Original link: https://ljf.com/2023/07/14/1278/
2022 Daily Journal Shareholders’ Meeting Address
BECKY QUICK: This question is from Tom Seymour. He asked: “In January, Jeff Gundlach said: ‘My current view is that China is not a good place to invest. I’ve never invested in China, either long or short. Why? Because I have doubts about the data. Because I have doubts about Sino-US relations. Investing in China is very risky.’ Daily Journal has a large amount of investment in China, including securities such as BYD and Alibaba. Obviously, you Gundlach has a very different point of view. May I ask why you are right?”
Who is right and who is wrong can only be tested by time. China is a modernized big country. China has a large population. In the past 30 years, China has rapidly entered the ranks of modern countries. The reason why we set aside part of our funds to invest in China is because compared with the investment opportunities in the United States, the investment opportunities in China are better, and we can buy at a cheaper price and obtain higher company value. We are not the only ones who invest in China. Sequoia, the best venture capital company in the United States, has also invested in China.
I can understand Gundlach’s thinking. He has doubts about China, and there is nothing wrong with not investing in China. People think differently. Gundlach has doubts about China, and I have doubts about Russia. I will not invest in Russia. For Gundlach’s point of view, I have nothing to refute, but my point of view is different from his.
Becky Quick: Among the questions I received, many shareholders were very concerned about the risks of investing in China. I chose one of the more representative ones. The questioner is Ravi Meta. He hopes you can talk about your views on China and whether there are long-term risks in investing in Chinese stocks. He asked this question: “Judging from the current situation, there is a great risk for Chinese companies. Western countries are very likely to prohibit Chinese companies from doing business in their territory. I can think of many triggers, just to list a few : First, security threats; second, the situation in the Taiwan Strait; third, failure to meet Western accounting standards; fourth, human rights issues. There are so many potential risk factors, why do wise men like Munger and Buffett invest China? What about buying Chinese companies?
“The reason we invest in Chinese companies is simple. We can buy more value. The Chinese companies we invest in are cheaper but more competitive. That’s why we invest in China.
BECKY QUICK: This question comes from Wassim. He asked: “Chinese companies have impressive financial data, but aren’t you worried about China’s political situation?”
Compared with the past, global capital has clearly intensified their concerns about China. This is a phenomenon we don’t want to see. We hope that China and the United States will live in peace. China and the United States have good relations, the United States and China are friends, and China and the United States are friends. What’s wrong with that? Is it bad for China, or bad for the United States? If we are friends, won’t there be no such messy things? We should be friends with China. We should learn to get along well with countries with different political systems.
BECKY QUICK: I also have a question about Alibaba. I have asked several questions about Ali today, but the angle of this question is different from the previous ones, so I chose this question. The questioner was John Mooney from Marshfield, Massachusetts. His question was this: “Charlie, Alibaba is one of your top three holdings. Alibaba is benchmarked against Amazon. Amazon’s price-earnings ratio is three times that of Alibaba. Alibaba is much cheaper than Amazon. As an American investment Or, when we buy Chinese stocks, we need to consider various risks such as politics, regulation, and ownership structure. When we buy stocks of Chinese companies, what is the appropriate discount? In addition, you recommended BYD before, and Berkshire has gained a lot Feng. But this time, why didn’t Buffett buy Alibaba?
“Many sane investors have one thing in common: they choose to invest in things they feel are at ease. Warren is no exception. Compared with Warren, I have a more favorable view of China, and I feel more at ease when investing in Chinese companies. In fact, this Just a small difference between me and Warren. Warren has things that he doesn’t feel grounded in. Like Warren, I have a lot of things that I don’t feel grounded in. I don’t feel grounded in myself, and I don’t Investment. At my age, I still have the freedom to invest where I want.
BECKY QUICK: This question comes from Steven Tedder in Atlanta. He was also worried about inflation, and the questions he asked went a step further. The question is this: “How bad is inflation going to be? Besides owning quality stocks, what can individual investors do to effectively protect against the ill effects of inflation?”
