Charlie Munger @ Redlands Forum 2/7/2020 - Sponsored by ESRI
Speakers: Charlie Munger, Jack Dangermond, Larry Burgess
All transcription errors are my own, please enjoy.
Questioner
Welcome everybody and Charlie welcome to
our Redlands family well I'm glad to be
here I always like these awkward moments
you're supposed to step oh I'm supposed
to start well listen ladies and
gentlemen this is an amazing evening
I've had the pleasure to spend I think
three times with Charlie four times once
at his house in Hancock Park and and
then from time to time he comes to Redlands
us it's not amazing and so I'll simply
start with an interesting question I
think it's an interesting question
Charlie you have investments in a lot of
places like mill Valley and Santa
Barbara and you live in Hancock Park and
sometimes you say that Pasadena is your
second home and then you have various
investments around Claremont and now
investing here in Redlands. Why are you
investing at Redlands what do you what
do you think about Redlands I mean what
is it that attracts you here I mean I
can see a kind of pattern there Santa
Barbara Mill Valley Pasadena Claremont
and Redlands what is it?
Charlie Munger
well I have a
natural prejudice for this area because
when I was at Caltech in I used to
hang around here my first wife went to
Scripps College and my sister went to
Scripps College and so I'm very familiar
with this area and of course I've
interfaced a lot of the people who love
these universities out here and so I I
started with a very always like the
orange trees against the mountains
whatever I started with a deep prejudice
yes and but my investments here happened
by accident what happened was I live in
a neighborhood which the ascetic Jews
came into a few decades ago a very
successful group of people and one day
in the my house a very young seventeen
year old as that he Joe came by and gave
me the Hebrew Bible in Hebrew and you
know Munger sounds like it could be a
German Jewish surname and it means
peddler in both German and English so it
wasn't totally crazy first setting Joe
to think that Munger could read the
Hebrew Bible in Hebrew but of course I
couldn't and I got to talking with him
and one thing led to another and I saw
there befriended avi and watched him
grow up and and avi never went to
college he has a mild attention deficit
disorder but Ferociously high IQ and he
was worried about it and I said avi I
said don't worry about you don't need
any college you're going to succeed
vitalism
well Avi now it has four children
hugely successful business and I was
right he didn't need college
Questioner
and Avi is standing
rather there stand up avi is
Munger
Wave to the crowd
Avi had a client his
main client in his apartment management
business and he was unhappy and and I
think rightly so and so I said to him
one day cuz I've gotten the like and trust
AVI I said why don't you just get rid of
that client you've gotten by a bunch of
apartments for me and the first ones we
saw were the ones I bought out here and
that's how it happened
and by the way there at the end of
Alabama you know those beautiful
apartments they're really amazing park
you park you park you dare write
Questioner
I think
half of the occupants of those
apartments work at Elstree
Charlie Munger
so so one day
I'm sitting there and he calls me he
says could I come out and talk to you of
course I didn't know exactly know who
Charlie was so sure yeah okay
and that's what began this friendship
passionate amazing but we've had a fair
amount of fun Avi and his partner Reuben
and I and it's kind of creative to buy
old apartments and fix them up and of
course we have a philosophy that that
properly cared for and the apartment
management field is full of people who
just milk the properties and do the very
minimal and that's a stupid mistake if
you're a long-term investor and avi and
I share a belief that all these things
should be immediately improved and I
think in the first what year or
something like that we spend $, on
trees on just four projects
Questioner
you've got
my heart right there
Questioner
was that a planted
question? [bad dad joke haha]
Charlie Munger
but Jack you're probably doing
it out of love and I know how much
better it's going to work for me so I
don't deserve much credit because it's
very much in my interest financially to
plant all those trees now I would
probably plant them anyway but I can't
prove that that's how that's how we get
came out here and of course I like I
like the mountains like the trees and I
like the people what I like these good
colleges and I I didn't start out with
the idea I picked Redlands out of the
world it's just where this apartment
project that caught my attention was and
but once I was here I did not know there
was an ESRI company I have made my way
in life with a pencil and a pen
calculating machine in the compound ever
stable and I haven't looked at the
calculus question since I was years
old so I'm totally a creature of
old-fashioned horse sense a little
arithmetic and so I don't know about
software companies like Ezra if I'd
known I would have paid more for the
project you know it's it's a huge
blessing to go into communal is a big
employer that keeps hiring and so forth
then obvious so smart I didn't suggest
that he started giving they're all kinds
of rules of apartment-house operators
about guarantees of leases and down
payments and what-have-you and not every
new employee of Eve
Ezri qualifies and I'll be just one look
at the situation and waves all those
requirements for anybody that wants to
work at ESRI Thank You avi I really
appreciate that but there again he
doesn't deserve any credit it's a smart
business direct so he doesn't know
whether he's being nicer being a greedy
I do whatever I like these things were a
confluence of two factors is working in
the right direction yeah and but it I
