Charlie Munger: 2022 Daily Journal Annual Meeting Transcript

Charlie Munger: 2022 Daily Journal Annual Meeting Transcript

I usually sit down and transcribe the Daily Journal’s AGM every year a few days after its occurrence. This year was no exception. Enjoy!

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Charlie Munger: The Daily Journal’s formal business is over. Now we’re going to answer questions in the tradition that’s common to both the Daily Journal and Berkshire Hathaway. So you’re with the first question.

Question: Charlie and Gerry, we wanted to start with questions that were very specific to the Daily Journal first. How does the Daily Journal plan to handle its investment portfolio after Charlie steps back?

Gerald Salzman: Charlie, I think you should answer that.

Charlie Munger: Well, I’ll handle it as long as we can. And when I’m gone, or sufficiently impaired, we’ll get somebody else to do it.

Question: What are the reasons for Gerry and Peter Kaufman leaving the board?

Charlie Munger: Well, we are going to have to make changes in the future. Gerry and I are so superannuated. Peter didn’t want to do it anymore. That’s all we have to say.

Question: What is the current Daily Journal management succession plan and who will be in charge after Mr. Salzman’s retirement?

Charlie Munger: Well, our long-term plan is to replace both Gerry and I, because he’s 83 and I’m 98. So obviously, we have succession planning to do in the near future. We’ll do it as fast as we can.

Question: I noticed that our company is using margin debts to purchase overseas securities and the overseas securities are not reported in the SEC filing. As a shareholder, am I entitled to know what overseas securities we own on margin?

Charlie Munger: Well, the practice at Daily Journal and Berkshire is the same: We disclose what we have to under the rules because we don’t want people to know what we’re buying and selling. So we tell everybody what we have to under the rules and we keep it confidential until then. That’s our system.

Question: In the latest 10-Q our company stated that Journal Technologies serves 30 states in the United States. On the website and all the other older 10-Q and 10-Ks, it said that JT serves 42 states. I just wonder what is the reason for the decline?

Charlie Munger: Gerry, you take that one.

Gerald Salzman: The reason for the decline to a certain degree is that several years ago, we decided not to support a very old legacy system that had a number of smaller agencies in addition to a number of larger agencies. And as we expected, many of the smaller agencies decided not to go to our main system, which we call eCourt, eSystems, eProbation, eProsecutor, and ePublic Defender. So that’s the reason for the decline in those numbers.

Charlie Munger: By the way, other software companies avoid obsoleting a system because they lose some business but we want the customers to have the more modern system.

Question: Who are [Daily Journal’s] principal competitors in supplying software to court systems? And do you have a guess as to who has what market share?

Charlie Munger: Well, Tyler Technologies has the big share and the rest is scattered.

Question: In the annual report, you noted that [Daily Journal’s] prospects and software now seem especially interesting. Would you care to expound on that thought?

Charlie Munger: I’m glad to. What’s interesting is that the courts of the world have been in the Stone Age. There’s no reason where lawyers should go down through heavy traffic and wait for some little motion. That should all be done on Zoom and so forth. And the filing should be done electronically. There is a huge market for automation of the courts. And it’s early. That’s the good news. It’s a big market. The bad news is that it’s a slow, damn tough way to grind ahead in software because it’s very bureaucratic. It’s a huge market and it’s intrinsically going to be very slow to get done. That’s the good news and bad news. We have a huge market and it’s going to be slow and bureaucratic.

There’s no doubt about what’s going to happen, the courts are going to get more efficient and get with the modern world—also the district attorney’s offices and the probation offices.

Question: In January, Jeff Gundlach was quoted: “China is uninvestable, in my opinion, at this point. I’ve never invested in China long or short. Why is that? I don’t trust the data. I don’t trust the relationship between the United States and China anymore. I think that investments in China could be confiscated. I think there’s a risk of that.” Obviously, with a significant percentage of the Daily Journal’s marketable securities invested in BYD and Alibaba, you feel differently. Please explain why you are right.

Charlie Munger: Well, of course, only the future knows who’s going to be right. But China is a big modern nation. It’s got this huge population and this huge modernity that has come in the last 30 years. We invested some money in China because we could get more value in terms of the strength of the enterprise on the price of the security than we could get in the United States. Other people, including Sequoia, the leading venture capital firm in the United States, have made the same decision we have.

But I’m sympathetic to Gundlach. If he’s nervous, he doesn’t have to join us. Different folks have different opinions. I feel about Russia the way he feels about China. I don’t invest in Russia so I can’t criticize Gundlach’s point of view. I just reached a different conclusion.

Question: Charlie, you and Warren have been making concentrated investments since the 1950s. Many of these investments have led to gains but, even more impressively, none of them have led to significant losses. As far as I can tell, neither one of you has lost more than a few percentage points of equity on any single investment. Daily Journal has recently bet a large amount of its capital on Alibaba and foreign-traded stock. It’s also taken on an additional $40 million in margin debt to make these investments. What makes you so sure that these investments won’t lead to a substantial impairment of Daily Journal’s equity capital which would impact the company’s ability to reinvest the resources needed to develop the company’s software operating business?

Charlie Munger: Of course, if you invest in marketable securities, you have the risk of them going down and you’ll lose money instead of making it. If you hold a depreciating currency, that’s losing purchasing power. On balance, we prefer the risks we have to those we’re avoiding and we don’t mind a tiny little bit of margin debt.

Question: As a Daily Journal owner, do we own local shares of Alibaba? Does that actually give us legal ownership of that business or do we have a variable interest? Is that the same? Net-net, what do we own?

Charlie Munger: When you buy Alibaba, you do get sort of a derivative. But assuming there’s a reasonable honor among civilized nations, that risk doesn’t seem all that big to me.

Question: It’s becoming quite evident that Chinese companies could be banned from doing business in the Western world, or maybe some of the Eastern countries too, because of the number of the following reasons: 1) the security threat issues, 2) the potential conflict over Taiwan, 3) inability to meet Western accounting standards, and 4) human rights issues. Considering all of the risks mentioned above, why would anyone as smart as Munger or Buffett consider investing in China or any of the Chinese companies?

Charlie Munger: Well, we did it for a very, very simple reason. We got more strength per dollar invested in China. The companies we invest in are stronger relative to their competition and priced lower. That’s why we’re in China.

Question: Although the financials seem strong, do the political pressures from the Chinese government worry you at all?

Charlie Munger: Well, the Chinese government is worrying all the capitalists in the world way more than it used to. Of course, we don’t like that. We wish that China and the United States got along better. If you stop to think about it, think about how massively stupid both China and the United States have been in allowing the existing tensions to arise. What bad is ever going to happen to China or the United States if we two are close? If we make good friends out of the Chinese and vice versa, who in the hell is ever going to bother us? Of course, we should make friends with China. Of course, we should learn to get along with people who have a different system of government.

