Charlie Munger's Last Podcast
Rest in peace
When I was 18, I was first learning about investing. Charlie Munger was one of my YouTube mentors. Today, I’m still learning from him. Charlie was Warren Buffet’s lifelong business partner. This past November, Charlie died at 99 years old. Fortunately for us, he delivered this awesome 1.5-hour podcast with Patrick Collison, the co-founder of Stripe.
To really know something, I like to write, say it, and recall it from memory. These are my highlights from the podcast. It’s all Charlie talking unless specified otherwise.
Here’s to 99 years of clear thinking, and a book’s worth of insights.
Charlie: In the messy world of running businesses, the conventional religion was asinine [utterly stupid or silly]. My theory was to eliminate all the conventional asininities, and if I could do that, I would have an advantage over most people.
So I collected asininities as things I should avoid.
When you get to the wealth advisory business, you can hardly find another place in the world with so many high-IQ people doing so many dumb things.
My temperament and my location forced me into the business of investing my own money shrewdly. I was shrewd even when I didn’t have much money. When it worked, I just kept doing more and more of it.
I never paid attention to the boundaries between disciplines. Early on, I got the idea that I would learn all the big ideas in pretty much all the disciplines. I would learn those big ideas to fluency by constantly using them.
When someone says, he has common sense, they mean he has uncommon sense. When people are sensible with practically everything they deal with, they’re uncommon, not common. Most people are a mass of crazy prejudices.
When I was introduced to elementary probability, I saw immediately how important it was. My math teacher had no idea that he’d come to a part of math that is very important in the practical world, to everybody. I saw it immediately and just utterly mastered it. I used it routinely throughout my life, quite intensely. When I got to Harvard Business School, they finally taught decision tree theory.
If you don’t pay attention to anything else, this stuff [decision tree probability] you ought to master.
My idea is so simple. If you make your living selling things to people that are good for them, that is safer and more profitable, averaged out, than selling stuff that’s bad for them, like gambling, drugs, and crazy religions, things that are terrible for people. So of course, you want to sell them things that are good for them.
It’s amazing the people who don’t pay attention to that rule. I think of sleazy products that investment bankers and compensation consultants are willing to sell. I decided I was going to sell the kind of stuff that I would buy if I were on the other side. I also wanted to work with the kind of people I admired. It’s very important to learn: Search out the reliable people that you can trust, and be the kind of person they can trust. It’s a huge advantage if you start doing that young and do it consistently through life.
Stay awake in high school math, deal with the good people instead of the bad people, and sell what you would buy if you were the buyer.
You can hardly think of a more unethical way to make money than the Sacklers, selling illicit drugs under the guise of being a legitimate pain removal company.
By and large, we [Berkshire] haven’t invested in pharma. We have no edge. I don’t know enough. If you know the edge of your competency, you’re a safer thinker and safer investor. Warren and I pretty much know what we know and don’t know, what we’re good at and what we’re not good at. We’re not good at guessing at [successful] pharmaceuticals, so we don’t even look at it. It’s a big universe.”
We’ve done some things that look like venture capital. But averaged out we’ve bought existing businesses that have a lot of momentum as well as a lot of talent. And just rode those things. We’ve made way more money by finding something that’s already working in a business and just buying in, then starting new ones from scratch.
Start with the business you don’t want and work backward. A business should be careful about the business it deliberately does without. Figure out what you want to avoid.
Patrick: Has investing gotten harder?
Way harder. Most of the people in wealth management have almost zero chance of outperforming an unmanaged index like S and P. It’s harder to manage a large sum of money than a small sum. And more brains have come in. In my lifetime, the standard return was 8% after inflation. That was a very unusual period in a very unusual place. I do not anticipate that the average result is going to be nearly that good over the next hundred years.
[On Crypto]
I think cryptocurrency ought to have been driven out as illegal.
If I lived in [high-inflation] Turkey I might do something odd; I might buy gold if I lived in Turkey, but I would never buy cryptocurrency. I don’t think that a percentage of nothing is a good investment, even if it’s hard to create more nothing.
Gold is similar, but it’s been established for so long. Gold is hard enough to mine and so forth. Gold is a reasonable thing to use as a currency. Gold helped civilization develop.
I think crypto is a scumball activity. By and large, people who promote it are scumballs or delusionary, I don’t know which is worse.
If we don’t have gold, we might have invented cryptocurrency. But we have gold. I think the anti counterfeiting laws should have been used to bar cryptocurrency.
You can call it a store of wealth, I call it a store of delusion. I don’t think it’s good to participate in illusion even when it gets common. It’s ideal for drug dealers, scam artists, every kind of criminal. Why would we want a crime-facilitating medium of exchange?
Patrick: We’re staring into recession, what advice do you have?