happen to think I share Jack's interest
in the design and architecture which is
an absolute accident my uncle was a
graduate of the Harvard School of
Architecture and I am a graduate of the
Harvard Law School and I have done a
fair amount of house building for myself
and and building projects of various
kinds in my long life and so it's kind
of a hobby with me to do what Jack does
professionally and so of course and I
see this beautiful campus this very
successful company and I'm also a total
nut on the subject that the best way to
get what you want life
to deserve what you want and of course
if you apply that the business that
means you really take care of the
customers and it's perfectly obvious
that what's happened to ESRI would not
have happened if it weren't terribly
good taking care of the customers and of
course that's again I don't deserve any
credit for doing it and I know I make
more money taking care of the customers
I would if I were more short-term
operator than operating
em so yeah I don't on a masquerade as a
better fellow I am because since it
works so well I don't think it's it'd be
nicer if I were mother Teresa do something I
didn't like doing because lemon dough
will sold but I can my life is organized
a just time after time what works for my
pocketbook works for every moral
teaching I've I've been taught you know
and I anybody was in such a possession
it's very lucky and you people will work
for a company like ESRI are hugely lucky
too because there are a lot of employers
that are defective one of the things
Questioner
I have as a question as you have acquired
many companies you and Warren together
in your career you've looked at probably
thousands what's the kind of philosophy
that you have determining what's a good
company and what's not a good company
right I'm not suggesting that you had
perfect success in all of your
acquisitions because I know you have you
told me that but what is it that what is
your sort of philosophical rule base for
when you're looking at organizations to
invest in or acquire
Charlie Munger
well we have a very
peculiar way of looking at things we
want to buy something that's
intrinsically a very good business
meaning there's an idiot cos Runner and
it would do all right and then we want
that business which an idiot could run
successfully to have a wonderful person
and running it and that we have a
wonderful business with a wonderful
person running it that really turns us
on and it works very well and now we do
make exceptions
but not many and and it's a pretty
simple philosophy
Warren sometimes says
you have to choose good person or good
business you know what he says this is
not politically correct he says good
business he wants something that has
such a such tremendous strength
I had a friend why we practice law and he said
if it won't stand a little mismanagement
it's not much of a business
and we like
businesses that stand a lot of
mismanagement but don't get it so that's
our formula and it and we can't make it
work perfectly but it certainly worked
better than most people's things have
been and then and we reject some
wonderful businesses and some wonderful
people where it's just too tough yeah
you know I took on once I've been so
lucky in life that I took on wants a job
of a chairman of a non-profit Hospital
because it was a losing hand too many
competitors to weak position yeah a lot
of terrible defects and I said you know
this is good for me you know I am
exposed myself to the disappointments of
the real world and I want to say it was
years mixed agony and pleasure and
the agony never went away it was if the
business is tough enough it hasn't way
of staying tough as a warrants that says
that when a business with a reputation
for being tough and a manager with an
opportunity for being brilliant get
together he says it's the reputation of
the business that remains
and if they start tough they stay tough it's really
hard to judge a whole business or a
person well lot's of luck if you're
coming with disappointed one of your
children
[Laughter]
Questioner
yeah one time you mentioned that you
have a particular way of making deals
with people your friends business deals
could you sort of express that to this
crowd you know your sort of philosophy
about do you try to win it all cause or
what is
Munger
well no no no again what
really works in life is win-win and
that requires some sensitivity to the
other roles way of thinking and his
needs to end but win-win is the
only formula that that really will work
on and on and on and when it really
starts working when two people trust
each other imagine take a operating
theatre the Mayo Clinic the whole damn
group trust one another there's not a
lot of lawyers are cut you know they
just know what to do and want to do it
and who to call um for what helping
everybody does what they're supposed to
and so on so we're trying to get these
win-win relations and of course I see it
all the time
Costco has this reputation I'm a
director of Costco and Costco has this
reputation of being a fairly tough buyer
I don't regard them as that tough they
there are a lot of people who are
richest small compliers of Costco and
but but Costco's into into win-win and
and that that's what really works
Questioner
yeah it's win-win with their customers
but it's also win-win with their
suppliers and it's also win-win with
their employees absolutely everybody has
to win land and
Peter Kauffman
you know else just it was here a few
weeks ago didn't anybody see Peter he's
the close friend of Peters the element
win-win operator and the
Charlie Munger
last person I
want to compete with in life is Peter he
just takes such good care of the
customers I've never heard any complaint
from Peters customers except his prices
everything else about the business is
perfect yeah
Jack (Questioner )
Larry do you have any questions?
