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July 1, 2011—A Morning with Charlie

I just typed up these notes and did so before reading the other previous posts on the Board. In no way are these comprehensive notes. I just jotted down things that I liked. Also, they are not even in the order that Charlie necessarily said them.

Charlie said that this would be his last such meeting. Partly why he is doing such a meeting (and paying for it himself) is he is still doing penance for making so much money early on by just buying low and selling high. Subsequently he has tried to do some other things in life that more useful to society. He said most in attendance already knew what he thought about every subject. He said by stopping the meetings he would be doing us a favor. He said we needed to find a new cult hero.

Asked what he thinks of the fact that he has gotten so popular. He said he doesn’t want to be anymore well known and has slightly overshot his goals.

The whole meeting was the normal light nature that these meetings are. In answering questions, Charlie often did not answer the question asked; instead he substituted with an answer that related to the question or simply supported the questioner. This is a little frustrating because you’d often really like to hear Charlie’s answer to the real question. Charlie knows what he is going to say and what he is not going to say, and it’s not often that he crosses the line.

Charlie, in his 88th year, has just an amazing mind. Sure, he admits that he can’t do a triple integral calculus problem anymore, but neither could anyone else that hasn’t used such math in nearly 70 years.

Charlie considers it a moral duty to learn every single day. Charlie also considers it super fun to learn. This learning-always attitude drives Charlie more than anything else in his life, in my opinion. I’m sure it is the reason he is so sharp at age 87, and with the real possibility that he goes to age 100. However, one of my friends talked to him about aging before the meeting began, and Charlie said he’d lived long enough wasn’t interested in the field of anti-aging.

Right now he is reading about astronomy and loving it. He joked, what use is it for him to learn astronomy now, but he is having a kick doing so.

Charlie said that there are probably a lot of people that don’t like Buffett/Munger. He questioned how could Wall Street like us when we are always bashing them?

In regards to the Wesco deal, it was a like a ship that has reached its proper home. It took a long time, and was another example of the rationality within Berkshire to just wait, wait, and wait until the price was right. He was happy that it was finally done.

Half the Wesco shareholders took cash, the other half took stock. This worked out better for Wesco shareholders than was originally intended. Charlie said BRK’s stock went way lower than Warren and Charlie anticipated because of the Japan earthquake and Europe’s problems. He said he didn’t mind that Wesco shareholders probably got a good deal, as Warren/Charlie wanted their counterparties to do well. And in this case, they were happy to give the power to the minority (BRK already owned 80% of Wesco).

Charlie said he and Warren should not be given too much credit for behaving well in business transactions. He said they learned early on how advantageous it was to do the right thing. It was in their interest. He said if the rascals know how well behaving well worked, they’d come to it.

Lollapalooza. Confluence of factors operating in the same direction. He always looked for this. He didn’t care about jurisdictional problems.

Charlie talked about examples and trying to solve problems. He noted the case of a $40k car, and a $400 extra that probably cost the manufacturer $20. He mentioned the principles of psychology.

Charlie said if you adopt little tricks you’ll blow by others that are smarter.

Japan stasis problem. A million man-hours have been devoted by economists and they haven’t solved it. Keynesian theory didn’t work.

Japan is an export country and the new competition from Korea and China really hurt.

Charlie also said to look for more than one explanation as to a why something happened. He said the book, “Rational Optimistic” by Matt Ridley was very good. However, he said Ridley was too quick to accept just one explanation.

You should use a checklist.

It is not easy to buy things, even for Berkshire. With most acquisitions, shareholders lose.

Blue Chips stamps bought See’s , Wesco and Buffalo News. Buffett/Munger learned as they went. They learned a lot from See’s and it had a major impact on Berkshire’s future investments.

Be a tenuous, lifelong learner. Pay yourself first. Protect your own mind. Increase rationality; it’s a moral duty.

Dept stores they bought in Baltimore—dumbest thing. Learned from it.

Lifelong learning: not only helpful, but a lot of fun.