Sometimes, there are no good choices, and the choices in front of me are worse than the other. As a last resort, we can only choose one that is not so bad. This unavoidable situation often occurs in life. The Munger family owns Berkshire shares, open market shares, and also holds Chinese stocks through Li Lu’s fund. In addition, there are some shares of the Daily Journal Company and some apartments. Do I think this arrangement is perfect? I don’t feel perfect. Do I think such an arrangement makes sense? I think it makes sense.
BECKY QUICK: I can understand your point. The next question is about antitrust. David Kass asks: “Recently, Lina Khan took over as chair of the FTC and Jonathan Kanter as head of the Justice Department’s antitrust division. They both said , to take tough antitrust measures. Do you think it is necessary for us to take tougher antitrust measures against large technology companies?”
How powerful Big Tech is is related to our nation’s competitiveness. I don’t support weakening America’s internet companies. I think it’s good that America has strong companies. What country doesn’t take pride in having strong companies? I don’t think there’s anything wrong with “big”. I don’t want foreign companies to occupy a monopoly position in the Internet field. I want America to have strong companies so we can be internationally competitive. So, I don’t think we need to go antitrust on the Internet with a lot of fanfare.
BECKY QUICK: So, do you think small companies can get an equal playing field? Now, the Russell 2000 Index is down 15% from its high. Especially in recent months, the decline has been relatively large.
The tide rises and falls, I don’t try to predict the rise and fall of the tide, I just think about how I can swim better.
I think pain is normal. If you make long-term investments, whether you invest in stocks or real estate, I can tell you that there must be times of sorrow and times of prosperity. All you have to do is to live safe and sound no matter whether you encounter good times or bad times.
BECKY QUICK: Charlie, this question is from Mike Branch. His question was: “How does passive investing affect the valuation of stocks?”
The growing size of index funds has created a new breed of bigwigs, those who control voting power in index funds. Larry Fink of BlackRock and the man at the helm of Vanguard are as powerful as the Pope. With the rise of index investing, the concentration of a large number of voting rights in the hands of index funds will have a big impact. What kind of impact will it have, I don’t know, it is probably not a good impact. Today, voting power is concentrated in the hands of index fund managers like Larry Fink, and I don’t want them to have the final say.
BECKY QUICK: Frank Wang from Houston asks, “I’m going to be short and all cash now, regardless of the tax issue, and in the next 12 months, when a good opportunity arises, I’m going to Enter. Do you think my idea is feasible?”
In my entire investment career, I have never done such a thing as holding on to the sidelines and looking forward to reinvesting when there is a good opportunity. I have always chosen the best opportunities to invest in the opportunities I can find. I used to be like this, and I won’t change now. Now the daily journal has no cash, and it is all cast out. Berkshire holds a lot of cash. However, Berkshire holds a lot of cash, not because Berkshire predicts that the market will fall and wants to wait until it falls before selling. Berkshire is holding a lot of cash simply because it hasn’t found a good opportunity to buy it. I don’t know how to answer your question. I can only tell you what we do.
Becky Quick: This question was asked by VJV: “In early 2020, the stock market experienced a relatively large correction. Why didn’t Berkshire take this opportunity to buy more companies? Has management become conservative? Of course, Berkshire bought Apple stock a few years ago, and it paid off, and it was a very good investment.”
We’re not making new acquisitions because we can’t find opportunities at the right price. It’s that simple.
BECKY QUICK: This question was asked by Michael Fontana. He said: “I have a neighbor, a very good young man, 22 years old, interned at Tesla and General Electric, and now studying at Purdue University. I have worked in the oil field for 37 years. He has a wealth of work experience. He is very good at high technology. We often discuss investment together. This guy’s investment style is very aggressive, and he pays most attention to artificial intelligence and growth stocks. I want to persuade him to be more stable in order to pursue stability dividend income. Mr. Munger, what do you think?
Investing styles vary from person to person, and no one investment style is suitable for everyone . Some people have that talent, they can understand things that are difficult to value, and they have the ability to make difficult investments. Some people don’t have that great ability, so don’t try to be brave, it’s better to choose what you can understand. You must know how capable you are. If you entrust your money to others to manage, you must know how capable your fund manager is. How you invest depends largely on your ability.
If you feel that the current investment is difficult, and some even don’t know how to do it well, then you are right. “Difficulty” is the normal state of life. If you think it is difficult, it means that your mind is clear, and investment is of course difficult. Compared with our generation, today’s young people are too difficult. Young people today, if they want to get ahead and get rich, they have to work far more than we did back then.