Larry Burgess (Questioner )
yeah I totally but I'm going
to change it from the subjects
you've been asking Jack and for warning
spoiler alert we talked about this back
backstage I think you have a surprising
take on a question that I was asking
about philanthropy in this country and
you gave an analysis
that to me was quite unexpected that
wasn't really thinking about so can I
have you yeah all the gang we had to
repeat it
Charlie Munger
what I have noticed in my life
is that in Europe they do not have
American philanthropy it's just during
the only country in Europe where the
people give heavily in routinely what we
do here is how long then they were
fighting the North Sea together
percent of Holland is under sea level
and they really had to help one another
were the dikes and so forth and America
we had the Pioneers taking away the
country from hostilities and danger and
bad climate and so forth and everybody
had to help everybody else so I think
that both Holland and the United States
were helped with a big tradition of
philanthropy but I think common hardship
and I think it's a great strength that
we have in America and if any of us were
transplanted to Italy or France or
Germany we'd feel hurt was selfish
people they just don't have much of a
tradition of giving yeah and I don't
know about you but my involvement with
charitable activities has been a big
part of my life and I think I'm better
for it I've had a better life so I think
they they're missing out
Larry Burgess
how do you do how you're
how do you do it I mean you
you what I've watched is you have a very
specific set of things you do and I'm totally
charmed by it but also interested in
having you Sharon
Charlie Munger
well not everybody is charmed by it
because I get begging letters every day
and I just always basket
particularly when they come for
individuals I don't know because I have
a feeling you I started responding to
those I'd have nothing but letters but
I'm like everybody else I have things
that interest me more than other things
and I have done a lot of philanthropy
where I mixed my own ideas with my money and
my attitude there is a lot like what
McNamara told the Chinese when he lived
over there when they were still mired in
communism without Chinese characteristics and
McNamara says we're
giving you all this money from my World
Bank he says well I want you to know
Something he says the ideas I'm promoting are
going to help you a lot more than this
enormous amount of money
and so it worked out, what a little free enterprise
did when added Chinese communism was
take million people up to a billion
something people and % of them were
living in stoop labor and subsistence
agriculture they were living like the
people of central Africa live and
and it wasn't that many years well if
the Chinese have a big middle class and
an average GDP of , dollars a
person instead of three hundred dollars
a person transform them and the ideas
were worth more
you have to give the Chinese credit for you know one of those
old communist says I don't care if the
cat is black or white as long as it
catches Mice
They watch the Chinese man
in Singapore and take a malarial swamp
and turn it into almost a paradise with
a % Chinese population and they're
sitting there in this poverty and
obscurity in no toilets and
and really who very tough lives and
here's Singapore flourishing with his
Chinese population that old communist
says I want to be like Singapore and he
made it happen
now that I think he deserves some credit
in my life I think what happened in
Singapore was one of the interesting
bits of political science that ever
happened in the history of the world I
would argue the Lee Kuan Yu was
probably the greatest nation builders
has ever built
now occasionally he would use a pretty tough method he took over
he was a very young man and he was
surrounded by a bunch of Muslims have
hated him and like they'd spit him
out and he asked all the other
nations of the world to please help him
get an army cuz they got him he's just
left and said handle their own problem
and every nation in the world refused to
help him but one and that was Israel and
he said how am I gonna take military aid
surrounded by Muslims who hate me from
Israel he finally figured it out he
accepted the Aidan told everybody they
were Mexicans
[Laughter]
well here you can see why he was so
successful
he had a mantra which
doesn't have any literary quality but it
has a lot of good sense and he'd say or
over again
figure out what works and do it
that's what Lee Kuan Yu said. That is very practical, very practical
can I hear out what works and do it do
Larry Burgess
a follow-up on this did you do you feel
that philanthropically are people I know
there's not a gene but born with an
instinctive sense that to help or is it
a learned trait as one gets on I just
Charlie Munger
I think there's a million different
reasons for philanthropy and one thing
that is very interesting that I've
observed in my life, I've known a lot of
roguish people that made it fair amount
of money and they start giving a little
money to show off and 20 years later
they're actually real for other us
you you you become what you pretend to
be to some considerable extent
andhaving observed this so much I think
there's something to be said for
hypocrisy but that's not a common
it's not a common observation but I've
seen it there's so much good in life
it I don't think it's all bad hypocrisy
I always try to pretend to be a little
better than I am
not too much of a
Questioner 1
by the way don't you read a book a day
something like that thank you
Charlie Munger
well maybe I read I skim oh yeah I do the accidents
of life you'll give me books I haven't
torn the books and perfect strangers
give me books yeah lots of them and and
I almost never buy a book anymore well I
was young I used to order them from the
book review columns of the New York
Times and now it's Tartabull comes in I
just saw like what I want and I'm amazed
at how well some of these people are
reading me and yes and what has that
done to your life I think well it's it
was perfect for me I don't think you can
take every bookish little boy and turn
him into a billionaire by patting him on
the head and say read all you want
Johnny but if it were that easy there'd
be more billionaires but but it it
enormously helped me and
I've been reading what you've learned at reading
and arithmetic you can take in so much
and you can take it in on your own time
schedule if somebody's talking to you
hear me telling you something you don't
want to know you already know it's too
hard or he's going too fast or too slow
but you're reading you can just they can
take it and you wallet so it's just it's
just it's just God's gift if you if
