Transcrição automática aproximada (gerada por máquina)
Gerada automaticamente a partir das legendas do YouTube e levemente revisada — a pontuação e os nomes próprios
podem estar incorretos. Não detemos os direitos; todos pertencem à Buffett Online.
Fonte ↗
our business now spread over the whole country and uh it's cost us a lot of money. It's cost us a lot of effort. Yeah, it will cost us a lot of effort in the future. But, I would say that the momentum is gaining. And you people who came in as value investors well, you got something else. You got a damn venture capital type of investment. And I don't want to apologize because I'm sharing the same outcome myself. And it looks like it may work. If it does work, it'll be a long slow grind, but it could be a way bigger business than the bread business ever was. We have now crossed the Well, we have more software revenues now than we have on traditional business. And the fact that it's costing us a lot of money does not bother me at all. I'm thinking a lot like Jeff Bezos on that. As long as long as we're taking territory away, I'm happy. I said to the directors, there's no point in being rich if you don't use it to compete effectively. So, it was a very good question and but I regard it as a total fluke. It isn't what I've done in life. You can argue that the Berkshire Hathaway has once created a business from scratch. That's where the Berkshire, which is the reinsurance department. But, it's something that you know, we've done personally. We weren't at once there. And we may eventually have one of its kind here. If we succeed it's not only good for the shareholders, it's good for the world. This whole system the government uses is very inefficient and needs a lot of automation and the software is very complicated and service is complicated and very difficult hard going. One of the reasons the opportunity was available is that it is a very impossible difficult People like Microsoft they hate this kind of business. It's too hard. You know, that they have their own way of shooting fish in a barrel. And yeah, I kind of like it because it's so hard because like we will win it will be very hard to take away. Well, that's that's the probably the best question anybody's ever asked in this meeting. That's a tough one to follow up. It's very important it really affects the whole future of the company. You had earlier said that one of the most important things you picked up from Darwin was the value of objectivity by forcing yourself to search for disconfirming evidence. What important thing did you pick up from Einstein that you didn't know before? Well, I didn't know anything about relativity until Einstein taught me. I wasn't smart enough to figure it out for myself. And uh Of course we look for disconfirming evidence. One of the directors said very simply we should make a list of everything that irritates a customer. And we should eliminate those defects one by one. And of course that is the way to compete in a service business. And it involves continued fanaticism and so forth. One of the reasons we bought the little company in Logan, Utah is that we like the service and ethos of the place and their recruitment methods. Of course our then God damn their souls. I mean, our past accountants, God damn their souls. Just went crazy when we did that. It looked to them like we'd gone stark raving mad. How could we worth anything? It just bothered them and they just raised hell with us for months and months. It made our reports late. I feel very good about that acquisition today. But, uh and it's somewhat it would be with the and with the other one and I think both of those things have helped us. And the cultures are melding. We now operating under a common name. It's a damn miracle because we should have failed, but uh I'm not at all sure we are. And uh of course, we learn from evolution. You got to keep trying to go extinct. You're seeing a perfect example of Darwinian. You're watching one business die while somebody tries to replace it with another. And almost everybody else in the newspaper business that's tried to do that has failed. Some of them bought other businesses like television stations with the profits they had. But, most of the people who just tried to take their existing newspaper and transform it into something else, most of them have failed. And that's the common result. I've I've heard Bill Gates say often in technology that's often the case. Here was Kodak that owned the world in silver-based photography. It was the dominant company in the world, second most important trademark in the world. Armies of PhD chemists who know more about silver-based photography than anybody in the world. Fabulous business right through the Great Depression. Total widow and orphan wonderful stock. It's like wiped out the shareholder. With a technological change, like with Bill Gates, it happens again and again and again. Technology changes enough. General Motors was the most important auto automobile company in the world when I was young. It wiped out its shareholders. How do you start from the most important automobile company in the whole world, and number two is not close, and wiping out your shareholders? Yeah, that's very Darwinian. It's tough out there, and some businesses are dying all the time, and new ones come up. And technological change is one of the hardest things to cope