Original link: https://ljf.com/2023/07/13/1277/
2021 Daily Journal Shareholders’ Meeting Address
Shareholders: Is there an ethical obligation on management to keep the stock price as close to value as possible?
I don’t think it can be so over the line. If you really want to raise the stock price to a moral level, everyone can despise me. Because according to the current stock price of the daily journal, it is definitely too expensive, and I will definitely not buy it. The management has no obligation to guarantee the level of the stock price, but the management has the responsibility to make a truthful statement to the shareholders, not to exaggerate, and not to speculate on its own company’s stock.
Shareholder: Another shareholder also asked a question about SPACs. Whether they’re actors, athletes, singers, or politicians, many people market their SPACs with great fanfare. What do you think about these SPACs and the people who market them?
These things do harm and do no good, and I don’t even touch them. A specific company has not yet been established or selected, but it has started to raise funds. Isn’t this purely speculation, purely a bubble? As long as someone is willing to buy, investment banks can even sell shit.
Shareholders: Mr. Munger, at last year’s shareholder meeting, you talked about the madness in the financial industry. Looking back on the year, can you talk a little more about the risks that exist in the financial industry? Which behaviors are the worst?
Upstart brokerages like Robin Hood baiting newcomers into momentum trading are the worst. I regret that such shameful behavior has occurred in our civilized society.
The greed of human nature is superimposed on the profit-seeking behavior of the brokerage group, blowing up the bubble from time to time. A gentleman does not stand under a dangerous wall, and a wise man stays away from bubbles.
Shareholders: You said: “Only when a person has certain qualities can he hold a lot of cash and stay still. I am what I am today, not by chasing mediocre opportunities.” In the past few years, stocks have risen a lot . At the same time, the risk of holding cash is increasing due to the central bank’s policies. Would you consider revising your sentence, or lowering your standards?
I didn’t get rich by buying stocks with high price-to-earnings ratios in a frenzied speculative frenzy. I will not change. It’s just that with interest rates so low, I’d prefer to own stocks at a higher P/E. Everyone does.
Shareholders: There are many kinds of moats and competitive advantages. Looking forward to the future, which moats and competitive advantages do you think will be the most important in the future? What competitive advantages can form a new moat in the future?
Old moats are constantly disappearing, and new moats are constantly being formed. This is the nature of capitalism. Like biological evolution, new species are constantly being produced and old species are constantly dying out. This is independent of our will.
Shareholders: In investment, how important is it to analyze a company’s culture?
Very important. Take Shikai Ke as an example. A few decades ago, it was just a small company. It can develop so fast and do so well because of the contribution of culture. Kaishike has cultivated a very strong corporate culture, including strict cost control, strict quality assurance, emphasis on efficiency, and emphasis on reputation. Kaishike’s corporate culture has promoted its development. Corporate culture is very important.
Shareholders: In the daily journal company’s stock portfolio, BYD already has a large paper profit. Last year and this year, BYD has risen a lot, and the current stock price may have far exceeded the intrinsic value. May I ask a stock, should you continue to hold it or sell some, how do you decide?
In general, when we can’t find new stocks worth buying, we will hold the old stocks.
Shareholders: Are electric car makers’ valuations already in bubble mode? Both Berkshire and Li Lu own BYD. You also have a lot of praise for BYD. The current price of BYD is nearly 200 times the price-earnings ratio, which is relatively low compared with Tesla’s 1,000 times the price-earnings ratio and 24 times the price-sales ratio. I know that Berkshire is a long-term investor and rarely sells good companies because the stock price is too high, for example, Coca-Cola used to be. The question is, is it possible that the stock price is so high that it has completely overdrawn the company’s future profits. How to decide whether to sell when the stock price is too high? Can you talk about your selling system?
I have never invested in companies like BYD before. Now that its stock price has risen to such a high level, I have no precedent to follow. I am learning by doing. One thing, I can tell you with certainty that if we like a company and its management, BYD is an example, we will be very loyal to it, even a little too loyal. This point, we will not change.
Shareholders: You and Warren are very good at knowing people, whether they are entrepreneurs or partners, you can see through them at a glance. How can you tell if a company has a good leader? Can you tell us some tips on how to recognize people?