you're the self education there's
nothing like reading and
of course people do a lot of it have an enormous
advantage and
Jack
what does that say to education
Larry
yeah or you might have yeah we
back to this issue about sort of today
you have such a
and depth of diverse interests and ways
in which you acquire knowledge and
observation and all the rest but where
do you think we're headed in terms of
specialization versus a broad-based
Charlie Munger
at least well our specialization is the safest way up for
most people and for that reason they
surgeons know more and more about less
and less and that's it that's what's
gets rewarded didn't know if you have a
nasty fistula in your colon you do not
want two surgeons go to Proust or
political science it's understandable
how the world rewards this
specialization I never liked it and I
loved picking up new ideas being great a
passion of reader and so I decided I'd
make whatever living and I could make
doing what I like to do which is
wrapping over a whole field I do not
recommend it to other people because the
safe way up is no I have a lot about
something and under our system they find
you out you know as very wouldn't work
very well if you also rake lawns you
know you never know I've done I've done
my share of it yeah well I mean but have
you had everybody out here when working
by the hour raking wands on the spare
time it wouldn't work very well and
Jack
I think what Larry is trying to get at is
the role of a liberal arts education
what is your thoughts about that
Charlie Munger
well it's in a it's a it's an enormous
advantage of course if you learn your
own language that's a very useful gift
and of course learning the basic math of
life is another tremendous gift and if
you're really good at picking up
language and doing just basic arithmetic
you can take enormous territory you
don't need much else I have never looked
at the calculus problem since I left Caltech never left
it never looked once never used it and I
was a whiz by the way I went away
totally some years yeah
I don’t know about
your calculus but mine is mindless its
gone
and so but this other stuff
never goes away and if you keep honing
it and if you get good at it
then you learn something that's more
important than what they teach you in
college is you learn the method of
learning
when I want to know something I just learned it
and take for instance
I got to the Harvard Law School I
couldn't figure out how reverend moon
was inviting people out to one weekend
then they came back brainwashed zombies
for the rest of their lives and I just
nobody in the Harvard Law School could
explain it to me so I saw I'll figure it
out for myself you know my mother had a
little nursery rhyme a little heady
read Hamlet said I'll do it myself the
little radiant soul I said I'll figure
this out what I'd be a long time
but I finally figured out to my satisfaction
exactly what was being done they were
just and they just stumbled into this
through practice evolution it wasn't
calculated for thought they just
assembled a bunch of psychological
tricks impounded the one these people
all at once under conditions involving
stress and at a certain point the brain
would just snap and they had these
people transformed into slaves boom why
that was a very interesting thing but of
course nobody wants to talk about it
because it has implications people fear
but but
I think that the that habit of
oh if they won't explain if you figure
it out for yourself has helped me
enormously in life
it's also hurt me because you give
terrible offense when you go into
somebody else's profession and act like
you know more than he does and I've I
much smoother now that I was when I was
young I'm still pretty insufferable but
Questioner
what are you thinking about today is the
economy in reference to ten years ago in
reference to 20, 30, 40 years ago
Charlie Munger
what's going on today
well what's gone politics is the people
hate each other more than they used to
it wasn't that we didn't have political
hatreds in the old days but now the
hatred you can cut with a knife on both
sides I think it's very ugly and I also
think of this stupid
allow yourself to hate that much there
are two things I've noticed in a long
life really do a enormous damage to the
bearer and one of them is resentment and
the other is hatred and it's just what
good is it gonna do you to have this
Fester's down under the way the world is
and and
of course I've watched people
work on resentment to get power in
politics Adolf Hitler “did you know we
poor Germans of an abused
blah-blah-blah-blah waving his arms”
and I don't I think that we have drifted
on both sides and a way too much hatred
and way too much resentment and does
this guy and I think it does terrible
damage to the bearer cuz this you can be
disappointed in your political opponent
you don't have to hate him after all
he's just you're probably as much about
nutcases he is in some ways
Questioner
doesn't
scare you about our times or what he
what do you think do you think it's
gonna all work out
Charlie Munger
well there's always
been a fair amount of it in politics you
know and Jefferson and Hamilton hated
each other and Franklin didn't even,
Franklin had a certain amount of
resentment hatred and he was he worked
hard at being sensible
no I think that we have way too much too
much they said it's blinding you hate
that much it blinds your cognition and
and there's some good and everybody you
have an extreme example
Adolf Hitler was terribly nice to his
dog his mistress and the Jewish doctors
that treated his mother's cancer I mean
there is something how many
I mean even Adolf Hitler had something really I mean
you don't have to be totally mad at
everybody you because you don't like their politics
Questioner
what about economically are you afraid
of the times today we'd compare it to
ten years ago when the Great Recession
happening maybe if you could well about
the recession it happened in a sense you
got
Charlie Munger
I had the easiest time in the
easiest place that any generation ever
had imagine being born a white male
burgeois household born in 1924 in Omaha
Nebraska I've had a huge tailwind all my life
there never was a better time when
more things got fixed more diseases got
cured there was more general
prosperity and improvement and so on and
so on and so on is the future gonna be
as easy for the young male born
in 2021 I don't think so I think
it's gonna be harder i I think you could
almost see that coming
and you know and so it was accidental we
got this terrible hydrogen bomb it's
given us some years of peace I mean
major piece we have little wars and my
father was scarcely out of one war
before someone's going off with another
