10 Great Charlie Munger Quotes From Berkshire Hathaway Inc.'s Annual Meeting

Every year, thousands of investors flock to Omaha to hear the wisdom of Warren Buffett and Charlie Munger. In this article, the Fool's Brendan Mathews highlights 10 of his favorite quotes from Vice Chairman Charlie Munger

May 11, 2014 at 1:00PM
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Photo: Matt Koppenhoffer, The Motley Fool.

Every year, thousands of investors flock to Omaha to hear the wisdom of Warren Buffett and Charlie Munger. For as long as six hours, with only one break for lunch, the two business legends take questions from investors, the press, and analysts. Appropriately for a shareholder meeting, the focus is the business of Berkshire Hathaway (NYSE:BRK-B) (NYSE:BRK-A) , but it's not the only topic they discuss. To cover the event, we sent eight analysts to Omaha.

Following are my top 10 Charlie Munger quotes from the six-hour session. It's not an official transcript. But we've captured the essence of Munger's wisdom, and I hope you find this a useful, enjoyable read.

1. Cost of capital

A phrase like "cost of capital" means different things to different people. We just don't know how to measure it. Warren's way of describing it, opportunity cost, is probably right. The answer is simple: We're right and you're wrong.

2. Buffett's will

Warren is peculiar in the way he distributes money, and I think he's entitled to do what he ... pleases. Warren is really something of a meritocratic. He's returning his money, in Berkshire shares, to the civilization from where he earned it. I like being associated with that.

3. Executive pay transparency 

You're asking for something that's going to not be good for shareholders, and that's why we don't do it. It's not going to happen unless the SEC asks for it. ... I would say that envy is doing the country harm.

4. Managing Berkshire's subsidiaries

By the standards of the rest of the world, we over-trust. And so far, our results have been far better, because we carefully selected people who should be over-trusted. I think a lot of organizations work better when there is a culture of trust. And in modern organizations, where there are tight controls and monitoring, I think they're going to be worse for it.

5. The benefit of See's Candies and "ignorance removal"

There's no question about the fact that See's main contribution to Berkshire was ignorance removal. One of the benefits of removing our ignorance is that we grew into what we are today. At the beginning, we knew nothing. We were stupid. If there's any secret to Berkshire, it's that we're pretty good at ignorance removal.

6. Climate change

Climate change and global warming are indisputable, but it's hard to say how it'll affect economic patterns and so on. I think we're very well located, regardless. Transmission lines -- we're going to need to produce electricity regardless. So I think we're in very good shape.

7. Why Berkshire works as a conglomerate

I think there are a couple of differences between us and people who are generally thought to have failed at the conglomerate model. One is that we have an alternative. When there are no other companies to buy, we have securities to buy. Also, most of them were hell-bent to buy, and we feel no compulsion to buy for the sake of it. I don't think we're a standard conglomerate, and we're likely to continue to do very well.

8. Technological disruption

Some of these things happen much more slowly than you might think. I went to a program 30 years ago talking about how color movies on demand would take over, and it happened, but it wasn't right around the corner like they said.

9. Circle of competence

I don't think it's as difficult to figure out competence as it may appear. If you're 5-foot-2, you don't have much future in the NBA, and if you weigh 350 pounds, you shouldn't dance ballet. If you can hardly count cards at all, you shouldn't try playing blackjack. But competency is a relative concept. What I need to get ahead is to be better than idiots, and lucky for me there were a lot of them.

10. The future of Berkshire

The Berkshire model as now constructed has legs and will go on for a long time. It has enough advantage that it will just keep going a long time, and most businesses don't. Of all the great businesses of yesterday, few have gotten big and stayed big. We're getting to a territory where very few other people have done very well. But I think we'll just keep going. We will keep doing what we're already doing. We'll keep learning from our mistakes. The momentum's in place; the ethos is in place. It's going to keep going. For the young people in the audience, don't be too quick to sell the stock.

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Brendan Mathews owns shares of Berkshire Hathaway. The Motley Fool recommends and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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