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Charlie Munger's advice on investing and life choices that make a person wealthy
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As Berkshire's Vice Chairman, the 95-year-old Munger is Warren Buffett's right-hand man. He's also an investing legend in his own right. Munger ran a firm in the 1960s and '70s that scored returns of over 24% per year. He's here to talk about how to make investment decisions and life choices that help secure prosperity and longevity. I'm Andy Serwer. Welcome to "Influencers." And welcome to our guest, Vice Chairman of Berkshire Hathaway, Charlie Munger. Charlie, nice to see you. CHARLIE MUNGER: Delighted to be here. ANDY SERWER: So you just had the annual meeting. And I have to ask you what your favorite moments of that were. CHARLIE MUNGER: What I like is that both the shareholders and employees of Berkshire are so extremely enthusiastic. And it's not just that they made a lot of money and have nice careers. They think they're on the right side. ANDY SERWER: And, you know, they come there to hear you guys talk all day. And-- CHARLIE MUNGER: Yeah, it's like a cult. ANDY SERWER: It's like a cult? CHARLIE MUNGER: Yeah. ANDY SERWER: In a good way, though? CHARLIE MUNGER: Yeah, a good cult. Yeah, it's a good cult. ANDY SERWER: OK. I mean, and the stuff that they hear-- some of it's new, some of it's old, and a lot of it is common sense. And you were talking a lot about-- CHARLIE MUNGER: All of it is common sense. ANDY SERWER: Right. CHARLIE MUNGER: But of course, when people use the word "common sense," what they mean is uncommon sense. Because the standard human condition is ignorance and stupidity. And when they say, old Joe has common sense, what they mean is he has uncommon sense. ANDY SERWER: I guess it's a bit of a misnomer then. CHARLIE MUNGER: It really is. ANDY SERWER: So, yeah, why is it that people can't think clearly about investing or decisions in their lives? CHARLIE MUNGER: Well, they don't think very well about sex or gambling either. You know, I think the standard human condition has a lot of miscognition. ANDY SERWER: And there are ways to make hay of that or-- CHARLIE MUNGER: Yes. You take advantage of other people. You can improve your own life by eliminating your miscognitions. ANDY SERWER: Let me shift gears a little bit, Charlie, and ask you about the US economy. And what is your take on where things are right now? CHARLIE MUNGER: Well, obviously, they're booming. But, you know, the economy sometimes booms, and sometimes it doesn't. And you have to live your life through both episodes. And our idea is we just keep swimming. And sometimes the tide is with us, and sometimes against. But we keep swimming either way. ANDY SERWER: Are you surprised by how long this expansion has lasted? CHARLIE MUNGER: Of course, it's lasted a long time. But what was really remarkable is that we never printed money so much and spent it so fast and bought back so much debt, public and private. So this is total terra incognita in economics. And nobody knew for sure how it was going to work. ANDY SERWER: So was it risky then? CHARLIE MUNGER: Of course it was risky. But it worked. And I don't think they had much else that it would work. They weren't set up to do stimulus-- too much controversy. Democratic inertia is very thin. So they had to do something. And all they had left was just to print money and start buying things. And that's what they did. And it turned out to be a very wise response. And what's even more remarkable is that both Congress and the presidency and both parties made the same decision. They all cooperated. It was the last time. For more of this transcript click; https://finance.yahoo.com/news/influencers-transcript-charlie-munger-105001910.html Subscribe to Yahoo Finance: https://yhoo.it/2fGu5Bb About Yahoo Finance: At Yahoo Finance, you get free stock quotes, up-to-date news, portfolio management resources, international market data, social interaction and mortgage rates that help you manage your financial life. Connect with Yahoo Finance: Get the latest news: https://yhoo.it/2fGu5Bb Find Yahoo Finance on Facebook: http://bit.ly/2A9u5Zq Follow Yahoo Finance on Twitter: http://bit.ly/2LMgloP Follow Yahoo Finance on Instagram: http://bit.ly/2LOpNYz
Segments Timeline
Charlie Munger: The Steady Hand of Berkshire Hathaway
Charlie Munger, Vice Chairman of Berkshire Hathaway, shares insights on his long tenure and the importance of decisive leadership combined with a steady hand in business. He reflects on the enthusiasm of Berkshire's shareholders and employees, emphasizing that their success is rooted in a shared belief in their mission.
"a business empire needs decisive leadership but also a steady hand for over 40 years Charlie Munger has been the ladder for Berkshire Hathaway as Berkshires vice-chairman the 95 year old Munger is War..."
The Misnomer of Common Sense
Munger discusses the concept of 'common sense' and how it often refers to 'uncommon sense' due to the prevalent ignorance and miscognition in human behavior. He highlights the challenges people face in making clear decisions about investing and life choices, drawing parallels to other areas like sex and gambling.
"[Music] [Music] I'm Andy serwer welcome to influencers and welcome to our guests vice chairman of Berkshire Hathaway Charlie Munger Charlie nice to see it to be here so you just had the Annual Meeting..."
