The Charlie Munger Way Charlie Munger 2018 Daily Journal Shareholders’ Speech

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2018 Daily Journal Shareholders’ Meeting Speech

Changing software service providers requires a huge time cost, and government departments generally do not change software service providers at will.

We have a very conservative approach to accounting, we do business with our clients, do the work first, and collect the money later.

Peter Kaufman: I have summed up several criteria for screening fund managers. I hope that you can also screen out qualified fund managers through the conditions I have given. My screening method contains five criteria, so I call it the “five aces” screening method. The first trump card is absolute honesty and integrity; the second trump card is to talk about your own investment logic with clarity and confidence; the third trump card is that the charging method is fair and reasonable; the fourth trump card is that the investment field is a place where there are few people; the fifth trump card is The trump card is that you are relatively young, and you still have a long time to invest. If you really find a fund manager who meets all five conditions, you should do two things: first, invest immediately, and immediately hand over the money to the fund manager you found; second, invest more, invest as much as you can .

The current competition is so fierce, and it is difficult to gain any advantage in managing billions of dollars of funds, not to mention the high fees that hinder us. It is useless to read more seller reports, and no matter how hard we try, it is useless.

There is a secret to fishing. The first rule of fishing is, fish where there are fish. The second rule of fishing is, remember the first rule. Investing is the same. In some places there are a lot of fish, and the fishing skills are not too high, and many fish can be caught; in some places, there are many people, and even if the fishing skills are high, not many fish can be caught.

No matter what the environment is, it is the correct attitude towards life to walk forward with a straight back. Everyone has their chances, and if you live long enough, you’ll find yours.

Shareholders: My question is about commercial banks. In Berkshire’s portfolio, banks are worth as much as $60 billion. Daily Journals also owns a large stake in the bank. When looking at Berkshire’s portfolio, I have a question. There are a few banks that seem to be of good quality, but Berkshire has no investment. Now, the valuation of bank stocks is already very high, but four or five years ago, those bank stocks were very cheap. Why didn’t Berkshire invest in other bank stocks? Is it because the allocation of bank stocks is already high? Or are you and Mr. Buffett not optimistic about other bank stocks?

The banking industry is rather special. The temptation for bank executives is strong.

Among all industries, the banking industry is the most easily uncontrollable industry. It is easy for banks to sacrifice long-term interests for immediate interests. The risk factor of investing in bank stocks is very high, and only a few banks can make people feel at ease. Berkshire chooses carefully, avoids risks as much as possible, and only invests in bank stocks that we feel comfortable with. That’s all I can say about this subject, and I’m sure I’m right.

Shareholders: The latest Berkshire annual report shows that in the past 52 years, Berkshire’s net assets per share have grown from $19 to $172,000, with a compound annual growth rate of 19%. Insurance companies’ investments are leveraged. An investment has realized a 14% rate of return in the insurance company’s investment portfolio, but reflected in the net assets, the increase may be 20%. How much does the leverage effect of insurance companies contribute to Berkshire’s return on equity?

Leverage in the insurance business does contribute to Berkshire’s profitability, but not much.

Berkshire’s insurance business has been successful because we have made very few big mistakes, we have made few serious mistakes, but we have done a lot of things right.

Shareholders: Ajit Jain created Berkshire’s reinsurance business. How did he do it?

Quite simply, he works about 90 hours a week. Ajit was a smart, upstanding man, and a very mild-tempered man.

Shareholders: In 1995, you gave a lecture at Harvard University on “The Psychology of Human Misjudgment”. At the end of your speech, you said: “It is useless to teach psychology to the public, and few people can understand it.” Why did you say that?

The discipline of psychology can exert its greatest power only when it is integrated with other disciplines.

Since I was young, I have established such an attitude: If the teacher does not teach well, it does not matter, I will learn by myself.

Shareholders: How did you get through those difficult times?

I have a great appreciation for Jews. I suggest that you, like me, learn from the Jewish attitude towards suffering.

Shareholder: I am a teacher. I want my students to be intelligent, happy people. What should I do?

Persist in doing meaningful things; persist in being a valuable person; persist in pursuing reason, integrity and integrity. One day, you will be able to succeed. Teaching by example is better than teaching by words.

