Charlie Munger's Thoughts on Just About Everything

Those who have attended the Berkshire Hathaway (NYSE: BRK-A  ) shareholder meeting know Charlie Munger as a man who chimes in with "I have nothing to add" to at least three-quarters of questions asked to his longtime business partner, Warren Buffett.

The Wesco Financial -- where Munger is chairman -- shareholder meeting is a completely different story. Free from the overwhelming spotlight cast on Buffett, Munger spends a few hours every year sharing his thoughts and opinions on, well, just about everything.

Below is a summary of my notes from Munger's three-hour meeting in Pasadena, lightly edited for clarity.

On how serious our economic problems are: "I think it's deadly serious. You can never tell what's going to happen when people get as disappointed as they are now. "

On when we'll see significant economic improvement: "Japan provides a very interesting and threatening example of this type [of] problem. Japan cut interest rates to zero and pumped in all kinds of stimulus through deficit spending, and the result was stasis for 10 years. If that happened in America, it would be terrible. Whether it will happen or not, I don't know. It would be very awkward to go 10 years with zero economic growth."

On what caused the financial crisis: "It's been a lollapalooza effect -- a confluence of causes pushing in the same direction. Three main areas I'd say got us to where we are:

  • Abusive practices in consumer credit. Banks did things because their competitors were doing them and wanted to keep up. This is crazy. There are times when you should let your competition do things and not want to follow. A lot of consumer lending was venal. It was bad morality that led to a horrible mess in due cause.
  • Wall Street. Wall Street found every which way to make money short of robbery. A lot of it was a bunch of sleazy crooks, but if it worked, no one cares.
  • Poor regulatory apparatus. Democrats wanted to give things to poor people, thinking it was pro-social activity. They urged Fannie Mae and Freddie Mac to make really dumb loans. Some of it was just ghastly. And the Republicans overdosed on Ayn Rand. It was like they wanted legalized armed robbery. They wanted to create an ethos simply built on 'buyer beware,' which is all wrong."

On free market financial systems: "People really thought that giving a predatory class of people the ability to do whatever they wanted was free market enterprise. It wasn't. It was legalized armed robbery. And it was incredibly stupid."

On accounting standards: "Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up in the aisle. And go ahead if you want to. It will be a memorable moment for all of us."

On bailing out the banks: "We had to save these people whether we wanted to or not. And [the Treasury and Federal Reserve] did a fantastic job."

On regulation: "Banks that are 'too big to fail' shouldn't be allowed to be anything but boring. And that's how it used to be. Investment banking used to be a consulting business. It was extremely boring. The partners didn't make nearly the kind of money they do today. They were very conservative businesses.

There's no reason to have a system where every young man has $8 billion to play with and buy whatever he wants. It's incredibly stupid. It's absolutely crazy. If I were in charge, I'd take away everything from banks that wasn't boring. Completely shut down [credit default swaps] 100%. What's the harm in this? The world worked just fine without them. We don't need an economy that resembles a vast poker tournament."

On President Obama reining in Wall Street: "I admire Obama for wanting to reduce the power of New York City. It would have a constricting effect on the economy at first, but we need it."

On Wall Street pay: "A man does not deserve huge amounts of pay for creating tiny spreads on huge amounts of money. Any idiot can do it. And, as a matter of fact, many idiots do do it."

On Wells Fargo's credit quality: "Warren [Buffett] and I think Wells Fargo (NYSE: WFC  ) is a better credit than most because of its low cost of capital."

On current stock prices: "Our best years were recession years. If you wait for the recovery, it's too late. Am I willing to invest long-term money at these prices? Sure. I'd invest long-term money in Wells Fargo. I'd invest long-term money in Coca-Cola (NYSE: KO  ) . I don't know if it's right or not [in the short term] but you're all a bunch of cultists and you're entitled to hear my opinion."

On what to expect from the stock market: "To expect a lot is irrational. You're likely to be happier and gain felicity by aiming low."