and so no I think it's I think it will
be tougher in the future and I think be
oh I've been like continuously invested in
American Enterprise for seventy years
and It was a pretty good 70 years
I think the averages are up something
like 40 times in my adult life that
never was such a period before and load
and in real inflation-adjusted on course
it's not 40 times it's way less because
maybe two or three percent per annum is
inflation but what are the chances such
as some of the real return was seven or
eight percent
what are the chances that
the person who earned today is going to
have seven or eight percent growth and
no big Wars or troubles for seventy
years I'd say they're almost zero
now I don't got any reason to despair after
all why should you the spare in a world
I think if we have a game you can't win
anyway we're all going to die and if you
can stand that you can stand a little
depression or something yeah
Jack - Questioner
but what
about the in a shorter time horizon just
a good time to invest in the stock
market funny question is it yeah
Charlie Munger
well I am continuously invested in American
equities and but I've had my Berkshire
stock declined by 50% percent three times
and I don't doesn't bother me that much
just the natural consequence of adult
life probably lived so if you have my
attitude it doesn't really matter
I always like Kipling expressing
expression in that poem called called
If [Kipling Poem If]
and he said “success and failure yes
treat those two Impostors just the same”
it's just roll with it
sometimes it's going for you and so against it's all
part of the same game
so I think having if you get rid of the
crazy hatreds and the crazy
I don't mean you don't avoid bad people
I mean you will seldom talk to
anybody who's better avoiding bad people
than I am I am but I think that's okay but I don't
hate him
Larry
you know this causes me I'm
gonna let
Charlie
but they're always good I
don't think that it's gonna be as easy
for the next generation as it was for me
Questioner
I understand
Charlie
Jack Jack if you start all over again
you might not do as well either
I'm not
anxious to go back and try you want to
go back to go and try again
no we none of us do
Jack
I was very lucky just like
you in a sense I was luckier and that's
yes Larry
Larry
no no I was gonna say yeah do
do a little housekeeping were we
reserving some time or have we had we
talked with him about taking any
questions ultimately from who you'd like
to take some questions from the people
would you like to ask any questions
Charlie Munger
I do it at the annual meeting of Berkshire
all time look sometimes I don't answer but I take the question
yeah well you have the same pride my
your mics your good Mike here are their
mics and runners not sure if we have
them or not okay you have to speak
loudly any takers
I'm I'm sorry there raise your hand we
got ahead of the mic runners okay raise
your hand
introduce yourself
Alan Q&A
hi I'm in first Alan
hey thank you so much for for doing this
Jack this is an incredible opportunity
to meet somebody it's just so amazing
what what I'm struck by mr. Munger is
your is or humor and I'm I'm also struck
by your partner's humor and in your
style of communication in front of a
group especially in front of probably
your shareholders
my question is is
was something that you developed over
time or is it something that just sort
of happened naturally through your sort
of homespun storytelling ability or your
ability to understand the world
Charlie Munger
yeah I think Warren and I are very much
the way we were born we were both a bit
nerdish and not a huge successes as
young boys and but we both had this
love of humor and we both loved
understanding how things worked and
we both have been lucky enough to
attract marvelous associates and
partners and so
if we weren't pretty
good natured we'd be crazy and but
no it I don't think if you don't have
humor I don't think you can get it
I think you're born with it that's right
and the same with shyness oh you can
conquer shyness a little but
basically we all live with the nature's
we were given and we just have
to make do but Warren and I have fun in
business and we like our business and
we like the people we work with
and we like the problem-solving
that's a huge advantage in life if you really
love problem-solving that's that is
worth about 20 IQ points to another
Questioner
question right here thank you
introduce your phone to listen to thank
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Audience Question #2
I wonder if I could ask you to go
back to maybe your s or something of
of what got you really excited when you
begin seeing what you might do and what
your future could be or what you seem to
be especially enthusiastic about that
led you this down
this path what turned you on first young
you know you could
Charlie Munger
well I came from a
conventional family happy marriage
good siblings etc my parents friends
were wonderful people so I had
just fabulous people in fact I used to
say I have a great trouble in Los
Angeles finding people's like as as
Fine as the people I used to know in Omaha
I had a very unusual desirable situation as a young boy and so did Warren
yeah well he was uh more unhappy when he was young than I was
and it just it just
happened and um I think a lot of it was
what was born in a lot of it was was the
proper training and proper background
my grandfather Munger was uh had been
born in extreme poverty his two parents
were schoolteachers a little town in
Nebraska and two schoolteachers income
enabled him to buy the meat for dinner
every night at the butcher shop in the
little town he lived in Nebraska he
went put yourself with a nickel when he
bought the parts of the Animal nobody
else would eat now if you start life
that poor and make your own way which my
grandmother did
you're quite a fellow and
he was self
educated in not so much he came to run
around early I mean he spoke Greek and
Latin self-educated and so I have a
very interesting people as my examples
and my Grandfather Munger believed down
to the soles of his feet and being
rational and he worked at it and I
watched it of course
works well for him it made him district
attorney and president of the Bar
Association and finally a very young
federal judge and he served as the only
federal judge in his capital city for
almost 40 years I mean he had a splendid
life and he always lived way below his income
and was able to help other people
when they needed help it's a very good
example and he was kind of firm about it
he never took a drop of liquor and
his whole life when somebody asked “why don't you drink”
he says “why would I take money out of my pocket and put
something in my mouth would make my head work less well”