Current Investment Scene:

There was a bubble
Greenspan overdosed on Ayn Rand
Investment Banking: Gambling in Drag
(Investment banking) Like Vegas, would not want to give up their most profitable games.
Accounting is sometimes asinine
Madoff—got 150 years for keeping a guy flush for 25 years. Madoff thinks he got a bad deal.
Dick Fuld (Lehman Brothers)—no contrition or shame, none, is Munger’s guess.
Gov’t credit with no rules
Bankers—crazy with envy
A bank gave free checking so they could nail sloppy customers with high overdraft fees. One bank, when a customer had a group of checks come in on one day that couldn’t be covered, cashed the biggest one first so that more checks would bounce and higher fees would have to be paid. This bank is now paying a class-action claim.

Investment Scene:

Bill Gross is right—the new normal will be lousy (relatively speaking)
Japan – new tricks did not work
Common stocks, carefully selected, may not do so well
Investment industry may take 150 bps off the top
Promising $100k pensions for life is evil

Republican position of no tax increases is wrong
Democrat position of only the rich should pay is wrong

WW1 aftermath was terrible (and gave rise to Hitler)
WW2 aftermath was right—learned from John Maynard Keynes

In Washington D.C.—they really hate each other and Charlie doesn’t know how this plays out

Patience and Opportunism: This is BRK’s attitude. BRK will move very fast. When you see an opportunity, don’t be timid.

This concludes first hour (Charlie just lectured). Questions and answers went for two hours more.

Legacy to family and world: self discipline and objectivity. Self improvement. Irreverence and insistence gets a lot of people in trouble.

#1 Magazine: Economist. It’s an adult magazine.

Prefers to try to do considerably better than index funds.

Munger did not choose to use his wealth to totally avoid misery. (Not just live a cushy life.) He has taken on some tough problems like a real estate development that he thought was good for the community even though he had strong opponents (and, I don’t think it was financially very lucrative).

Owning BRK stock at current prices will do alright if you just sit on your patoot (butt).

Adversity: soldier through it. Successful coping is a major opportunity. Not panicking, not going crazy.

Jackie Kennedy was the rational one in the family when Bobby was shot. She convinced the rest to pull the plug when he was brain dead. Died at Good Samaritan hospital—the hospital in which Charlie is the CEO.

Pretty obvious there will be inflation over 100 year periods.

U.S. has grown 2%/person/yr in GDP for decades. This is a great result. This describes success. Failure is way worse than that.

Greece and Italy: a job is a failure—ruins 8 hours a day, 5 days a week. Taking in Greece to the European Union was a big mistake.

Handling of the financial crisis. U.S. drew the line in pretty much the right place. Lehman Brothers was the right place to draw the line.

If something is bad and you can bear it, just go on. Earning no real return on your investment would not be a big problem to many in the room.

Google. Hard to imagine it not having a strong position for a long time. Doesn’t have much else to say about tech.

Rich families. Observe what has worked. If you’re rich and hold out on your kids, they will come to hate you. How would it work if you made your wife occupy a small corner of the kitchen? Of course he helped his children. Kids of rich parents won’t work as hard. You must learn to lose graciously.

Oil companies got rich because reserves they originally couldn’t extract became valuable when the price of oil rose. (Kind of an accident they did so well.)

BYD—they work hard at engineering problems. They put their head down and try harder when things get tough.

Admiration is the best kind of human love. Man in love with a truly despicable wife is a sad kind of love.

At his age, he wants to make money betting on people he really likes. This partly explains investment in BYD. He is moderately indifferent if it doesn’t work as well.

Don’t push credit on people that can’t handle it. Don’t push alcohol on American Indian children that can’t handle it. Make money selling things that are good for your customers (this would not be cigarettes).

Young person regarding work: Pick something you really like. Love something so much you never have to work. You are ¾’s of the way there if you like something and it does well for others. Charlie said he may have only picked the second best thing for himself (law), but was partly being practical.

Used to sell the best hour of his morning to himself and the rest of the day to his clients.