We like our government because we’re used to it and it has advantages of personal freedom. China could never have handled its life with a government like ours. They wouldn’t be in the position they’re in. They had to prevent 500 million or 600 million people from being born in China. They just measured the women’s menstrual periods when they came to work and aborted those who weren’t allowed to have children. You can’t do that in the United States. It really needed doing in China. And so they did what they had to do using their methods. I don’t think we should be criticizing China, which has terrible problems, because they’re not just like the United States. They do some things better than we do.

They should like us and we should like them. I think nothing is crazier than people who foment resentments on either side of that one.

Question: How do you think the Ukraine situation will be resolved in your opinion?

Charlie Munger: I have no insight that’s any better than anybody else on that one. Most of these things in the days when both parties have huge numbers of hydrogen bombs get resolved because the alternative is so awful that even an idiot can see that the question will be resolved. That’s the way it’s worked so far and I hope it keeps working that way.

We live in epoch nucleana. We’ve gotten an absence of world wars for a long time because we had these nuclear weapons. It’s been a blessing to humanity. But it does make you nervous every once in a while and it’s quite irresponsible when the leaders in the modern age get tensions over border incidents and so forth.

Question: You said that we should partner up with China. Does it concern you to see Russia partnering up with China and that relationship getting a little closer?

Charlie Munger: It’s hard to think of anything that’s more stupid. Both sides are doing it. The political leaders on each side are trying to make points with their own constituencies by showing how tough they are. That is massively stupid on both sides.

Question: Alibaba is a top three holding for you. It sells at a steep discount to its US peers—best comparable is Amazon which is triple Alibaba’s P/E. What discounts should US investors seek when buying Chinese stocks considering the political, regulatory, and especially the ownership structure risk? And considering the fortune Berkshire made on your BYD suggestion, why doesn’t Buffett buy Alibaba?

Charlie Munger: Warren, like many other intelligent people, likes to invest where he’s personally comfortable. For some reason, I’m more comfortable with the Chinese than he is. That’s a minor difference.

I have all kinds of places where I’m just like Warren and I have all kinds of things where I’m not comfortable and I just don’t go near them. I think an old guy is entitled to invest where he wants to invest. It’s okay to have some things that you just don’t want to bother with.

I don’t think Alibaba is as entrenched as something like Apple and Alphabet. I think the internet is going to be a very competitive place even if you’re a big internet retailer.

Question: Crypto is a $2 trillion asset class. Are you willing to admit you missed something?

Charlie Munger: Well, I certainly didn’t invest in crypto. I’m proud of the fact I’ve avoided it. It’s like, you know, some venereal disease or something. I just regarded it as beneath contempt. Some people think it’s modernity, and they welcome a currency that’s so useful in extortions, kidnappings, tax evasion, and so on. And, of course, the envy… everybody has to create their own new currency. I think that’s crazy, too. I’m not having it. I wish it had been banned immediately. I admire the Chinese for banning it. I think they were right and we’ve been wrong to allow it.

Question: You’ve been warning of the evils of cryptocurrencies in the past. How do you feel about the Federal Reserve preparing to launch a central bank digital currency? Do you think that this will be beneficial or harmful to the strength and resilience of our markets?

Charlie Munger: No, no, the Federal Reserve could have a currency if they want one. We’ve got a digital currency already. It’s called a bank account. The banks are all integrated with the Federal Reserve system. We already have a digital currency.

Question: Two years ago at this meeting, you said: “I think there are lots of troubles coming. There’s too much wretched excess.” Since that meeting, we have seen something like 860 SPACs, IPOs like Rivian and Robinhood, and the GameStop phenomenon. I can’t imagine you’ve changed your mind. I wonder what your favorite story of wretched excess is from the last year?

Charlie Munger: Certainly, the great short squeeze in GameStop was wretched excess. Certainly, the Bitcoin thing is wretched excess. I would argue that venture capitalists are throwing too much money too fast. There’s considerable wretched excess in venture capital and other forms of private equity.

We have a stock market that some people use as a gambling parlor. There are transactions of the people who love the gambling parlor aspect of the business and those who want to make long-term investments, take care their old age, and so forth. Model that in one market and it goes out of control because the stock market becomes an ideal gambling parlor activity. I don’t think that ought to have been allowed either. If I was the dictator of the world, I would have some kind of attacks on short-term gains that made the stock market very much less liquid and drove out this marriage of gambling parlor and legitimate capital development of the country. It’s not a good marriage and I think we need a divorce.

Question: How would a divorce work?

Charlie Munger: Well, you’d have to have some kind of a rule that just made stocks way less liquid. We have all the real estate we want, all those shopping centers and auto agencies, and so forth, without having a perfect liquid market. We would have a stock market that was way less liquid. When I was young we had a stock market that was way less liquid. When I was at Harvard Law School we seldom traded a million shares on a day and now we trade billions. We don’t need a stock market that liquid. What we’re getting is wretched excess and danger for the country.

Everybody loves it because it’s like a bunch of people at a party having so much fun getting drunk that they don’t think about the consequences. We don’t need this wretched excess. It has bad consequences. You can argue that the wretched excesses of the 1920s gave us the Great Depression and the Great Depression gave us Hitler. This is serious stuff. A lot of people like a drunken brawl and so far those are the people that are winning. A lot of people are making money out of our brawl.

Question: You mentioned we’re in a big bubble. Can you elaborate on that and how is this likely to play out?

Charlie Munger: I think eventually there will be considerable trouble because of the wretched excess. That’s the way it usually worked in the past. But when it’s gonna come and how bad it will be, I can’t tell you.

Question: Charts, technicals, momentum, and AI seem to dominate the market these days. Are old-school Ben Graham valuation methods dead?

Charlie Munger: They’ll never die. The idea of getting more value than you pay for, that’s what investment is. If you want to be successful, you have to get more value than you pay for. So it’s never going to be obsolete.

Now, you can get a whole body of people that don’t really know what they’re buying. They’re just quotations on a ticker.

Think of the past crazy booms and how they worked out. The South Sea bubble, the bubble in the late 1920s, and so on. We’ve had this—crazy bubbles—since the dawn of capitalism.

Question: Do you think it’s likely that we will experience a major increase in interest rates in the upcoming decades? Like, for example, in the period between 1950 and 1980?

Charlie Munger: That, of course, is a very intelligent question and a very difficult question. When you print money on the scale that modern nations are printing it—Japan, United States, Europe, etc.—we’re getting into new territory in terms of size. The Japanese bought back not only a lot of their own debt, but a lot of their common stocks. You can’t imagine how much money printing Japan has done. They haven’t had all that much inflation. It’s still a very admirable civilization. In fact, you could argue that Japan is one of the more admirable civilizations in the whole world. And in spite of all this very extreme government money printing they’ve done, they haven’t had terrible consequences.

Now, they’ve had 25 years of stasis with living standards not improving very much. I don’t think that came from their macroeconomic policies. I think that came from the rise of tough competition for their export powerhouse from China and Korea. But at any rate, it’s weird what’s happening, and nobody knows for sure how it’s gonna work out.

I think it’s encouraging that Japan can print as much money as it has and remain as civilized and admirable as it has. So I hope to God the United States has a similar happy outcome but I think the Japanese are better adapted for stasis than we are. I think it’s a duty-filled, civilized bunch of people—a lot of them older, not many young people. They just suck it in and cope.

