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Hi gang, I was very privaleged to attend this year's Daily Journal shareholders' meeting and once again listen to the wise words and answers of one of my life's heros - Munger, Please forgive my inaccuracies where they may occur. I was writing in shorthand as fast as I could and there were other lapses where my mind wondered to some tangent after Munger spoke. Those of you who have been here a few years no doubt know that Munger in particular is one of my life models so for better or worse what follows comes with a natural and intentional built in bias - without further ado:

- Question #1 got right to the point - what will happen to the Wesco meetings now that WSC has been fully absorbed by Berkshire? In honor of the "hard core groupies" Munger said that he would continue to hold the Wesco meeting and that he would probably "pay for it out of my own pocket." He further added that this would probably be for 1-2 more years.

- On ratings agencies, "They have disgraced themselves," They made easy decisions to enrich themselves, Law schools and business schools taught the wrong stuff and it became accepted dogma, It was CRAZY to rate all of those things AAA. But - as bad as it is, it's hard to develop a better system, It worked for 130 years and all things have a lifespan, How else would you do it? All human systems are gamed, Do you want the (govt controlled) SEC to make the ratings? Everybody failed, "Most of what I'm talking about is not going to be fixed." He mentioned that last evening he ate dinner with Chief Justice Kennedy and that there was concern that there is deep resentment across society that the elites haven't paid a price for all of the wrongs... told quip about King Lear.

- A guy pestered him about his dog-eared page. Munger said that he grew up with the tables and that they haven't changed. The guy persisted - what's the number? 10? 12? Munger shot back that "I want to know the present value of something so I use my table - it's just not complicated. A lot of people DO use complicated stuff - they're the ones who got us into trouble."

- A question about "unlearning" a good idea. Munger said that learning gets harder and harder. Unlearning likewise so. China is good to learn. Munger didn't appreciate the potential, "I've learned a lot there." Munger underestimated the rate at which technology could be assimilated into the society.

- It's hard to get a man to believe X when his living comes from believing in Y.

- Too much dumb bureaucracy, Hard to have a smart one,

- "It's why I'm a Republican, I can not STAND the way they go crazy."

- On housing. "When you get into trouble on a $1000 a month mortgage then Grandma and family can help out. When the mortgage is sizeable then Grandma can't help - you're on your own."

- inflation. When asked what he thought the rate would be Munger started talking about agriculture. He related how significant percentages of good farmland is now being used to fill our gas tanks, Ethanol is "Stunningly stupid" yet all politicans run to Iowa and tell them what they want to hear. "We're exporting misery."

ed note - obviously he's talking about all the diverted land resources which shrink the food supply and cause massive inflation across food commodities (note - for a first hand example of social upheaval caused in part by massive food inflation see all after "Egypt")

As for govt and printing money and debasing the currency? Inflation is "The glorious hand of government."

ed note 2 - I was quite taken aback by Munger's grasp of the commodities sector. He immediately knew that it was Brazil where a certain iron is produced. He knew the differences between coal types and their different industrial charactistics and where they're mined and how expensive it is to mine each type and to transport each and the size to which it has to be crushed in order to ship it safely (not too small lest it explode in a black misty cloud of coal dust which I saw first hand as a small boy in our coal fireplace. He asked Pabrai a few commodities questions.

- It's unbelievable but Posco went to India and proposed building a plant, PKX has a unique method to make steel from lesser quality that would be perfect for India. It's now 6 years later and they are still working on the permit. Unbelievably stupid. "I'd rather invest where we don't have these problems."

- Everybody in a financial institution trading operation will go plum
crazy. An irresponsible system. They want to do it to match others' earnings.

- A man will believe what he wants to believe.

- They specialize in stupid things at Law School

- Question stating that in years past management earned 40-1 more than the working class. Today it's 1100-1 (ed. I hope I'm right about that figure). Munger refers to Aristotle - we're asking for a lot of problems.

- General Re - just got sloppy. Cleaning that up was a hell of a lot of difficult work. We just missed it. It had such a good reputation and had been going for a long time. Over time you can get a lot of deterioration in a culture. Costco has great culture - makes it hard for people to game the system. At least in the end we did fix GRN.

- A man running a small business knew Wal Mart was coming. He sold out prior to their arrival. Very smart. He knew the landscape and reality.

ed. note - OK BYD nuts. Recall bYD's problems with their plant not having proper permissions and they got into trouble with Chinese govt. Recall how this was a sure sign that doing business in China would creat problems for BYD over time.

- On BYD - The province gave BYD the right to build and the province did not gain requisite approval from federal government. ByD and the province got fined. ByD about $400K (or peanuts if you're counting at home). "My guess is that permission will be granted later this year." BYD is a Chinese hero. Head of BYD is a former peasant - a communist hero.

- California. Thinks Jerry Brown is the best governor option. If bad news is to be delivered it's better that a Democrat do the deed in California. It adds more credibility that way and is easier for the liberal CA public to swallow..

- Talked of immoral insanity of police pensions where a retiring guy can put in 1500 overtime hours in his last year and spike his last takehome pay which then gives him huge retirement check and where he can earn more in retirement than his last salary - "Insane."

- Singapore is the best govt ever. They came from nowhere. They built on swamp a great civilization. It's an example of a govt that does things right.

- Roughlyright pointed out that Daily Journal portfolio perfectly matched Wells Fargo and that therefore now we know that munger must have bought Wells with the entire portfolio. Munger said that that was mostly right - they have a little that's not WFC. When asked why the DJ purchased it a a much better price than say Wesco Munger said that it was all accidental - a circumstance of reality - that the DJ needed to hold cash longer to ensure survival of the business and they got lucky on timing.

- People don't realize how close the system came to implosion. GE would have gone bust without government. Govt HAD to save GE. (ed. note - I took this to mean that it's because it's an American icon that is a core part of our society, Not becaue it was systemic risk caused by GE).

- "We don't CARE if we are a digit less in 20 years, If we used leverage like Murdoch Berkshire could own the world. We don't sweat blood like Murdoch either. We sleep well. Murdoch really had to sweat."

-A mistake to let Lehman go under? "Gotta let someone go. Lehman at the top had a disgusting culture. I would have picked Lehman to go under." (ed note - is that funny or what!)

- This was as close to chaos as we want to come - the idea that we want massive chaos in order to profit is wrong.

- We LOVE the railroad business. This from two kids who had model trains.

- Passanger trains. "Obama is out of his mind." makes sense for China but not for us. It would take a whole new track system. Exceptionally stupid. Obama hasn't had a lot of business training.

- "We love our railroad." There are now 80% fewer employees and it's safer, more efficient, profitable - a very efficient place.

- never in my life have I seen more young, rich, smart people holding so much cash - like we do at the Daily Journal. It's wise. Bill Gross's "new normal" is modest lower returns. in a period of modest returns it shouldn't make any difference. Why SHOULD life be easy? People destroy themselves in good times too.

That's my take. As usual his appealing blunt spoken way makes things so crystl clear. We all know where he stands. This is a decisive and penetrating mind.

HB
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