Coca-Cola: not as good of a company today as 20 years ago, still very good. Distribution lines. Humans need to drink 8 oz of fluid every day to survive.

Pension funds. Doesn’t like consultants and typical diversification. Consultants aren’t worth a damn to clients. 75 bps to manager; 50 bps to consultant. Would have KO in every pension account.

How can you come up with an 8% return projection for a pension fund? Just say you want it. This is not the Munger way. Numbers don’t support it.

Personal Calendar. Does everything he says he’ll do, but has gotten brutal at saying no to things. He doesn’t want a busy calendar. Doesn’t want to be like a busy dentist.

Admires skillful dentists, but doesn’t want to be one. Said people with jobs where they know they are doing well (dentist fixing teeth, plumber fixing leak, etc.), might be better for most. Jobs with a fuzzy answer might be tougher on the person (my guesses: money management, economist, etc.)

If you are want to teach values to children, you should start by living them yourself.

Audience: we’re not normal; we’re the only people Charlie impresses

If BRK pays a dividend, that will be failure because it will be admitting they don’t have good things to do with the money. Hopefully it doesn’t happen in his lifetime.

Good ideas from countries do travel. The good things originally developed in Greece are still with the world even if Greece is a mess. US’s example has changed Asia. Singapore’s example changed China. Singapore’s Lee Kuan Yew was educated in England and learned from England.

Unemployment in the US is a result of increased competition from China. Same thing that faced Japan. We will continue to have trouble with this.

Costco: Charlie’s favorite company if BRK could not be a choice. Meritocracy, think of customers always, passes on all savings to customer. Strength for the long term. Read past COST annual reports—million lessons in them. Every time Donald Trump says something and you get discouraged, think of Costco.

Rub your nose in your own mistakes. It’s a wonderful trick.

Charlie doesn’t believe in a manager-of-manager approach.

Money managers. More money under management, they perform worse. Hard to pick good managers that would scale.

Insurance: quite a mediocre business for the average insurance company

Energy solves almost every problem. Fortunately we will likely be able to get all the energy we need from the sun.

Wells Fargo’s ex-CEO Reichart. When explaining a bad decision to Charlie: I had my head up my ass. Charlie likes that kind of explanation. Dick Fuld would never say anything like that.

One investor told Charlie she avoids all financial company stocks. Charlie said that would not be irrational.

I need it, I want it, and therefore I should have it. Child behavior. Charlie detests such an attitude. Charlie doesn’t believe it is good that everyone can vote. (My feeling, it is not good that half of all American’s pay no taxes yet they all can vote.)

Anyway, once again it was great day. Also, I’m glad I typed up these notes. I get a lot out of doing do.

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"Used to sell the best hour of his morning to himself and the rest of the day to his clients."

I recall reading something similar in the book written on him, Damn Right!. Worth hearing again.
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"Charlie said BRK’s stock went way lower than Warren and Charlie anticipated because of the Japan earthquake and Europe’s problems."

Interesting that Mr. Munger would choose to cite "Japan" and "Europe" as the cause of Berkshire's recent stock decline.

Perhaps a poll is in order.

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"Charlie said BRK’s stock went way lower than Warren and Charlie anticipated because of the Japan earthquake and Europe’s problems."

The question I have is what price then were they considering to be a fair price for the transaction? Apparently, it was before the recent price drop. So, somewhere around 120-130?
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Thanks for taking the time to write these up.
This is the first Wesco meeting I have missed in years and am sorry to hear it was the last one. I was there in May, but alas it was not to be.
I'll miss bumping in to the other "hard core nut cases" in Pasadena
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Thanks Roughly. Made my weekend. Charlie is simply "amazing". I am currently reading his Almanac. Interesting to see that Buffett and himself recognized Brk going way lower than it should have. I usually don't get to excited but I thought it was really unbelievable in the $73 range.
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#1 Magazine: Economist.

Most interesting obituaries that I have ever read. Dr. Steve
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