In our country, we have terrible tensions. It’s way harder to run a country that is not mono-ethnic like Japan.

There’s some professor at Harvard that has written extensively on this subject. It’s way harder to run a nation like the United States— with different ethnicities, groups, and so forth—than it is to run Japan. Japan is basically sort of a mono-ethnic civilization that is proud of its ethnicity. Of course, they can cope with troubles better than some other people can.

There’s never anything quite like what we’re doing now. We do know from what’s happened in other nations that if you try to print too much money, it eventually causes terrible trouble. We are closer to terrible trouble than we’ve been in the past but it may still be a long way off. I certainly hope so.

Question: What are your current thoughts on the inflationary environment? Please compare and contrast it to the 1970s.

Charlie Munger: When Volcker, after the 1970s took the prime rate to 20% and the government was paying 15% on US government bonds, that was a horrible recession. Lasted a long time, caused a lot of agony. I certainly hope we’re not going there again.

The conditions that allowed Volcker to do that without interference from politicians were very unusual. In twenty-twenty hindsight, it was a good thing that he did it. I would not predict that our modern politicians will be as willing to permit a new Volcker to get that tough with the economy and bring on that kind of recession.

So I think the new troubles are likely to be different from the old troubles. You may wish you had a Volcker-style recession instead of what you’re gonna get. The troubles that come to us could be worse than what Volcker was dealing with. And harder to fix.

Question: Like what?

Charlie Munger: Think of all the Latin American countries that print too much money. They get strongmen and so forth. That’s what Plato said happened in the early Greek city-state democracy. One person, one vote, a lot of legalities, and you get demagogues, and the demagogues lather of the population, and pretty soon you don’t have your democracy anymore.

I don’t think that was a crazy idea on Plato’s part. It accurately describes what happened in Greece way back then. It’s happening again and again in Latin America. We don’t want to go there. At least I don’t.

Question: Conventional economic theory argues that excessive monetary and fiscal stimulus over the last two years has triggered the highest inflation in 40 years. Do you broadly agree with this thesis? And more importantly, do you think there will be a high economic price to pay as the Fed attempts to bring inflation back under control?

Well, the first part I agree with. We’ve done something pretty extreme. And we don’t know how bad the troubles will be—whether it’ll gonna be like Japan or something a lot worse. What makes life interesting is that we don’t know how it’s gonna work out. I think we do know we’re flirting with serious trouble. I think we also know that some of our earlier fears were overblown. Japan is still existing as a civilized nation in spite of unbelievable excess by all former standards in terms of money printing.

Think of how seductive it is. You have a bunch of interest-bearing debts and you pay them off with checking accounts on which you’re no longer paying interest. Think of how seductive that is for a bunch of legislators. You get rid of the interest payments and the money supply goes up. Seems like heaven. Of course, when things get that seductive, they’re likely to be overused.

Question: How will this all play out? And what’s the best advice you have for individual investors to optimally deal with the negative impact of inflation other than owning quality equities?

Charlie Munger: Well, it may be that you have to choose the least bad of your options. That frequently happens in human decision making. The Mungers have Berkshire stock, Costco stock, Chinese stocks through Li Lu, a little bit of Daily Journal stock, and a bunch of apartment houses. Do I think that’s perfect? No. Do I think it’s okay? Yes. I think the great lesson from the Mungers is that you don’t need all this damn diversification. You’re lucky if you got four good assets. If you’re trying to do better than average, you’re lucky if you have four things to buy. To ask for 20 is really asking for egg in your beer. Very few people have enough brains to get 20 good investments.

Question: Which part of Berkshire Hathaway bought the Activision Blizzard stake and did Berkshire have any inkling about the likely Microsoft bid for Activision Blizzard?

I got no comment about that, except that I really like Bobby Kotick. He’s one of the smartest business executives I know. I do think gaming is here to stay. But there again, I’m an old man, I don’t like a bunch of addicted young males spending 40 hours a week playing games on the TV. It does not strike me as a good result for civilization. I don’t like anything which is so addictive that you practically give up everything else to do it.

Question: Could you please ask [Charlie’s] views on the metaverse and the recent acquisition of Activision Blizzard? Was this something that Charlie Munger had any input on? Does he think that there is value in the metaverse, or is this something similar to the bitcoin and cryptocurrency hype?

Charlie Munger: Without any Metaverse, just the existing technology of games on the internet, Activision Blizzard and a lot of other companies have gotten very large. Some of the games are kind of constructive and social and others are very peculiar. Do you really want some guy 40 hours a week running a machine gun on this television set? I don’t. But a lot of the games are harmless pleasure. It’s just a different technique of doing it. I like the part of it that’s constructive but I don’t like it when people spend 40 hours a week being an artificial machine gunner.

Question: Recent appointees, Lina Khan, as Chairwoman of the FTC, and Jonathan Kanter, as Assistant Attorney General of the antitrust division of the Justice Department, have each pledged to follow an aggressive approach to antitrust enforcement. Do you believe there’s a need for new antitrust legislation and/or more stringent antitrust scrutiny with respect to the largest technology companies?

Charlie Munger: I think what’s happened is so important and so tied up with national strength that I’m not trying to weaken the internet companies in the United States. I like the fact that we have strong national champions that are big, strong companies. I think other nations are proud of their big strong companies too. So I don’t think bigness is bad in the United States. I don’t want the whole internet to be dominated by foreign companies. I want big, strong American companies that stand well in the world. So I’m not as worried about antitrust aspects of the internet.

Question: Are you worried about the aspects of antitrust breaking it down, though?

Charlie Munger: There’s no question about there going to get more attacks from the present administrators than they got from the previous ones. Doesn’t worry me that much, no. I don’t think it’ll have that much practical consequence.

Question: Currently, Congress is considering legislation to address the trading and ownership of individual stocks by members of Congress. What are your views on this subject?

Charlie Munger: I don’t think we’ve had big serious, moral lapses in Congress. Maybe a fairly scattered minor amount of minor miscreancy., So I’m not much worried about it.

Question: In the past, you’ve stated that the USA should keep all oil and gas production domestic and let the rest of the world deplete the supplies of other exporters. Do you still believe that position has merit? What’s your opinion of President Biden’s position on oil and gas energy production here in the USA, given that he’s canceled the Keystone pipeline and is curtailing drilling on Bureau of Land Management lands? Is this just a concession to the green progressives? Will we ever have a stable supply of renewable energy given the issues of wind power we’ve seen in Europe and do you believe there’ll be enough renewable electricity generation capacity to offset the use of coal and petroleum to generate electricity?

Charlie Munger: That’s a lot to talk about. There is no question about the fact that we’ve got a lot of renewable energy we can get from solar and wind and it’s gotten pretty efficient and competitive. I am in favor of conserving the hydrocarbons instead of using them up as fast as possible. I’m in favor of all this new generating capacity, now that it’s gotten so efficient from solar and wind.