with. Which is why so many people fail at it. Now, IBM, on the other hand, went from butcher scales and God knows what the heck. How worth machines, which they totally dominated the early computer. And then when those became obsolete, they dominated for a long time the big electronic computer. That was a miracle. That's a real rarity. And the first And the other revolutions came along, IBM has failed a lot. And it's normal to fail when there's a big technological change. It's hard to adapt to a world that's that's different. And what's really weird about Look at the age of these people up here. We have the oldest board of directors in the history of the world. Youngest one 60. You know what I mean? And The chairman is 91. And Should we be climbing after him with one arm and one leg? But I'm telling we are. And I don't understand computing. Is there another question? Mr. Munger, my name is Alex Best Food. I have an interesting question Speak up a little louder. Come on, speak closer. Sorry. I had an interesting question given the room. I wanted to get your opinion on activist and investors. There's a lot of uh I guess playing the news this year, last year, especially with Coke. I wanted to get your opinion. Well, I never liked the pomposity of the old system where the board of directors was absolutely permanent and the bureaucracy did as it pleased. And I But what's happened is what usually happens to me. I like the new system even worse. Even less. I don't think it's a great thing for a civilization where the people who are getting richest are a bunch of people who buy blocks of shares and howl for change that helps the shareholders no matter what. I didn't think the old system was perfect either. But it can't be a great way to run a civilization to have it run by a bunch of I Carl Icahn's a very able man, but he should not be running the world. Next question. Uh Mr. Munger, um if you were to redesign an education system You get it. Get the mic This is a high-technology place. You get the microphone near the lips. If uh you were to redesign an education system, public and higher, um knowing what you know now about what's been important in your life, what ideas would you consider it important to include and to avoid. Well, I have watched some of the smartest people in the world try to improve primary education. And it's proved amazingly resistant to improvement. Now, I've watched universities struggle. I would say in the liberal arts there's a lot of craziness. And I don't know exactly why. And I think there's a lot of envy. You got a lot of very bright people who are paid very well. Their main power is to give some student an A or a C. Something makes a liberal arts professors on average a little crazy by my standards. I like them all and I'd probably prefer they marry into the family than people from a lot of other professions. But there's a lot of crazy alienation among liberal arts professors in the modern world. So, I think education is very hard to fix. I think the technical education keeps getting better and better and better. And they keep driving people harder and harder and harder. So, I think that's one of the glories of the world. And I think the other education is getting better, too. But it's it's got some very irritating defects. Hi, Mr. Munger. My name is Alan Smolan, a slowly dying subscription newspaper in Pacific Palisades, 88 years old, founded by Telford Work, who was the publisher here at the Daily Journal for many years. Um my question is about reading and about newspapers. Uh I'm struggling now that I have two young children at home, trying to have a third on the way, and I don't know how much time I need to be dedicating to my papers and my reading that I'm missing from the kids and I kind of feel like a jerk sitting in a dark room with the door closed hearing the kids and do I want those memories versus reading. So I wonder with so many kids you had, how did you balance your reading and did you fluctuate the number of papers that you had in your driveway? I have the kind of mind when I want to read something I can tune everything else out. And so And you kill this The people aren't even present. In fact, I frequently sit in a room and converse with dead people while the living people around me are irritated. So I don't think you should try my methods. It's a miracle they work for me. And I will say this, I don't know a wise person who doesn't read a lot. I suspect that you can read on the computer now and get a lot of benefit out of it. But I doubt if it'll work as well as reading print work for me. And I think people who multitask pay a huge price and they think they're being extra productive and I think they're occupying I always use the metaphor of the one-legged man in the ass-kicking contest. I think when you multitask so much you don't have time to think about anything deeply. You are giving the world an advantage you shouldn't do. And practically everybody is drifting into that mistake. Concentrating hard on something that's important is I can't succeed at all without doing it. I did not succeed in life by intelligence. I succeeded because I have a long attention span. My name is Leroy Hyde from Austin, Texas. I have two questions. One was going back to a question about education, reading, writing, arithmetic, and reasoning. How do you ever teach anybody reasoning? And I would I say it