In the past few decades, the investment index can achieve a rate of return of about 10% or 11% per year. Even after deducting the impact of inflation, it can achieve a rate of return of 8% or 9%. Such a rate of return is already very high . In the history of the world, no generation has ever achieved such a high rate of return on investment. Young people graduating from college now may not be able to have such good investment opportunities as our generation in the future. It is impossible for them to make investment as easily as we did at that time.
BECKY QUICK: That’s a question from Steve. His question: “What worries you the most about the current economy and the stock market? What do you feel most optimistic about?”
Feel optimistic. The great achievements in modern civilization have basically been achieved in the past 200 years. From 1922 to 2022, in the past 100 years, we have achieved most of the achievements of modern civilization. In the 100 years before 1922, we also achieved many of the achievements of modern civilization. In the millennia preceding the past 200 years, human society remained largely unchanged. The living environment of ancient people was very harsh, their life span was very short, and their life was very monotonous. In ancient times, there were no printing presses, no air conditioning, and no modern medicine. Civilization has developed to the present, and has been able to fully meet the basic needs of human beings.
In the 100 years before 1922, steam engines, steamships, railways were invented, agricultural technology was improved, and drainage was improved. In the 100 years since 1922, people have invented the widespread electric grid, modern medicine, automobiles, airplanes, movies, air conditioning. Human well-being has achieved tremendous progress. Our ancestors lived very hard. If they wanted three children, they had to have six, because three children would die in infancy. How painful it is to see half of one’s children die. In the past 200 years, especially in the past 100 years, human civilization has developed by leaps and bounds.
In a modern civilized society, people’s basic needs can be fully met. In the United States, the main problem of the poor right now is obesity. In the past, people’s problem was not getting enough to eat. Now, people’s problem is being too fat. Times have really changed.
Unexpectedly, people’s living standards have improved significantly, people’s lives are more free, people are more equal, and people can enjoy all the conveniences of modern civilization, but compared with the past when life was very hard , people are even less happy. In fact, the reason is very simple. It is not greed but envy that drives the development of the world.
Now, everyone’s life is many times better than before, but people don’t take it seriously. What people stare at is that others are better off than themselves. People are always worried because others have this and that, but they don’t. No wonder God taught Moses in ancient times not to covet another man’s wife, oxen and donkeys and everything else. There was already jealousy among the ancient Jews. It can be seen that jealousy is human nature.
BECKY QUICK: This question comes from Jerry Miller in Hobart, Wisconsin. He would like you to sum up your close collaboration with Warren Buffett in this lifetime. He wrote in the letter: “What is the most difficult thing you and Warren have ever experienced? What is the happiest thing you and Warren have experienced? You two are like brothers. You are a good pair A National Treasure of the United States. May God always bless you.”
Warren and I, we’ve accomplished a lot and had a lot of fun working together. In the process of our cooperation, the most gratifying thing for us is that we can join hands with many excellent people to start a business. Gary and I have had a lot of success and joy working with Gary in the small company of the Daily Journal. What do you say, Gary?
I am honored to be able to come together with outstanding people. It’s an honor to do something with great people. We’re not like a lot of other companies, we’re not tainted by bureaucracy. We are not overwhelmed by difficulties, we seize opportunities. We are lucky.
What do we rely on? These are the clichéd virtues. Gary and I, we have no secrets. We do our work well every day, try to keep our heads clear, and face all kinds of difficulties bravely. As long as you do these basic things, you will be successful.
BECKY QUICK: Charlie, this question is from Kumar. “I feel that you are very happy and content. Where does your happiness come from? Do you have any secret of happiness?”
People ask me how can I be happy? I always answer that lowering your expectations means making your expectations more realistic. In life, a person always has a lot of unrealistic expectations. He is like a bird in a cage. He can’t fly out, but he keeps flapping his wings against the cage. In the end, he can only hit his head badly. . Why bother? Match your expectations with reality. There are bitterness and sweetness in life, and everything must be accepted calmly. In this world, there are many good people. Make more friends with good people, keep in touch with good people, stay away from bad people.
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