If there were no global warming problem, I would be in favor of exactly what the government is now doing which is encouraging a hell of a lot more solar and wind. I think it’s would be smarter to do that just to conserve the petroleum.

The petroleum has enormous chemical uses in fertilizers, chemistry, and so on. It’s precious stuff. I don’t mind having a good part of it that remains in the ground. It’s a good place to store it. I regard the petroleum in the United States about the way I regard the black topsoil of Iowa: I regard it as a national treasure. Just as I am not in favor of sending all the topsoil down and dumping it in the ocean, I’m not in favor of using up all the petroleum as fast as possible. So I love the idea of conserving the natural resources. They’re all going to be used eventually. I’m in no hurry to use them up rapidly. That is a very unusual attitude, but it’s mine.

I’m very encouraged by how much energy we can get that is renewable from solar and wind with modern technology. We have a huge potential of getting renewable energy that way. I think now that it’s so efficient, we ought to go ahead and do it.

I’ll be very surprised if global warming is going to be as bad as people say it’s going to be The temperature of the Earth went up, what, one degree centigrade in about 200 years. It’s a hell of a lot of coal and oil that was burned and so forth. It was one degree. I’m just skeptical about whether it’s as bad as these calamity howlers are saying.

Question: Berkshire recently announced plans for an in-person annual meeting. What are your and Warren’s thoughts on COVID and Omicron, both here in the United States and around the world? And then in terms of the Berkshire meeting, will attendees be required to show proof of vaccination to enter the arena?

Charlie Munger: I’m not sure that’s all even been decided. We’re gonna make it a real meeting if we can. That’s the current plan. My personal guess is it’s going to happen.

If we get lucky [COVID] will fade away to a minor problem. We kill 30,000 people a year with flu in the United States. Suppose that was 60,000 including on Omicron, you know? I think we get used to it.

Question: The pandemic has made the difference between big business and small business more clear than ever. It also made it harder than ever for small businesses to thrive. All businesses were ordered to close in some states where you had Home Depot and Stop & Shop stop were allowed to operate. Do you think that we will ever see small businesses have a more even playing field or is this a never-ending spiral down the rabbit hole until there’s nothing but big business left?

Charlie Munger: I think we will have small business as far ahead as you can see. If you stop to think about it, every shopping center is full of small business. Now they’re not as flourishing as they were a while ago but we’re not going to get rid of small business in the United States.

In a sense, we need the big business. It makes sense to have something like Apple and Alphabet as big as they are and serving as well as they’re doing. And just as I didn’t mind AT&T when it ran the whole television network, I don’t mind Apple or Alphabet being a big company. I’m not worried about having some big companies and a lot of small ones. I think that’s our system.

Question: Do you think it’s an uneven playing field right now? the Russell 2000 is more than 15% off its all-time high right now. It’s had a pretty rough go, especially in recent months.

Charlie Munger: If you start to think about it, my way in life was not predicting little short-term differences between the Russell index and the Standard and Poor’s index. I don’t have any opinion about which index is better at a given time. I never even think about it. I’m always just looking for something that’s good enough to put Munger money in, or Berkshire money in, or Daily Journal money in.

I figure that I want to swim as well as I can against the tides. I’m not trying to predict the tides.

If you’re gonna invest in stocks for the long term, or real estate, of course there are going to be periods when there’s a lot of agony and other periods when there’s a boom. I think you just have to learn to live through them.

Kipling said: “treat those two impostors just the same.” You have to deal with daylight and night. Does that bother you very much? No. Sometimes it’s night and sometimes it’s daylight. Sometimes there’s a boom and sometimes there’s a bust. I believe in doing as well as you can and keep going as long as they let you.

Question: Do the great tech giant franchises of our day, specifically Microsoft, Apple, and Alphabet, have the same long-term durability that Coca-Cola had 30 to 40 years ago?

Charlie Munger: It’s a lot easier to predict who flourished in the past because we know what happened in the past. But now I want to compare what’s gonna happen in the future. Of course, that’s harder.

It’s very hard for me to imagine—that doesn’t mean it couldn’t happen—but I would expect Microsoft, Apple, and Alphabet to be strong 50 years from now—really strong, still strong. But if you’d asked me when I was young what was gonna happen to the department stores that went broke or the newspapers which were broke, and so on, I wouldn’t have predicted that either. I think it’s hard to predict how your world is going to change if you’re going to talk about 70, 80, 90 years.

Just imagine, they wiped out the shareholders of General Motors, they wiped out the shareholders at Kodak. Who in the hell would have predicted that? This technological change can destroy a lot of people. It’s hard to predict for sure in advance.

But the telephone company is still with us. It’s just a different way of doing it. Some things remain and some vanish.

Question: Much media attention has been focused on the large numbers of Americans who’ve resigned from their jobs over the last year. What do you make of this trend?

Charlie Munger: This is a very interesting thing that the pandemic has given us. An awful lot of people have gotten used to not being in the office five days a week. I think a lot of those people are never going back to five days a week. It’s amazing the percentage of the people in computer science that don’t want to be in the office for a normal life. They want to do a lot of it from locations that are more convenient to them. I think a lot of that’s going to remain forever.

I don’t think the average corporation is going to fly its directors around so they can sit at the same table for every meeting of the year. Maybe it will have two meetings where the directors are together. By the way, Berkshire’s directors have done that forever. The Berkshire directors have met face to face twice a year forever and done everything else on the telephone or with consent minutes. It’s worked fine for Berkshire. I don’t think we needed all these goddamn meetings and airplane flights. So I think part of what’s happening is quite constructive. You’ll make life simpler, cheaper, and more efficient. I don’t think we’re going back for some kind of work.

Now, on the other hand, they made the welfare so liberal of helicoptering this money out. It was just hell to even man your restaurants so you can serve the patrons. I think we probably overdid that a little. I think Larry Summers is quite possibly right that we overshot a little with some of the stimulus. It would have been smarter to do a little less.

If you stop to think about it, what makes capitalism work is the fact that if you’re an able-bodied young person and you refuse to work, you suffer a fair amount of agony. It’s because of that agony that the whole economic system work. The only effective economies that we’ve had that brought us modernity and the prosperity we now have, they imposed a lot of hardship on young people who didn’t want to work. If you take away all the hardship and say you can stay home and get more than you’ll get if you come to work, it’s quite disruptive to an economic system like ours. The next time we do this, I don’t think we ought to be quite so liberal.

Question: What advice would you give to CEOs seeking to retain their employees?

Charlie Munger: Every CEO I know is adapting somewhat to some people who work differently than they did in the past. So I think some of these changes are here forever. If your job in life is to get on the telephone and talk to other engineers all over the world while you solve problems, why do you have to do it from an office? The commutes get harder and harder with more traffic and it’s harder and harder to handle more traffic and more people. It may be a good thing that more people are going to commute less.

Question: There are many examples of public company executive compensation programs that produce misaligned outcomes for executives and for shareholders. What are some of the most important compensation-related changes investors and boards of directors could make to create a better alignment of interests between the shareholders and the management?