well you can see why I like my grandfather and he was
politically incorrect when my parents got married he came he looked around the
congregation and he came time for him to
make a toast he said well he says I've
always particularly optimistic at a
wedding when I see the same kind of
people on both sides of the aisle well
that's not politically correct
well it's a very understandable sentiment and
so I had these good people around me and
and a very interesting time of peace and
so forth but what caused the financial
success was not extreme ability you know
I have a good mind but I I'm way short
of prodigy and
I've had results in life
that are prodigiously and that came from
tricks I just learned a few basic tricks
from people like my grandfather
Questioner
Now everybody's leaning in
Charlie Munger
no it's too late for you old guys yeah
the ya know there are all kinds of
tricks that I just got into by accident
own life one I invert all the time I was
a weather forecaster when I was in the
Air Corps and how did I handle my new
assignment being a weather forecaster in
the Air Corps is a lot like being a
doctor that reads x-rays it's a pretty
solitary you're on the hangar in the
middle of the night and growing weather
maps and putting pilots but you're not
interfacing with a bunch of year for old
men very much and so I figured out the
man I was actually making weather
forecasts for real pilots I said how can
I kill these pilots
oh that's not the question that most field would ask but I
want to know what's the easiest way to
kill them would be so I could avoid it
and so I thought it through and reverse
that way and I find they figured out I
said there are only two ways I'm ever
gonna get was in the ferry command the
right two ways I'm gonna kill pilot
until I'm gonna get him into icing his
plane can't handle and that will kill
him or I'm gonna get him someplace we
gonna run out of gas before he can land
because all the airports are stuck again
and I just was fanatic about avoiding
those two hazards and
if Kobe Bryant had
somebody like me he'll be with us yeah
it was so stupid kill kill yourself that
way and but just that basic I may have
learned that to my grandfather my
grandmother would say to him when I'm
swimming you'd say swim as long as you
want but stay near the shore well
but you can laugh but
he was a very wise man
Jack
but what I'm
hearing you say is that you as a
discipline look at what the risk is on
the other side of the situation and you
avoid that that's one of the rules
Charlie Munger
Well it's it's just it's it's like a lot of
practical problems in algebra if yu
invert you can solve it easily if you
don't it you can't solve it easily
and so of course I had that trick very
early and and most you always say how
can you please tell us what you do to
save India to help India and of course I
would approach it differently I'd say what could I do
who's the most easily hurt India and
approaching it in Reverse that way I got
better results you look at the
vulnerabilities yeah yes and
I have a whole bag of tricks like that
I been to the ROTC both in high school in college
and the RTC taught me to fire mortar
shells or artillery shells one shot over
one shot short
and then Kapow well I never shot me down
shells but I'd be using that metal trick
all my life that's why how I determine
what size to make something
over and under and Kapow and so I just got a bag
of tricks and I got the right bag of
tricks early and of course it's filling
of enormous help to me
let me give an example
I had a client once when I was a
young lawyer and he owned a bunch of
hilly ranch land on the edge of
civilization not very far from here in
Southern California and the Edison
Company came through and they wanted a
new easement through his land they
already had some easements and he hired
the leading appraiser an Orange County
real estate appraiser and said and he
had the idea that he should have
$250,000, for this easement from the
Edison Company and this leading
Appraiser who was very pompous and very old and
and very distinguished and he told no
I'm sorry it's only $125,000, value and
you're a damn ranch and so he came to me
and said Charlie can you talk some sense
into this elderly appraiser yeah
so I
looked at his problem when I call the
Appraiser well I thought how he's doing
is on an appraisal wrong I'm not a real
estate appraiser he is and what he had
done is what he was taught to do an
appraisal school he thought the problem
through in two dimensions and he figured
out from comparable sales what the value
for acre was they computed the acreage
and he had something a little bit on
the damage the easement would do to
the remaining property and so but it's
all done in two dimensions and I said to
this appraiser you've got to do this in
three dimensions you know God gave us
three dimensions and I said if they put
the utility towers big transmission line
towers which is why the years ago it's
gonna freeze the grade in the logical
way to OB our little hand is still op
off the top of the hills and put them in
the valley that's the way Kelley land is
developed and they're doing enormous
damage to you by freezing the grade and
he said you wouldn't change a damn thing
so I said to my elderly client I think
you have to fire this twit and I will
hire you an appraiser who can think and
so I got him $600,000, which wasn't at
all hard because I was dealing with a
bunch of almost engineers of the Edison
who did think of three dimensions but
you know that's so simple but you'd be
surprised how many lawyers would screw
that one up first him and of course
people like that appraiser I didn't know
his own business very well because he
didn't pay attention of the metals those
people are always with us
if you just have the metal trick of constantly going
back to the basics it's pretty basic in
sightless are you conscious about
the geometrical problem in a real world
of the three-dimensional
Larry
are you conscious of the rules or they're just
there well it's so habitual with you
understand that and I revolve
possibilities and I rag problems hard if
they don't yield I come back and
and so this is just a bag of tricks and
it enables a non-prodigious man to get
prodigious results
Jack
remember you last summer you bought Anadarko big oil
company yes and you described I think
you've just gotten back from being with
Warren for the weekend yeah you were
describing that you didn't do all the
analytics and you didn't do all of the
research but you used your bag of tricks
and you flew out to Omaha you and Warren
spent the weekend you called up the
president the bank America got the money
made the deal
Charlie Munger
no I didn't go to Omaha
Jack
where did you go?