On how to avoid 50% losses in the future: "It's in the nature of stock markets to go way down from time to time. There's no system to avoid bad markets. You can't do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go."

On Treasury Secretary Tim Geithner: "He's a very able person and will do a good job. The job is terribly constrained by politics. This is why I've never had any interest in government. Considering what he's facing, he's doing a great job."

On how inflation will impact investing: "I remember the $0.05 hamburger and a $0.40-per-hour minimum wage, so I've seen a tremendous amount of inflation in my lifetime. Did it ruin the investment climate? I think not."

On investing in Goldman Sachs even as he and Buffett scolded Wall Street: "We invested in Goldman Sachs (NYSE: GS  ) because we felt their merits outweighed their defects. That was it. We don't expect perfection from anyone."

On executive leadership: "Some people are more teachable than others. This is also true of dogs, however, so take it as you wish. [The executive level] should be a tough meritocracy. It shouldn't be easy. I look for people I can trust. Hiring people you can't trust is like starting off by dropping a spider in your bosom."

On AIG: These are sad days at AIG (NYSE: AIG  ) , because they were once regarded as great. The news headlines certainly don't help when you're trying to sell trust. Most of the company has been very unlucky, but this happens when people make dumb decisions."

On the trade deficit: "Warren [Buffett] is way more pessimistic on this topic than I am. He often talks about China buying up our little pieces of paper [Treasury notes]. I think China has become enormously prosperous by buying our little pieces of paper. It's a huge benefit to them."

On ethanol: "Ethanol is quite possibly the stupidest thing ever invented by rational people. The ultimate social safety net -- which is a very good idea, by the way -- is cheap food, and ethanol production is destroying this. It was a monstrously stupid idea like I haven't seen before."

On cap and trade: "It's an absolutely insane idea. I mean a really, really stupid idea. If everything [global pollution] was contained to one country, it might work. But it isn't. Do they think China will stop polluting and go back to student labor? Of course they won't. It's insane. We're being distracted by stupid things that have been popular in the past."

On General Motors (NYSE: GM  ) and Ford (NYSE: F  ) : "If I can cheerfully die, any industry can cheerfully shrink. And they will."

On stockbrokers: "Most stockbrokers are a disaster waiting to happen. If anyone ever promises you miracles, show them the door."

On adapting to peak oil: "The world will adapt to higher oil prices, because it has to. It won't be the end of the world. Even at $200 a barrel, we'd be fine. People would adapt [mentions smaller cars, electric cars, solar power]. We have an enormous power to adapt."

On Berkshire Hathaway's business model: "No one wants to try to copy us because they don't think it would work, and they're probably right. A lot of people think our model is nuts."

Asked whether Berkshire Hathaway will be more valuable in five years: [shrugs ...] "Sure." [crowd erupts with laughter.]

On corporate lawyers: "Law has become far too prosperous. It's way overrated. The cost is too high and the education [of lawyers] is wildly imperfect."

On newspapers: "Ordinary newspapers will come to perish. The microeconomics are too tough to overcome. It's not a place to invest your money."

On communism: "China has communist builders and communist engineers. That's my kind of communism."

On books he'd recommend: "Malcolm Gladwell's Outliers is a terrific book. It guides reason very well. By the way, I tend not to read self-help investment books. They're like soap operas: I know all the plots."

For related Foolishness:

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire Hathaway is a Motley Fool Stock Advisor recommendation. Berkshire Hathaway and Coca-Cola are Motley Fool Inside Value recommendations. Coca-Cola is a Motley Fool Income Investor pick. The Fool owns shares of Berkshire Hathaway, and has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (85)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2009, at 4:23 PM, wuff3t wrote:

    "I don't know if it's right or not [in the short term] but you're all a bunch of cultists and you're entitled to hear my opinion."

    Lol.

  • Report this Comment On May 08, 2009, at 10:30 PM, TMFBomb wrote:

    wuff3t, that was my favorite line as well...as an aside, I love the good cop, bad cop routine Buffett and Munger play.