Charlie Munger: You’re talking about what the economists call agency problems. If you’re managing your own affairs, you’re going to be pretty efficient taking care of your own property. If you’re working for somebody else, the truth of the matter is you care more about yourself, your future, and your family than you care about the telephone company you’re working for. So capitalism is efficient when people who are making the decisions are doing it for their own property instead of just as hired employees of some state-owned enterprise. That’s just the way it is.

It’s just amazing to me how important it is to have a majority of the property of a civilization owned by somebody who’s in charge of caring for it. That way the property is properly taken care of. When the Chinese went away from collectivist agriculture and let each peasant have his own plot of land where he got to keep the crop after his costs, the grain production went up 60% the first year.

Now, who in the hell would want collectivist agriculture when it was that inefficient compared to capitalist agriculture? Well, the Chinese communists decided, “to hell with this communism when it comes to collectivist agriculture.” They’d rather have the extra 60% of the grain production. And they just changed the whole system. I greatly admire what they did. I think Deng Xiaoping is going to go down as one of the greatest leaders that any nation ever had. Because he had to give up his own ideology to do something else that worked better. You don’t see the Catholic Cardinals suddenly deciding there’s no afterlife. But that’s what Deng Xiaoping did. He gave up his ideology, his communist ideology, in order to make the economy work better. And being an absolute ruler, he could arrange it. He brought that whole nation out of poverty into prosperity over the course of 30 years after he made the decision. That is a very admirable thing to have done.

It was kind of a miracle. It’s just amazing how well capitalism has served the communist Chinese. Deng Xiaoping called it “communism with Chinese characteristics”. He meant one party government but with most of the property in private hands and a fair amount of free enterprise. That’s what he meant when he said “communism with Chinese characteristics”. I don’t care what he calls it. He was right. It was a marvelous thing to have done for China. And it worked wonderfully well. We shouldn’t be trying to transfer more and more functions to the government.

Question: How do you value Mr. Gensler and the SEC’s role in protecting the integrity of the American financial system?

Charlie Munger: It’s hard to fix. What happens, of course, is that people rationalize their own way of making a living. There’s some moral compromise in most activities that people are in where they make a living, particularly so in things like finance, wealth management, and so forth. Of course, the people making the decisions care more about their own families than they care about the people’s money they’re managing. That’s just the way human beings are constructed. That means that when you hire somebody else to manage your money, to take care of your old age, it’s very hard to get the job done right. It’s very difficult.

Nowadays, every director in a big company gets $300,000 a year. We arranged all this wonderful independence. A man who needs $300,000 extra year as a director is not independent. The one thing you can guarantee is he’ll try to stay a director. I don’t think that’s an ideal system. I don’t think there’s anything easy to do about it. I just think it’s hard to get things managed as well as they should be.

In the early days of my life, I was a little bit on the fringes of the motion picture industry. And I would say practically everyone sort of took advantage of the shareholders. That was just the culture. That is just deeply into human nature that people are going to behave that way. It makes it hard to run a proper civilization.

Look at the Daily Journal; Charlie Munger age 98, Gerry Salzman age 83. Enormous delegations of powers to Gerry Salzman. As I say, the Berkshire Hathaway system of managing a subsidiary is just short of abdication. Look at how well it’s worked.

Of all the newspapers in the United States, most of them are going out of business. The Wall Street Journal will survive. The New York Times will survive. The digital newspaper of Thomson Reuters will survive. But most of the newspapers are gonna go out of business. And yet, in that climate, this little Daily Journal is one business dying, we have all this liquid wealth and marketable securities, and we got another business that we’re trying to make into a respectable big business. It’s quite an achievement. If there were 500 newspaper companies there are maybe two or three that have a result like that.

Look at how old the people are that have done it. Neither Gerry nor I ever took one penny out of the Daily Journal all the years we worked here. No director’s fee, no president’s fees, no expenses, no nothing. Gerry’s been a miracle. Wearing five or six different hats at once and so far doing everything. Berkshire has like 30 people in headquarters who aren’t internal auditors. Look at how well Berkshire has done.

It’s hard to run a bureaucracy that doesn’t get terrible slowness and terrible waste. It’s a very serious problem. Think of the big bureaucracies that have died: US Steel, Eastman Kodak, Federated Department Stores, Sears Roebuck. And yet some things have come through and survived. In some cases, the whole business had to die and they had to take the capital out and own a new business to survive. That’s what Berkshire did. Look at the three companies that Berkshire had. They all went out of business. And yet, we wrung enough money out of them before they died. Berkshire now has more audited net worth on its balance sheet than any other corporation in the United States. Now, that’s weird.

We don’t have this bureaucracy that other places have. There isn’t anybody at headquarters to be bureaucratic. Just a little handful of people running an Empire. I don’t think there’s any chance that the rest of the world is going to be like Berkshire. I think we were kind of a fluke that lasted for a while.

The Daily Journal is a mini Berkshire. What are the chances that a little newspaper in Los Angeles would be as prosperous as it is after all this struggle which is making all the other newspapers go broke?

By the way, we’re gonna miss these newspapers terribly. Each newspaper—all those local monopolies—was an independent bastion of power. The economic position was so impregnable, they were all monopolies. The ethos of the journalists was trying to tell it like it is. They were really a branch of the government. They call them the Fourth Estate, meaning the fourth branch of the government. It arose by accident. Now about 95% of them are going to disappear and go away forever.

What do we get in substitute? We get a bunch of people who attract an audience because they’re crazy. I have my favorite crazies, you have your favorite crazies, we get together and all become crazier as we hire people to tell us what we want to hear. This is no substitute for Walter Cronkite and all those great newspapers of yesteryear. We have suffered a huge loss here. It’s nobody’s fault. It’s just the creative destruction of capitalism. But it’s a terrible thing that’s happened to our country. Having these new journalists come in and tell the nuts on each side—the right-wing nuts and the left-wing nuts—only what they want to hear and slant all the facts so that they hear a lot of stuff that isn’t so, this is not good for our republic. I don’t have the faintest idea what to do about it.

I sometimes think maybe we should have a third party. In almost every state now—doesn’t matter whether the Democrats and the Republicans are in charge—they rejigger all maps so everybody has a safe district. And now we get these permanent careerous people with their safe districts. The only fear they have is in the primary they face a nut who might throw them out. And every 10 years or so, the nutty rightists and the nutty leftists get together, and maybe there are 10 sane people in the California legislature, they throw them out. One group of nuts throws out people in the middle and does the other. One thing they can both agree on is they don’t want any balanced sensible people in the legislature.

This is a very peculiar kind of government. This was not our ideal when we went to democracy. But it’s what has happened and it’s getting worse and worse. It’s quite serious. I don’t have the faintest idea what we’re going to do about it.

Question: How do we fit it?

Charlie Munger: Well, you could have a third party. We did that once before. We got rid of slavery. Maybe we’ll get a third party. There are members of Congress who have some little organization, maybe there are 40 of them. And they say, “we’re the sane core.” They’re half Republican and half Democrats. I welcome anything like that. We may need a new party. This thing is getting so dysfunctional and the people hate each other so much that it’s just not constructive.