I have one standard advice for all difficulties. Suck it in and cope. That’s all any human can do. Partly you have it be shrewd. Be as shrewd as you can be.
The old guys always say “The world is going to hell.”
I think our way of getting nominees is deeply flawed. These modern primary systems, the worst people always win. We have a political gang problem that’s probably as bad as we’ve ever had.
Low birth rates create a different world. I think the people who marry at 21 or 22 were a luckier generation. It’s very constructive to help other people, and everybody feels pretty good about his own children. To have a lot of responsibility and bear it well, I think helps people.
Early marriage, having children, and believing in religion are good for the occupants in terms of their personal happiness. I have no doubt the Mormons average out happier.
Adjust to whatever society turns out to be and you do the best you can. That’s all I’m going to do.
I think architecture is queen of the arts. Maybe music too. Peculiarity is not art by itself, in my opinion. [As an architect] I want to identify the real needs of my customers and satisfy them.
There’s always a lot of things that can be improved. That’s one of the pleasures of modern civilization. All kinds of things have been greatly improved.
A postal worker can take a two-week vacation in Hawaii.
You can learn a whole new profession by punching buttons on the Internet. The possibilities of self-education are perfectly enormous.
5% of people I grew up with became alcoholics. Half of those drank themselves to death.
Selling drugs is a way of cheating. It’s not win-win. Civilization works as well as it does because so much of it is win-win. Everything at Berkshire is win-win.
Patrick: So you wouldn’t invest in drugs, tobacco, or the Grateful Dead?
That’s correct.
The beauty of capitalism is it makes win-win transactions very easy and almost automatic.
Look at the misery that the Russian people experienced. Capitalism is how we take care of people we don’t know.
I think it’s peculiar that high-IQ nerds in India and China love me.
I don’t like left-wing woke and I don’t like right-wing nutcases either. I’m an equal opportunity, hater of political orthodoxy.
Make a contribution, make yourself useful. The win-win entrepreneur mindset.
Patrick: When evaluating a business what questions do you ask?
Is it likely to remain forever as a money maker?
Patrick: The duration of Berkshire’s investments is remarkable.
I don’t care if the cat is black or white, so long as it catches mice.
Intel was [too] interested in always reporting more earnings. If your surfing the edge of a new technology development you have to go all out all the time, you have to be leading all the time. At Berkshire, we don’t have to invent new things, compared to most places. We’re not in the business of inventing new things. You have to be totally fanatic, the people in China were way more fanatic. China had one guy controlling the place and he was a fanatic. Intel had an army of bureaucrats interested in executive awards and approval of Wall Street. They disappointed a lot of customers.
[On Sequoya and Robinhood]
It was a huge mistake for Sequoya to get involved with Robinhood. They lie. The whole thing is a lie. They’re trying to create mass hysteria. I don’t like luring people in and screwing them. Bitcoin? Why, if you’re as successful as Sequoya, why in the hell would you take Robinhood and some goddamn crypto… it’s totally crazy. You don’t want to do all the business that’s legal for you to do. You want to exclude all kinds of things because it’s beneath you. If you work intelligently, it gets hard, but not impossible.
I’ve got Cosco stock, Berkshire stock, Lilu’s China fund, and apartments. I’ve got four investments, after 60 years. By the way, I feel perfectly adequately diversified. Nobody teaches that’s adequate diversification, and they’re dead wrong. The simple fact is that it’s easier to find four things that are above average than to find forty. It’s not that damned easy. How many gold mines are you going to find in your backyard? You shouldn’t expect to find that many opportunities that are clearly identifiable. It’s gonna be very hard. You’re lucky if you get only a few in a lifetime. Then you have to be a combination of very patient and very aggressive. Waiting, watching, surveying, hunting and pounce very occasionally. If you get four pounces that really work big time, that's a very successful lifetime.
[On the investment management industry]
Basically, everyone is forced to be a closet indexer because no one wants to be an outlier on the losing side because that can destroy your investment management business. I could argue the whole damn system is corrupt in investment management. They take care of agents more than principals. They lie to themselves and they lie to others. And that’s our system.
Everybody [in finance] wants easy money fast. That requires a plausible narrative, and a big fee. Modern venture capital is investment banking in disguise. Same morality, same obsession with a lot of quick wealth.
I’d rather have a brief phone call with someone I trust, than a forty-page contract written by the finest law firm in the world with someone I don’t trust.
Trust is one of the greatest economic forces on earth.
Poor Charlie’s Almanac is a lot like the guy who created modern Singapore. Figure out what works, and then do it. Do that relentlessly.
Figure out what works and do it. Figure out what doesn’t work and avoid it.
Pretty god damn simple.
I have two busts in this house: Benjamin Franklin and Lee Kuan Yew.
Thanks for reading
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Have a great rest of your day.
Chris