  • Report this Comment On May 08, 2009, at 11:15 PM, FinancialFellow wrote:

    This was my favorite: "Law has become far too prosperous. It's way overrated. The cost is too high and the education [of lawyers] is wildly imperfect."

  • Report this Comment On May 09, 2009, at 6:31 PM, PaulEngr wrote:

    I like the line about engineers throwing up when they read accounting standards. I'm an engineer, and I'm glad someone from the other side of the aisle sees it the same way.

  • Report this Comment On May 11, 2009, at 10:19 PM, greg399 wrote:

    Munger also mentioned an economist who "writes like I think". Did anyone catch the name of that economist?

  • Report this Comment On May 12, 2009, at 5:29 PM, rl9088 wrote:

    I have the same exact question as greg399. I thought he said something like Wosenhaeur but can't find anything close to that online.

    Anyone???

  • Report this Comment On May 13, 2009, at 12:30 AM, D2009 wrote:

    > On accounting standards: "Anyone with an

    > engineering frame of mind will look at [accounting

    > standards] and want to throw up in the aisle. And go

    > ahead if you want to. It will be a memorable moment

    > for all of us."

    As an engineer, I agree 100%.

    In science/tech circles, we often joke that "2+2=5 for extremely large values of 2", hinting that you can 'prove' all sorts of crazy stuff if you start with wacky assumptions.

    In accounting...it's not a joke, they really do stuff like that...it blows my mind.

    Scary.

  • Report this Comment On May 14, 2009, at 5:21 PM, mpendragon wrote:

    Cap and Trade may be far less than ideal but his position on global warming is a fine example of the Tragedy of the Commons.

  • Report this Comment On May 16, 2009, at 6:41 PM, here2getrich wrote:

    What is his position on global warming? In my opinion, it's a theory that's gotten may too much press. It's unbelievable how people will jump on a bandwagon without even researching things.

    And BTW, I'm also an engineer.

  • Report this Comment On May 22, 2009, at 12:52 PM, mpendragon wrote:

    here2getrich:

    His position seems to be that the world's greatest large scale polluters per capita shouldn't do anything to curb their emissions until the other guy does.

    If you're not a climatologist I have very little value for your opinion on climatology and that goes for Munger as well.

  • Report this Comment On November 23, 2009, at 2:57 PM, williamjacobs wrote:

    Why is it that anyone less rich than Munger who sings the praises of the social safety net, communists, regulation, and inflation is universally condemned by his admirers?

    Why are these ideas by Munger and Buffett so foul when uttered by those who benefit from those phenomena? (I've never so much as collected unemployment but agree with Buffett and Munger.) The widespread silence when these two wealthy men proclaim sensible socialist pressure valves speaks volumes about the duplicity of conservatism. They either know the truth and hide it, or they think Munger and Buffett are idiots but will fawn over them like schoolgirls backstage at a rock concert.

    Ignominious poltroons, all.

  • Report this Comment On January 04, 2010, at 4:30 PM, BABentley wrote:

    I'm an ACCT-major. I started out in Comp. Sci., but the degree requirements kept changing too quickly. Accounting DOES have rules, Really! GAAP don't change That often! (Confidentially, I find how mutable GAAP are to be rather irritating, myself, and I'm getting ready to graduate.) If the courts and Congress would stop changing relavant Civil Law, we ACCTs would have a much easier time looking as though we had a stable, consistent profession. ACCTs actually Prefer that GAAP not change (EVER), but the Civil-lawyers are giving us a run for our money.

    BTW, I Have collected Unemployment before, once, and am having to work my way through my degree one class at a time because I Don't come from the privileged-classes. I have >170 semester-hours and am in my 40s (age), but the college keeps changing its !!! degree-requirements. That's My perspective.

  • Report this Comment On January 04, 2010, at 4:50 PM, BABentley wrote:

    PS: I have nothing against Engineers. As one who started out with Science (Comp Sci), I feel that we aren't That far away. Different, but some of us aren't as strange as you might think. ACCT is, at least, an easy way to make money and to manage it so that it sticks around.

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