Charlie Munger
no no I stay we have a
telephone
Jack
okay you talk to Warren about
it anyway yeah but you made it in about
two days and it was like no okay what
Charlie Munger
Warren didn't need why am i I've been
together so long that just one grunt we
can speak of volume and no
it's perfectly obvious the Permian Basin is
our number one oil reservoir and we
don't have another like it and it's
perfectly obvious you have a preferred
stock
that you have an advantage over
everybody else and plus an upside
and so we've done this kind of thing before too
so of course we did it and him and it's
not very difficult
but you're right
all kinds of analyst due diligence some
but we knew enough to act
they were in a hurry yes but but
you don't need perfect if you're %
sure that's all you're entitled to in
many cases
and I see these people doing this due
diligence and the weaker they are as
thinkers the more diligence they do and
of course, it's just a way of a laying
an enter in security and
of course it doesn't work you've got to be able to do
quickly understand the how much brains
does it take to know the Permian Basin
as America's best oil reserve its layer
after layer after layer you know
we there is nothing like comparable yes
and if you have an eight percent
dividend off the top if from a perfectly
reputable place of very talented people
the woman that runs that is a production
engineer she's good and they get
better results in that shale than other
people and
so it's a no brainer at least
it's a no brainer if you don't make it
hard but I see people if you in America
now they do these leveraged buyouts and
these firms do what they call due
diligence and they will send armies of
young lawyers out of high rates per hour
riffle through all the purchasing orders
in a place like ESRI
Jack
don't even think about it
Charlie Munger
no I'm not thinking about what
they but they but my point is they don't
ESRI would no you don't have to look
through the purchasing orders right to
know there's reason good business and
yeah I don't think people are that
insecure mentally ought to be in
positions of decision-making power
Larry
okay
we got one more question what's it gonna
be it better be a good one it's a good
one okay introduce yourself
Joshua Gillespie – Q&A #3
hello I'm Joshua Gillespie Thank You Larry Jack
Charlie for all being here Charlie like
you I am very excited about investing in
undervalued assets however specifically
what I'm interested in is low
socio-economic young folks who are not
college bound so what specific advice
functional advice would you give to that
demographic of folk who are looking to
better their lives
Charlie Munger
well I don't think you can just give it
a good base to the young and just have
it automatically sprout like Jacks being
stalked a lot of people are just natural
non-sprouters and
so my technique is to find the people who have the
sprouting of them fertilize them greatly
and in other words and Warren puts it
on more pithy way as you might imagine
he says we make soap verses out of silk
[Laughter]
that's our system that's right
we don't know how to turn
now I can turn any purse any silk and oh pretty a
better person so learn my tricks but
what I found there is that they either
get it quickly almost instantly or I
never get through I don't know what
Jack's experience is
but I ever okay they're nice people and they're but that
they got their foot their thoughts are
already there the thoughts they already
have this place they've been programmed
in a different way than you and they
can't accept the championship - yes even
if they kind of suspect you're right and
you're rich and they're not they still
think they know
Jack
well they're victimized by their rules or their
tricks as you call them you happen to be
brought up in an environment where the tricky and
Charlie Munger
one of the great tricks in
life is to destroy your own best loved
ideas and and that I worked at
I actually go through my best loved
ideas the case let's see if I can weed
one out you know
Jack
what are you talking about give me an example
Charlie Munger
*musing to himself for ~30 seconds*
well that’s a good hello a good example,
well that's a very good example but it's
not an example of this the we all oh I
gave you an example it's a hard one we
had an executive in virtue it was a
wonderful human being and terribly good
at what he does he was an actuary and he
was a member of our inner council he was
with us we knew his wife and children
we loved the guy and he got a nasty
cancer and was dying slowly and we just
left him there dying and failing and the
reinsurance contracts he signed during
those last two or three weeks were awful
it was a mistake and I've never done it again
yeah it's natural to love your friend so
much and it's hard to come down on the
close friend here and
Jack
it's in your rules
or can you break it's like getting up on
the same side of the bed every morning
when you believe in something like you
obviously are expressing a couple things
to me one is that you love this guy and he
didn't want to just shut him down so you
kept him in place and he screwed up is
that the basic message
Charlie Munger
yeah I have a higher duty and it was you know it I
think it's a forgivable sin you know I'd
rather have if I'm gonna have sins I'd
rather have this one than a lot of others
but it was mistake yes it was a mistake
Jack
or maybe not
Charlie
and you know what that
happened to Lee Kuan Yew this guy admire
so much, Singapore were so many decades
and his best friend and committed some
moral act an immoral act and had come to
life in and he committed suicide and the
wife came to close friends and said you know in
Chinese culture it's a deep shame to
commit suicide can't we cover up the suicide he said no
we can't cover up again he was just
tougher on maintaining certain standards
I don't know whether that's right or not
but I suspect he was right after all he
built an empire, you've got a whole
nation and all I've done is build one mall
Jack
well I'd like to close with a
couple more questions about your own
philanthropy at UCSB and first how did
you do
Charlie Munger
So that is by the way that's a
marvelous example exactly because
there's an example say Here I am
years old this time
Jack
this is Chancellor Yang
Jack
but I've got a friend who's the widow of
the last surviving grandchild of Doheny
major California oilman of a former era
and but it's in Santa Barbara the
ultimate NIMBYism and she's got an 1800,
acre ranch with two miles of frontage on
the ocean no wind perfect climate great
views avocado trees it has a private
lake it's like you can't believe it
and she can't sell to anybody because nobody
in Santa Barbara's gonna be fair enough
to allow her to do any with her own property
and she really needed the sell and so I
said tough see
I said I'll give the University seventy million dollars and
and we'll have it we'll buy the ranch
with my seventy million dollars well I
knew that the university's not subject
to the damn sound of our rezoning rules
and so I suddenly transformed seventy
million dollars into a billion dollars
worth of property in about two seconds
now I didn't get the billion, the