How would you like to have your life as full of hatred as the average state legislature? They really don’t like or trust each other at all.

My generation after World War II said, “politics stop at the water edge”, and we took our enemies. Japan had marched our soldiers to death, Hitler and killed all the Jews and also slaughtered everybody, and we made our best friends on Earth practically of the Germans and the Japanese. That was a real achievement. Can you imagine our legislators doing anything like that?

Question: How do you see the value proposition of college certificates and degrees for future students and the role of the federal government in terms of increasing Pell Grants, student loans, and student debt forgiveness?

Charlie Munger: That’s another complicated subject. One of the glories of modern civilization is modern education. The American universities have been perfectly marvelous in their achievements, and modern technical civilization has been perfectly marvelous in its achievements. We owe a lot to all the free education we provided and we probably ought to do more of it. However, the way we’re constructed, we’ve had a lot of for-profit educators pretending to educate the people who weren’t really very educated, and then they send the bills to the federal government. So there’s been a fair amount of disreputable private education that kind of lured people in with dreams and cheats them. That’s not a creditable part of the past. We’re gonna end up with more public education.

Once you start a social safety net, everybody wants more and more of it. The people have the loans, they want the loans forgiven. It gets to be a big body of people clamoring for money.

Benjamin Franklin was suspicious. He said, “when the citizens of our Republic learn they can vote themselves money, the end of the Republic is near.” Well, it may not be as near as Benjamin Franklin’s thought, but it’s probably closer to the end than we were 200 years ago.

It is not good when everybody wants to get their money by a lot of government help.

Question: What was it specifically that prompted the idea for windowless dorm rooms? Please walk us through this decision. This is in regards to your design for student housing.

Charlie Munger: Nobody in his right mind would prefer a blank wall in a bedroom to a wall with a window in it. The reason why you take the windows out is that you get something else from the design considered as a whole. If you stop to think about it big cruise ships have huge shortages of windows in bedrooms because too many of the rooms are either below the waterline or they’re on the wrong side of the aisle. So in the very nature of things you get a shortage. You can’t change the shape of the ship. You have to do without a lot of the windows to have a ship that’s functional. That’s required by the laws of hydrodynamics.

So we get the advantage of a big ship but it means a lot of the rooms can’t have windows. Similarly, if you want a bunch of people who are educating each other to be conveniently close to one another, you get a shortage of windows. In exchange, you get a whole lot of people who are getting a lot of advantage from being near one another, and they have to do without a real window in the bedroom. It doesn’t matter. The air can be as pure as you want and the light that comes in through an artificial window can mimic the spectrum of daylight perfectly.

It’s an easy trade off. You pay $20,000/week or something on a big cruise ship to have a room with an artificial window. For a long time on a Disney cruise ship, they had two different kinds of window rooms, one with a window and one without a window. They got a higher price in rent for the one with an artificial window than they got for a real one. In other words, they reduce the disadvantage to zero. In fact, they made it an advantage.

So it’s a game of trade offs. That poor pathetic architect who criticized me is just an ignoramus. He can’t help himself. I guarantee the one thing about him is that he’s not fixable. Of course, you have to make trade offs in architecture.

Question: You recently talked about bubbles and high valuations. Is Costco a part of that? Costco has never traded at a higher price-to-sales or price-to-earnings multiple. How should new investors think about Costco given its record run?

Charlie Munger: Well, that’s a very good question. I’ve always believed that nothing was worth an infinite price. Even an admirable place like Costco could get to a price where you would say that’s too high.

But I would argue that if I was investing money for some sovereign wealth fund or some pension fund with a 30,40, 50-year time horizon I buy Costco at the current price. I think it’s that strong an enterprise and that admirable place.

I can’t bring myself with my habits to pay these big prices. But I never even think about selling a share of Costco just because it’s selling at a high price.

If you stopped to think about it, I bought at Christmas time a flannel shirt, a bunch of flannel shirts at Costco. They cost $7 each, more or less. It was a soft flannel, it was better, and so forth. And then I bought pants—I think they were Orvis pants—and I paid like $7. They stretch around my waist and they’re partly water-resistant, what have you.

Costco is going to be an absolute titan on the internet from curated products that everybody trusts and huge purchasing power on an unlimited number of stocking units. I’m not saying I’m buying Costco at this price, but I’m certainly not selling any. I think it’s gonna be a big powerful company as long as far ahead as you can see. And I think it deserves that success. I think it has a good culture and a good moral ethos. So I wish everything else in America is working as well as Costco does. Think what a blessing that would be for us all.

Question: Can you please update us on your view of 3G Capital and zero-based budgeting? Has your thinking evolved over the last five years?

Charlie Munger: If you have a very rich corporation, human nature will get a lot of bureaucracy and a lot of excess cost in it. A lot of meetings and so forth. There’s huge waste in that. In fact, a lot of the extra meetings make you worse off, not better off. So you’re not only spending a lot of extra money. It’s not like you aren’t getting as much as you’re paying for. Many places, after they run out 30% of the excess costs, they run better than they did before. In other words, getting rid of the people and changing things around runs better, not worse. So there’s a lot of overmanning in big successful places. It’s human nature that people kind of relax a little when they get prosperous and so forth.

I had a friend who was with a corporation with headquarters in Europe. They would fly him from Los Angeles to Europe on a Concorde. It cost them $100,000 just to take one director from Los Angeles to Germany and back. I mean, the excess just creeps into these places. Of course, it isn’t good.

On the other hand, you can cut too much. There should be some mercy for people who have been around a long time and have served well in the past. So you don’t necessarily want 100% perfect efficiency. But you wouldn’t want to rule that nobody could ever go to some overmanned place and cut out on a lot of the fat.

The directors’ table in the Heinz corporation cost $600,000. The goddamn directors’ table. The directors’ table at Costco cost about $300. Different places, different ethos. If you get fat like that, somebody like 3G comes along and says “I was to buy you and get you back to normal.” Of course, it’s possible to overcut. But my guess is there’s a lot of fat in a lot of successful places. Think of the fat in the average rich family.

I don’t think we want unlimited fat in these places. But on the other end, we don’t want too much brutality. It’s complicated like everything else.

Question: What impact has passive investing had on stock valuations?

Charlie Munger: That’s another thing that’s coming. We have a new bunch of emperors. They’re the people who vote the shares in the index funds. Maybe we can make Larry Fink and the people at Vanguard Pope.

All of a sudden, we’ve had this enormous transfer of voting power to these passive index funds. That is going to change the world. I don’t know what the consequences are gonna be, but I predict it will not be good. I think the world of Larry Fink, but I’m not sure I want him to be my emperor.

Question: Who will fill the gap of lending to global governments after quantitative easing ends? As an example, as FOMC paper matures and rolls off their balance sheet, where would the additional money needed to run governments come from? Who’s the lender and at what expected rate?

Charlie Munger: That’s a big problem because the government has been living by land sales. They’ve had a boom by shrinking that sector a little. It’s creating an awkward problem.