Navigating Economic Booms and Busts
Munger provides his perspective on the current US economy, noting its booming state while acknowledging the cyclical nature of economic conditions. He emphasizes the importance of resilience and adaptability, stating that one must keep swimming regardless of the economic tide.
"it's a bit of a misnomer then but really is so you know why is it that people can't think clearly about investing or decisions in their lives well they don't think very well about sex or gambling eith..."
The Risks of Economic Stimulus
Munger reflects on the unprecedented economic measures taken during recent expansions, including aggressive money printing and debt buybacks. He discusses the risks involved in these strategies and the surprising bipartisan cooperation that led to their implementation.
"and but we keep swimming either way are you surprised by how long this expansion has last its lasts a long time but what was really remarkable isn't it we never printed money so much and spell it so f..."
Debt and Economic Reality
Munger critiques the notion that federal debt is not a problem, likening such beliefs to fairy tales. He stresses the importance of understanding the limits of monetary policy and the potential consequences of excessive money printing.
"last time but where is that going to leave us ultimately well that left us licking the Great Recession so try cooperation again since it works so well once how much is president Trump responsible for ..."
Evaluating Federal Reserve Leadership
Munger shares his thoughts on Jay Powell's leadership of the Federal Reserve, suggesting that while he is a suitable choice, the broader issue of wealth and income inequality remains a significant concern that needs addressing.
"the best example probably in the whole world is Singapore which has zero death and never prints money and spends it and it's one of the most successful places on earth I wish we were like that but but..."
The Accidental Rise of Inequality
Munger discusses the rise of wealth and income inequality as an unintended consequence of economic policies during the Great Recession. He argues that while it is a problem, it may resolve itself over time without drastic measures.
"have any thoughts on Jay Powell and the job that he's done well I think a lot of it I think he's as good a choice as we could have made one consequence of this expansion or actually it precedes that i..."
Political Proposals and Economic Solutions
Munger critiques proposals from politicians like Alexandria Ocasio-Cortez and Elizabeth Warren, expressing skepticism about their understanding of economic principles. He advocates for practical measures like raising the minimum wage and enhancing the social safety net.
"Anouk they'll go away by itself sure so there's no reason for a lot of screaming above they're idiots it's gonna go away but so now that's not to say that we can't raise the minimum wage a little enla..."
The State of Political Division
Munger reflects on the current political climate, expressing concern over the extreme partisanship and anger that dominate discourse. He longs for a return to a more civil political environment, reminiscent of past bipartisan cooperation.
"a little bit more what about the situation that we find ourselves in with the Muller report and the way Congress the Democrats are fixating on that and the president's on the defensive what is your th..."
Warren Buffett's Investment Evolution
Munger recounts his influence on Warren Buffett's investment strategy, encouraging a shift from cigar butt investing to focusing on high-quality businesses. This change allowed Berkshire Hathaway to scale and invest in more substantial opportunities.
"extreme hatred on both sides will we ever get back to those days or get two new days where we don't have the hatred probably you live long enough well the good things happen a lot of bad things happen..."
Brand Value in Investing
Munger discusses the significance of brand value in investment decisions, using Coca-Cola as an example of a strong brand that remains relevant. He contrasts this with the challenges of evaluating technology companies.
"time our Apple and Amazon technology companies are they bring in companies both someone told me they asked Warren if he could buy one brand this was about 40 years ago what that company what that bran..."
Reflections on Kraft Heinz
Munger addresses the recent developments at Kraft Heinz, particularly the departure of its chief marketing officer. He analyzes the contrasting success of Heinz ketchup versus Kraft cheese, illustrating the complexities of business acquisitions.
"coca-cola I want to get back to Apple Tim Cook was at the meeting yesterday he was indeed did you get a chance to speak with him I did can you tell us what you guys talked about it nothing we exchange..."
Leadership Changes at Wells Fargo
Munger reflects on the leadership challenges faced by Wells Fargo, particularly the departure of CEO Tim Sloan. He discusses the pressures of public scrutiny and the consequences of corporate missteps, emphasizing the need for accountability in leadership.
"mentioned that you think that Tim Sloan could still be or should still be the CEO Wells Fargo yeah we're running the world Tim Sloan would still be the CEO of Wells Fargo well why did he leave then we..."
Boeing's Safety Record
Munger addresses the Boeing 737 Max situation, expressing confidence in the company's ability to rectify its issues. He acknowledges the seriousness of the mistakes made but highlights Boeing's historical safety record as a reason for optimism.
"charwoman when you're ready to gambling us that was getting back to coca-cola you mentioned that it would be a bad idea if it got into cannabis I mean why not doesn't it make sense it's such a wholeso..."
Simplicity in Business Deals
Munger discusses Berkshire Hathaway's approach to business deals, emphasizing the importance of simplicity and quick decision-making. He argues that avoiding bureaucratic complexities has been key to their success.
"ollie a little bit about that was a serious mistake you know sitting there still working on it yeah they'll fix it Boeing probably has the best safety record in the world if you take 60 years and this..."