University did but I like helping the
university and particularly when I can
get a billion dollars for the value for
seventy million dollars was a little
horse sense and so
Jack
what's gonna happen
Charlie Munger
Not everybody would have known that they
weren't subject to
Jack
the university needs housing Charlie saw that they needed
housing he was interested in the
university you saw this property and so
now they suddenly have the ability to
build housing for students
Charlie Munger
it's a well it'll be faculty and graduate students
yeah and yeah but it's more extreme than
that I'm also I just got approved last
week by the subcommittee of the Regents
to build a dormitory for undergraduates
at UCSB in this case I'm gonna give them
percent of the money and they're
gonna borrow the rest the three percent
or something like that and but this
housing is going to put five thousand
students on five acres and the housing
will be the best of its kind in the
world how in the hell can some
ninety five year old guy doesn't know anything
to speak of about housing suddenly be
right when he says we'll put 5,000,
people on five acres and it'll be the
best housing in the world well but I've
built other housing I'm not quite as
ignorant as I look and and I realized
that all I had to do was to make a big
square building which is 10 stories high
under both the top story to being a sort
of an art town on the sky with great
views looking out at the world with high
ceilings and so forth and then adopt
ship architecture for the rest of the
thing and build it out of precast
concrete for the first seven floors on
poured concrete foundation and then
build the top floor out of Butler steel
components which is what Costco uses to
build its stores its stores wherever
it's allowed to do it and when i work
that out it it works like gangbusters it
can't Pawn every trick in this building
I've already done somewhere else I just
assembled a trick out of a bag of tools
it sounds ridiculous
Jack
It doesn't sound
ridiculous to me it sounds like you're
philanthropic put all the stuff together
to actually make it real
Charlie Munger
it's the mental trick that's interesting
why can't a university with an IQ average of 160
and nothing to do but think about its
future
oh one thing else I did
Jack
why can't
they do that on your own is what's your saying
Charlie Munger
why are the universities so stupid
that's a very important question and
they're not stupid about everything they
just have a few blind spots and one of
the blind spots is they run out of land
now how can a great University and the
most important state in the most
important country in the world how the
hell can you run out of land and think
you're being a rational University?
UCLA has run out of land
Berkeley has run out of land
How could places so massively brilliant they win Nobel Prizes and so forth
he's stupid enough to run out of land
the answer is they get these damn bureaucracies
and somebody has to be the adult in the room who
it's not a mild bit of
craziness to run out of land if you’re UCLA
well my grandfather would say that he basically
thought it was sinful to be dumber
than you had to be
and I share some of that
what you can't remove I think it's
forgivable, to have an easily
removable ignorance in your own head is
really stupid
that is really gonna happen you
you people are all gonna live to see
it and building ship architecture on land
how hard the subject is that
Jack
I've seen
the plans they're really so clever for
students to live in views for every student to the ocean
Charlie Munger
well let me tell
you here it's the final one what's these
great 160 IQ people do it takes 20 extra
square feet of space under the building
code that binds a university in
California the UC system, 20 extra square feet to give a
student his own private sleeping area 20
extra square feet can you think of
anything dumber than building housing
that's gonna last 200 years when you
force a whole bunch unrelated people to
live together and throw up on one other and god knows what
to save twenty extra square the incremental cost of 20 extra it's insane
so I gave every student his own room
when I went into the Regents committee there
was this nice woman and she said you
know she's I never had a single room
my whole college career that didn’t have
somebody else in it it's insane it's
absolutely insane and I'm fixing it
but why wasn't it already fixed where
Jack
did you study architecture or how did
you come to all of them
Charlie Munger
well I hate to
admit this to somebody like use of
perfectionist but I pick easy problems
it's easy to fix housing minutes other people are so dumb
they put two unrelated people in the
same room when it takes twenty extras
square feet to eliminate that defect so
I seek out easy problems I've tried hard
Problems it's makes it a lot more difficult okay
Jack
I got one final one yeah early didn't
you buy See's candy
Charlie Munger
yes I certainly do
that why did I do it I mean yeah anybody
got a guess something that was a I did
it well here I want to confess something
that will give you all encouragement
because it will show how dumb we all
were when they were young and how we
barely bought it
the price was thirty-five billion
dollars and they had ten million in
surplus cash and they're making four
million dollars a year so hardly
expensive and it was this iconic brand
and that been created by a woman
that was 70 years old when she founded
the company very interesting story and
at the very end we were above a hundred
thousand dollars apart and Warren was
used to saying goddammit you know I'll
bid 20 and 1/8 I don't mean a quarter
and we just almost didn't buy it
and I would not we just squeaked through
we made a wonderful decision because we
were just barely smart enough to make a
no-brainer and that teaches another
lesson to:
we all start out stupid and
we all have a hard time staying sensible
You have to keep working at it
Berkshire would be a wreck today if it
were run by what Warren and I knew when we started
its just we kept learning
and I don't think we'd have all the billions
of stock of Coca-Cola we now have if we
hadn't bought See's you know I mean there
were huge consequences of getting over
that less stupidity we through our
typical yeah firm businesslike methods and
what happened there neither Warren nor I deserve any real credit
for my partner.
I had wonderful partners
all my life it was a petroleum engineer
he just said to warn me you guys are all
wrong on this he says this is a
wonderful company and you're being way too chancy
there aren't many companies like this
and that he changed our minds so now you
know how we were smart enough to buy See's
barely okay the answer is barely
Jack
You said to me in ok this is my last
Charlie Munger
by the way we're smarter now I'm glad but I'm
glad everybody appreciates
Jack
yeah yeah you
said to me something about the high road
Charlie Munger
oh that's Warren's famous remark I love
that I sure that Warren always says you
should always take the high road cuz
it's less crowded
Jack
we'll close without ladies and gentlemen
thank you for being
[Applause]
Thank you
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