In the United States, we have a hugely strong economy and a hugely strong technical civilization. That’s not going away—the knowledge and so forth. You can’t believe what a modern factory looks like when you fill it with robots. That’s coming more and more, and it’s coming to China too for that matter. Those trends are inevitable.

I don’t know how it’s all gonna play out but I think it does create adjustment problems. If you have a fine unionized job, and they replace you with a robot, you got a difficult problem.

If you’ve got a company like Kodak and they invent something new that obsoletes your product, you have a problem too, and you solve that by dying. A lot of people don’t like that solution. I don’t much care for it myself

Question: Prior to the pandemic, it seemed like the US was getting used to borrowing and running revenue deficits of close to 20%. There are all kinds of reasons for this through multiple administrations of either party. Now we’re marching closer to the well-known demographic storm that will drive deficits still higher. We are currently running about a 33% total deficit if you include unfunded future Social Security and Medicare obligations. In the meantime, we’re headed to higher interest rate costs on top of our 30 trillion in debt. Today, interest comprises 6% of our spending and the potential to double or triple interest expense is only gonna make the problem worse. How can we get the public companies and politicians to recognize the seriousness of this problem and begin to take action?

Charlie Munger: Because all those problems are real and because it’s so tempting to get rid of your debt by just giving a guy a non-interest-bearing checking account where you used to have to pay him interest every month, not only do we have a serious problem, but the solution to it that is the easiest, for the politicians and for the Federal Reserve to for that matter, is just to print more money and solve the temporary problems that way. That, of course, is going to have some long-term dangers.

We know what happened in Germany when the Weimar Republic just kept printing money and the whole thing blew up. That was a contributor to the rise of Hitler. So all this stuff is dangerous and serious. We don’t want to have a bunch of politicians just doing whatever is easy on the theory that it didn’t hurt us last time so we can double it and do it one more time. Then we double it again, and so forth. We know what happens on that everlasting doubling, doubling, doubling. You will have a very different government if you keep doing that enough.

So you’re flirting with danger somewhere unless there’s some discipline in the process.

But I don’t regard Japan as in some terrible danger. They’ve done a huge amount of this and gotten by with it. I don’t think we’ll be as good at handling our problems as Japan is.

Question: If taxes were not an issue, what are your thoughts on going to cash today and waiting for better opportunities to deploy that cash over the next 12 months? Is it a sensible idea in your mind?

Charlie Munger: In my whole adult life, I’ve never hoarded cash, waiting for better conditions. I’ve just invested in the best thing I could find. I don’t think I’m going to change now. The Daily Journal has used up its cash.

Now, Berkshire has excess cash. Quite a bit of excess cash. But it’s not doing that because it knows how to time investments. He just can’t find anything he can stand buying.

So we don’t have a solution to your problem. We’re just coping with it as I’ve described.

Question: Given the valuation and market correction in early 2020, why is Berkshire not picking up or adding any new companies to its profile? Is the management getting too conservative with M&A? Of course, kudos to the team for picking up Apple shares a couple of years back. That’s paying off for sure.

Charlie Munger: The reason we’re not buying is that we can’t buy anything at prices we’re willing to pay. It’s just that simple. Other people are bidding the price up.

A lot of the buying is not done by people who really plan to own them. A lot of it is fee-driven buying. Private equity buys things so they can have more fees by having more things under management. Of course, it’s a lot easier buying something when you use somebody else’s money. We’re using our own money, or at least that’s the way we think of it.

By the way, it’s not a tragedy that Berkshire has some surplus money they’re not investing. And you can argue the little Daily Journal, what a good thing it was we had 30 million extra coming in from a foreclosure boom and that we invested it shrewdly. It gives us a lot of flexibility. And by the way, that piled-up money helps us in wooing these governmental bodies we’re selling the software to. We look more responsible with the extra wealth, and we are more responsible with the extra wealth.

The shareholders who are worried about the future because it looks complicated and difficult, I want to say to them what my old torts professor said to me. He’d say, “Charlie, tell me what your problem is and I’ll try and make it more difficult for you.” He did me a favor by treating me that way. I’m just repeating his favor to you.

When you’re thinking the thoughts you’re doing, at least you’re thinking in the right direction. You’re worried about the right things—all you people that are worried about inflation, the future of the Republic, and so forth.

Question: We have a 22-year old brilliant young neighbor. He’s achieved an internship at Tesla and GE and is currently a student at Purdue. He takes advantage of my 37 years in the oil field. I take advantage of his tech savvy. My inclination is to advise him to continually slow drip into monthly income and dividend investing as opposed to swinging for the fences in AI and growth stocks. What would you advise, sir?

Charlie Munger: I don’t think I have a one size fit all investment. I think some people are gifted enough that they can invest in hard-to-value, difficult things and I think other people would be very wise to have more modest ambitions in terms of what they choose to deal with. So I think you have to figure out your level of skill, or the level of skill your advisor has, and that should enter the equation. But to everyone who finds the current investment climate hard, difficult, and somewhat confusing, I would say, “welcome to adult life.”

It is hard. It’s going to be way harder for the group that’s graduating from college now. For them to get rich, stay rich, and so forth is going to be way harder than it was for my generation.

Think what it costs to own a house in a desirable neighborhood in a city like Los Angeles. I think we’ll probably end up with higher income taxes too, and so on.

I think the investment world is plenty hard. In my lifetime, 98 years, it was the ideal time to own a diversified portfolio of common stocks that updated a little by adding the new ones that came in like the Apples and the Alphabets and so forth. I’d say people got maybe 10 or 11% if you did that very intelligently before inflation and maybe 8 or 9% after inflation. That was a marvelous return. No other generation in the history of the world ever got returns like that. And I don’t think the future is gonna give the guy graduating from college this year nearly that easy an investment opportunity. I think it’s gonna be way harder.

Question: What worries you most about our economy and the stock market? And on the other hand, what makes you optimistic?

Charlie Munger: You have to be optimistic about the competency of our technical civilization. But there again, it’s an interesting thing. If you take the last 100 years, 1922 to 2022, most of modernity came in in that 100 years. And then the previous 100 years, that got another big chunk of modernity. Before that, things were pretty much the same for the previous thousands of years. Life was pretty brutal, short, limited, and what have you. No printing press, no air conditioning, no modern medicine.

I don’t think we’re going to get things that are in what I call the ‘real human needs’. Think of what it meant to get the steam engine, the steamship, the railroad, a little bit of improvement in farming, and a little bit of improvement in plumbing. That’s what you got in the 100 years that ended in 1922. The next 100 years gave us widely distributed electricity, modern medicine, the automobile, the airplane, the records, the movies, the air conditioning in the south. Think what a blessing it was.

If you wanted three children, you had to have six, because three died in infancy. That was our ancestors. Think of the agony of having to watch half your children die. It’s amazing how much achievement there has been in civilization in these last 200 years and most of it in the last 100 years.