Shareholders: Times have changed now compared to when you were young. If you were a young man like me, and you still had decades to invest, what areas would you focus on?

I will still live as Thomas Carlyle said, keep my feet on the ground, and do what is right in front of me. Work hard day after day, year after year, and you will be able to stand out in the end. I will keep my eyes open, choose my life partner carefully, find a good person, and join hands for a lifetime. The reason is very simple, or those clichés.

Shareholder: What is the most important quality when you are looking for a life partner?

Life partner? I’ve said before that when looking for a life partner, be sure to find someone who has low expectations for you.

Shareholder: How would you rate Li Lu’s talent?

Li Lu has a character suitable for investment. When there is no opportunity, he can wait extremely patiently. Once the opportunity comes, he becomes very decisive again, and he can make a big bet without hesitation. Li Lu is a very objective person, and he will not fluctuate too much in the face of adversity. The qualities that a successful investor needs are not difficult to say, but there are very few people like Li Lu who truly possess these qualities. In my life, I have only entrusted money to one fund manager, and that person is Li Lu.

Shareholder: You said that the United States should import more oil instead of extracting a lot of its own oil. I am from Kuwait in the Middle East. In Kuwait, oil accounts for 85% to 90% of government revenue. How do you see the future of oil?

Oil is not such a good investment. You see, in the history of Berkshire, it has basically not invested in oil-related companies. It has invested in some, but very few.

Shareholders: In fields such as railways, electric power, and science and technology, the cooperation between the government and social capital has achieved fruitful results. The cooperation between the government and social capital requires rationality and foresight in both politics and business to achieve success. Do you think there is a big opportunity for social capital to participate in infrastructure construction?

The answer is yes. In terms of infrastructure construction, the United States still has many shortcomings. For example, we very much need to build a power grid covering the whole country.

Shareholder: I would like to ask a question about high-speed rail in the United States. As early as 1965, when Berkshire held its first shareholder meeting, the United States proposed the development of high-speed rail, but it has not yet been developed. Currently, California is building a high-speed rail. Do you think it is possible for the United States to build a high-speed rail network extending in all directions across the country?

In the United States, building a high-speed rail network is very difficult. It is very difficult to build a high-speed rail in California.

Shareholders: You said that after you acquire a company, you typically hold it for a period of time that is forever. Did you sell GE because there was something wrong with GE?

Why did General Electric’s performance plummet? On the one hand, there are external objective reasons. In the fierce competition in the business world, it is normal for the company to go up and down. On the other hand, I think that GE’s executive rotation system is unreasonable.

Shareholders: You have served as a director on many boards. During your long tenure as a director, what have you learned? What have you learned about hiring and replacing executives?

In the process of doing management work, the most common mistake is to find out that it is time to replace someone, but you can’t make up your mind, and it takes a long time to replace the inappropriate person. Even people with years of management experience can easily make this mistake.

Shareholder: I would like to ask you a question about culture. How can an outsider understand a company’s culture? How do you assess the culture of companies like Wells Fargo and General Electric when you invest in them? In addition, if the leader of a company is an insider, how can he know whether there is a problem with his company’s culture?

A company like Kaishike has distinctive corporate culture and is very vibrant, even outsiders can feel it.

Kaishike company has a unique temperament, and the employees of Kaishike have a very high degree of recognition of the company’s culture. The right company culture can drive a company’s growth.

Shareholders: The proportion of debt in GDP per capita is getting higher and higher, the fiscal deficit is high, and now that we have reached the end of this economic cycle, are you worried about the high debt ratio of the government?

With such a high level of government debt, of course I am concerned.

I want to tell you that there is no need to be too pessimistic about a disaster. The sky will not fall, and the disaster will always pass.

Shareholders: In 1999, Warren Buffett stated that if he managed $1 million, he could achieve a 50% annual return. As you said, it is more difficult to invest now. Do you think it is possible to achieve such a high rate of return in today’s investment environment?

A person who is very smart and works very hard to find investment opportunities in places where there are few people. He not only has the patience to wait for opportunities, but also dares to make big bets when opportunities arise. Such people, even in today’s investment environment, can still achieve very high rates of return if they manage small funds.

In general, I think that small funds, as long as they have the ability to invest, can still achieve a high compound rate of return. The larger the amount of funds, the more difficult it is to invest.

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