t work but for another considerable period index investing is going to work better than active stock picking where you try to know a lot. Now a place like Berkshire Hathaway or even the Daily Journal we have done better than average. Why has that happened? And the answer is pretty simple; we tried to do less. We never had the illusion that we could just hire a bunch of bright young people and they would know more anybody about canned soup and aerospace and utilities and so on and so on. We never had that dream. We never thought we could get really useful information on all subjects, like Jim Cramer pretends to have. We always realized that if we worked very hard we could find a few things where we are right and that a few things were enough and that was a reasonable expectation. That is a very different way to approach the process. If you had asked Warren Buffett the same thing that this investment counsel had did, “give me your best idea this year”, you would have found it worked perfectly. He wouldn’t try to know a whole lot, he would give you one or two stocks. He had more limited ambitions.”

  • Investment management business - Munger thinks most fund managers get basically paid to do nothing vs ETFs. Fund managers might say their job is to save their clients from actively trading. Munger agrees they are probably still saving some people from the “hustling stock broker.” But it is very peculiar that the whole profession is paid to do that. Despite lots of IQ in there, they typically can’t outperform indexes.

  • Munger views the industry’s rationalization as a state of denial. No solution he can think of, but noted that admirable value investors just quit instead of staying in denial.

  • Told the story of an old woman in Omaha that sold her soap company in the 30s during Great Depression. She had a big mansion and $300k. She split most of the $300k into 5 stocks, of which 3 were GE, Dupont and Dow, and bought some muni bonds. She just figured electricity and chemicals were an up and coming thing, then just didn’t do anything after that. When she died in the 1950s, she had $1.5m (probably around ~10% CAGR since she was living off the muni bonds).

  • Peter Kaufman always says “If the crooks only knew how much money you could make by being honest, they would behave differently.” Warren says “Always take the high road because it’s never crowded.”

  • Daily Journal: Could have easily raised prices during Great Recession because of all the foreclosure notices. Should they have raised prices? No, not the right way to run a business especially if you’re already rich.

  • Similar to Vitreous Glass when their customers were struggling in from 2008 through the early 2010s.

  • Someone asked if you look at banks with $1b+ of assets up to the super-regional banks, there are around ~250, and asked are there 1-2 that might be good buys? Munger answered yes.

  • What made the Buffett/Munger partnership so successful? Two talented people working well together.

  • China’s stock market: Some very smart people are starting to wade in.