Now, the trouble with that is that the basic needs are pretty well filled. In the United States, the principal problem of the poor people is that they’re too fat. That is a very different place from what happened in the past. In the past, they were on the edge of starving.

It’s really interesting. With all this enormous increase in living standards, freedom, diminishment of racial inequities, and all the huge progress that has come, people are less happy about the state of affairs than they were when things were way tougher.

That has a very simple explanation. The world is not driven by greed; it’s driven by envy. So the fact that everybody’s five times better off than they used to be, they take that for granted. All they think about is somebody else having more now and it’s not fair that he should have it and they don’t. That’s the reason that God came down and told Moses that he couldn’t envy his neighbor’s wife or even his donkey. I mean, even the old Jews were having trouble with envy.

So it’s built into the nature of things. It’s weird for somebody at my age because I was in the middle of the Great Depression and the hardship was unbelievable. I was safer walking around Omaha in the evening than I am in my own neighborhood in Los Angeles after all this great wealth and so forth. So and I have no way of doing anything about it. I can’t change the fact that a lot of people are very unhappy and feel very abused after everything’s improved by about 600% because there’s still somebody else who has more. I have conquered envy in my own life. I don’t envy anybody. I don’t give a damn what somebody else has. But other people are going crazy by it. And other people play to the envy in order to advance their own political careers.

We have whole networks now that want to pour gasoline on the flames of envy. I like the religion of the old Jews. I like the people who were against envy, not the people who were trying to profit from it.

Think of the pretentious expenditures of the rich. Who in the hell needs a Rolex watch so you can get mugged for it? Yet, everybody wants to have a pretentious expenditure. That helps drive demand in our modern capitalist society. My advice to the young people is: don’t go there. To hell with the pretentious expenditure. I don’t think there’s much happiness in it. But it does drive the civilization we actually have. And it drives the dissatisfaction.

Steven Pinker of Harvard is a smart academic. He constantly points out that everything’s gotten way, way better, but the general feeling about how fair it is has gotten way more hostile. As it gets better and better, people are less and less satisfied. That is weird but that’s what’s happened.

Question: What’s the toughest moment you’ve shared with Warren? And, of course, what’s the very best memory you’ve shared during your life with him? You two seem like you’re brothers by a different mother. May God continue to bestow His blessings on you. Together you’re one of the United States of America’s greatest treasures. Individually you ain’t too bad either.

Charlie Munger: Well, God is about to give a different kind of a blessing on Warren and me. He’s gonna give us whatever afterlife there is. Nobody knows anything about that.

Warren and I’ve had a great run. One of the really great things about it is that we’ve been surrounded by wonderful people—the people we’ve shared in our work lives. What Gerry and I have done in this little business has been a pleasure, hasn’t it Gerry?

Gerry Salzman: Yes, sir.

Charlie Munger: It’s been a privilege to do it—the privilege to be here and so forth. We haven’t had a dumb bureaucracy like a lot of other places. We’ve managed to cope pretty well with the problems that came to us and the opportunities too. So we’ve been blessed. It’s all old-fashioned virtue. Gerry and I don’t have any secrets. We tend to get the day’s work done and be as rational as we can in coping with whatever we have to cope with. That will always work for people who get good at it.

Warren I have been very fortunate. And, of course, there are lessons you can learn from our [lives]. There are so many people that live surrounded by tyranny. There are a lot of bosses in the world that are absolutely impossible to be under. They’re really psychotic. You really can’t do anything about it in many cases. Warren I haven’t had those problems. That’s a blessing.

Question: You seem extremely happy and content. What’s your secret to living a happy life?

Charlie Munger: I always say the same thing: realistic expectations, which is low expectations. If you have unreasonable demands on life, you’re like a bird that’s trying to destroy himself by bashing his wings on the edge of the cage. And you really can’t get out of the cage. It’s stupid. You want to have reasonable expectations and take life’s results good and bad as they happen with a certain amount of stoicism. There’ll never be any shortage of good people in the world. All you got to do is seek them out and get as many of them as possible into your life. Keep the rest the hell out.

Question: In your investment career, which investment did you like the most and why? And which one was a dog?

Charlie Munger: Well, that’s fairly interesting. One of the investments that nobody ever talks about at Berkshire is the World Book Encyclopedia. I grew up on it. You know, they used to sell it door to door. They had every word of the English language graded for comprehension and a vast amount of editorial input, so it was easy for a child who wasn’t necessarily a brilliant student to understand that encyclopedia. It was more understandable. Berkshire made $50 million a year pre-tax out of that business for years and years. I was always so proud of it because I grew up with it. It helped me and so forth. And, of course, I liked the 50 million a year.

Then a man named Bill Gates came along and he decided that they were going to give away a free encyclopedia with every damn bit of his personal computer software. Away went our $50 million a year. Now, we still sell the encyclopedias in libraries, making a few million per year doing that. But most of the wealth just went away and all that wonderful constructive product.

It’s still a marvelous product. It wasn’t good that we lost what the World Book was doing for civilization. I was so proud of World Book. But now it’s pretty much gone away in terms of its worldly significance and the money went with it.

That’s just the way capitalism works. It has destruction. Some of the things you lose, you’re really going to miss and you’re not going to replace them. I don’t think these TV programs that charm our children are as good as the World Book was. The World Book helped me to get ahead in life. For people who aren’t going to read the World Book and are hanging in front of the DVD set, they’re not blessed, they’re cursed. Now there are advantages too in them having a television. By the way, I’m not weeping any tears that I don’t have my World Book anymore. I’ve adjusted.

Question: Of the five people are saying you most admire, could you please name a few so that we might become more familiar with and potentially learn from these individuals?

Charlie Munger: I don’t have any one person that I admire. I would argue that the greatest governmental leader whose life overlapped mine was Lee Kuan Yew of Singapore. I would argue that he was the one that taught Deng Xiaoping of China how to fix China the way Singapore fixed itself. So it was a huge achievement.

I think the Marshall Plan that my country did after World War II was a marvelous thing. That was a credit to the human race.

I’ve seen a lot that I’m proud of. On the other hand, I see a lot now that I’m not proud of. I don’t like this crazy hatred in our party system. I don’t see anything wrong with having a good-sized government safety net that goes up with GDP. I think it would be crazy to be as rich as we are without a good governmental safety net.

By the way, do you know where that came from? Otto Bismarck. He was the iron chancellor of Germany, exercising the unlimited power of a German king. That’s who gave us Social Security and so forth. Nobody thinks of Otto Bismarck as a great hero of democratic capitalism but he really was. It shows how complicated life is. Strange things happen. My hero Otto Bismarck. I’ve never seen Otto Bismarck’s picture on an American wall. He should be there.

Charlie Munger: It isn’t that we want to be the guru for the world or something. We used to know all the shareholders. We felt that since they only come in once a year, we ought to at least stand here and answer questions. They started asking these odd questions and we kept answering them. There was a market for it and we kept doing it. So Warren and I are artificial, accidental gurus. I used to be sort of bothered by it because I don’t ordinarily make this many pronouncements. But I’ve gotten used to it and I hope you have too.

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