A person, he is an alcoholic who often drinks heavily, then we must stay away. People can often judge whether a person is worth dating by looking at one or two characteristics of a person. We are better at capturing the characteristics of others. For decades, being good at knowing people and observing them has helped us a lot.
Shareholders: Mr. Munger is bullish on Chinese stocks. Recently, Ant Financial, Alibaba, and Jack Ma have been in trouble. Is Mr. Munger worried about the Chinese government’s intervention? For example, is it possible that the Chinese government will nationalize BYD?
Regarding BYD, the situation you mentioned is almost impossible to happen. As for Ma Yun, he is too arrogant. He taught the Chinese government a lesson, accusing the government of making mistakes in its policies. China has a Chinese system, and under the Chinese system, Ma Yun’s words are very inappropriate. I think the Chinese government manages the economy well, they manage the economy better than we do in the United States. China’s economy will get better and better.
Shareholders: You said that the best way to study business is to study the financial performance of great companies over decades. You also said that if business schools don’t teach in this way, students don’t learn the real thing. Can you explain in detail, how can a teacher or a self-taught person build a curriculum system according to the method you mentioned? For example, which study materials should be used, and what do you recommend?
In the early years, Harvard Business School started from business history, and taught students about building canals and railways. In business history, we experience the ups and downs of industries and the creative destruction of economic change. This background knowledge is very beneficial.
Today’s business schools don’t teach very well. Consider how similar business competition is to biological competition. Studying biology, we will know that individuals continue to die and populations continue to become extinct. Capitalism is no less cruel than that. It depends on how many companies and industries have died in my life. How many companies and industries once had great glory, but now they are lingering or disappearing. When I was young, who would have thought that Kodak and General Motors would go bankrupt. It is hard to imagine that capitalism has such destructive power. Take history as a mirror to know the ups and downs.
Shareholders: In 2007, you delivered a speech at the graduation ceremony of the University of Southern California Law School. You probably said something like this: “Civilization can only progress when it knows how to invent; individuals can only progress when they learn how to learn.” I am lucky. I entered law school with a method of learning. I have benefited most from continuing to learn in my life.” What is your method of learning? ?
I was born with a studious quality. Someone taught me a new knowledge, I know it is useful knowledge, I will understand it quickly, and then use it myself, and apply what I have learned in my life.
Learning ability is something that is difficult for others to teach you. It can be said that it is basically innate.
Shareholders: I want to work within my circle of competence, but I find that my circle of competence is getting smaller and smaller due to the rapid development of technology. Could you please give me some advice?
When new technology comes out and you don’t understand it at all, you’re certainly at a disadvantage. My suggestion is this: If your disadvantages can be eliminated, then eliminate them. If it cannot be eliminated, learn to live with this disadvantage. Otherwise, what else can we do? If it can be remedied, it will be remedied. If it cannot be repaired, accept it.
Shareholders: You are one of the most respected thinkers of our time. The question I want to ask is: facing two opposing views, how can we rationally analyze the pros and cons of the two views?
When I’m in a situation like this, I always stick to a standard that has served me well. My criteria are this: I have a point of view, and others hold the opposite view, and unless I can refute my point of view more forcefully than the other person, I have no say in the matter. Keep practicing this way of thinking, you are always falsifying, always torturing yourself, which can reduce your ignorance.
People have a psychological tendency, a conclusion, because they have come to it with great difficulty, or have publicly declared that they believe it, and people always spare no effort to defend this conclusion. Eloquent speech will not help to increase wisdom, it will only make yourself more convinced of the existing ideas. I understand this truth very well, so I only talk so much at the shareholder meeting. At other times, I am always silent.
Shareholder: You are a wise man, how can you live a happy life? What principles can be followed to lead a happy life?
It’s easy to think about being happy. If you want to be happy, first, lower your expectations. This is something you can control yourself. Always have unrealistic expectations, doomed to a lifetime of pain. I’m very good at lowering my expectations, so I’m doing fine.
In addition, when you are in adversity, you have to grit your teeth and work hard. Blaming others and complaining constantly will only make it more and more bitter and difficult.
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