Succession Planning at Berkshire
Munger talks about the ongoing succession planning at Berkshire Hathaway, assuring that both he and Warren Buffett are prepared to step back when necessary. He highlights the competence of the next generation of leaders within the company.
"quick decisions I want to ask you about something that's talked about all the time with you guys which is succession and you talked about again you talked about that all the time and there's been coun..."
Opportunities in Global Markets
Munger shares insights on identifying investment opportunities globally, emphasizing Berkshire's strategy of utilizing surplus cash intelligently. He notes that they remain open to opportunities as they arise, without a fixed master plan.
"have you talked about that sure and Lord has told people to speak up whether the time comes if we've been rational all this way you think we're not gonna try and be rational right till the bitter end ..."
Brexit and Investment Potential
Munger discusses the potential investment implications of Brexit, acknowledging the uncertainty surrounding it. He expresses a willingness to explore opportunities that may arise from political changes, despite not having deep knowledge of the situation.
"they think the work is done if you get it out of your inbox and then to somebody else's inbox that is not getting it done getting it done is when it's done not when it's in somebody else's inbox you k..."
China's Economic Transformation
Munger reflects on China's rapid economic growth and transformation over the past few decades. He attributes this success to pragmatic leadership and the ability to adapt, highlighting the remarkable achievements of the Chinese economy.
"understandable what Europe wanted to get together and addition to the advantages they got from the free trade they had a long history of having wars and we all sort of one big place trading with one o..."
The Flaws of the Medical System
Charlie Munger critiques the U.S. medical system, highlighting its inefficiencies and the burden of high deductibles on families. He emphasizes that the entire system is flawed, pointing out the unnecessary tests and the disgraceful prolongation of death, advocating for a reevaluation of healthcare practices.
"system that grew like Topsy by accident with the help of a lot of dumb governmental intervention not all of it was dumb but so it was and and the system is ridiculous if a young family has to pay a $5..."
Learning from Singapore's Success
Munger discusses the impressive outcomes of Singapore's healthcare system, noting its low crime rates and lack of national debt. He expresses a desire for U.S. politicians to study Singapore's effective governance, despite criticisms of its authoritarian nature, emphasizing the results over the political structure.
"disgrace of course I don't like it have you ever thought about moving to Singapore charlie well no but I'd like to move some of Singapore's results in to the United States they have practically no dea..."
Spontaneity Over Scripted Meetings
Munger shares insights on the annual Berkshire Hathaway meetings, stating that spontaneity enhances the experience. He and Warren Buffett do not prepare scripted remarks, believing that genuine interactions resonate better with shareholders and employees.
"result what the hell's wrong with the head I was with some people just a few minutes ago actually and they were kind of recounting some of your zingers do you spend time before the meeting say oh I've..."
The Influence of Military Service
Reflecting on his time in the army, Munger explains how it shaped his perspective on bureaucracy and authority. He recounts his experiences as a junior officer and how they reinforced his preference for autonomy and capitalism over being a cog in a bureaucratic machine.
"you and Warren don't say anything at all before you sit down zero you have no idea what's gonna happen that is correct that's fantastic so I want to ask you just a question or two about growing up and..."
The Path to Success: Luck and Rational Thinking
Munger discusses the importance of rational thinking and discipline in achieving success. He shares a story about Mozart to illustrate that while talent is essential, it is also crucial to avoid seeking shortcuts and to embrace a methodical approach to one's career.
"am much better adapted to being a capitalist operator than I am to being a cog in a bureaucracy did you ever get in trouble in the army of course tell us about that well my senior officers could tell ..."
The Balance of Luck and Skill
In this segment, Munger reflects on the interplay of luck and skill in his career. He acknowledges that while luck played a role in his success, a combination of rational thinking and disciplined decision-making was equally important.
"will not work for most people and so I always tell I'm always being visited by a young man who say I I'm practicing law and I don't like it I'd rather be a billionaire how can I do it and I tell him w..."
Peanut Brittle and Berkshire's Culture
Munger humorously discusses his fondness for peanut brittle at Berkshire Hathaway meetings, revealing the playful culture within the company. He addresses the balance of promoting various brands and the camaraderie among different Berkshire subsidiaries.
"luck yes well but I think there's more to it than that I mean where were you yes the combination of luck and skill that's what all good records are right so let me just ask you a few more questions an..."
Philanthropy and Family Legacy
Munger shares his views on philanthropy, explaining why he hasn't signed The Giving Pledge. He emphasizes his commitment to ensuring his wealth benefits his children, reflecting on the legacy he wishes to leave behind.
"promoting I would never claim that but you you know that the Koch people and the C's people get special placement up there yes they do but those are two-way C's was our first great brand and Koch is o..."
The Future of Berkshire Meetings
Munger speculates on the future of Berkshire Hathaway's annual meetings, suggesting that they will evolve over time. He emphasizes that their success was not by design but rather a fortunate outcome of their historical context and adaptability.
"any thoughts on how the meeting is going to be different next year I mean when do you start talking about that or do you even talk about that meaning we never talked about it we just do what works as ..."