again. Reasoning. How do you teach children reasoning? And then the second question is about the Federal Reserve, the largest religious facility in the world, which is the faith in the almighty hundred dollar bill. We have a point nine trillion, I understand, uh balance sheet in 2008, 2007, whatever it was. And now it's about six trillion. In anyone's lifetime in this room, will it ever go back to point nine trillion under the credit economy? Well, of course. I'm so old I remember coffee at five cents and all you can eat cafeterias for 25 cents and brand new automobiles at $600. Now, so I think you can count on the democracy over span of many decades that they will cause the money to deteriorate. No, I think that will continue to become the nature of man. It may even accelerate it, actually. I have been pleasantly surprised after the heavy bouts of inflation we went through and the experiences places like Italy and Argentina and Brazil, the way I anticipated more trouble than we actually had. In my lifetime, in the last 50 years, um the best the common stock averages, counting dividends, have produced about 10% per annum pre-tax. I don't know what the percentage of that is real gain and how much is inflation. Well, let's assume it's 7% real gain and 3% inflation. I regard those figures as unbelievably good. I think that somebody my age has lived through the best and easiest period that ever happened in the history of the world. And the lowest death rates, the highest investment production, biggest increases per annum in most people's standard of living uh ever I regard If you're unhappy at what you had over the last 50 years, you're you have a unfortunate misappraisal of life. As good as it gets. And it's very likely it get worse. And I think it's always wise to be prepared for it getting worse. Favorable surprises are easy to handle. See, unfavorable surprises that cause the cause the trouble. So, in terms of the monetary authorities, I think you I think you can count on uh the purchasing power of money to go down over time. And I think you can almost count that you'll have way more trouble in the next 50 years than we had in the last. I regard what we've just been through. The net death rate from war, from everything. Steven Pinker is right. It's the most fabulous period that ever happened. And of course, the technology is changing, so a few nut cases could really they could make the World Trade Center look like a picnic. So, I think we should all be prepared for adjusting to a world that is harder. I think this is a follow-up question. My name is Raimondas Savickas from originally from Lithuania and now from Boston. I wanted to ask a follow-up question kind of. Um what do you think about societal change because of the labor displacement by technology and you know, accelerating of that. Well, that's an example of what I'm talking about. If you're going to have free trade and better communication, more efficient container ships and so forth, obviously the people who once dominated and they get all this new competition from very talented people who'd been held down by stupid governmental systems and malfeasance traps. And they're suddenly a leash. Of course that competition hurts the people who formerly were in the privileged position. It isn't because the Federal Reserve didn't do something right that or the politicians are unfair or the rich people are mistreating the poor. The world has changed and unless you're going to do away with free trade and modern technology and the liberation of these talented people who formerly worked in penury on agriculture, uh of course that's going to hurt the prospects of a group of hard working people with limited education and it has. And it is very hard to fix. And people assume that all you have to do is tinker with the politics and you can fix it. Well, that's what they tried to do in Greece. I think the Greek solution is idiocy. If we're going to prosper, we have to work. And we have to have people subject to carrots and sticks. And I you take away the stick, well that whole system won't work. And of course, you can't vote yourselves rich. It's an idiotic idea. Of course a successful civilization ought to have a self social safety net. But uh but I don't think that It's Look what happened in Japan. They were the export powerhouse of Asia. Now, up rose China and Korea. All of a sudden, they And Germany got way better. All of a sudden, they're not the export powerhouse. Well, of course, if you have a wonderful monopolistic position and some more talented people work harder, of course, you're less rich. These damn economists keep looking for the way they handle the Federal Reserve system in Japan or something. Think about how stupid that is. The solution is really obvious of why they lost They got huge competition they didn't formerly have. And they were an export powerhouse. Japanese were better at quality control and so forth. Other people learned to play the same game. You know, the Koreans came up from nothing in the auto business. They worked 84 hours a week with no overtime for more than a decade. The same time, every little Korean came home from grade school and worked with a tutor for 4 or 5 hours in the afternoon and the evening, driven by these tiger moms and what have you. Are you surprised when you lose to people like that? Only if you're a total idiot. Next question. Uh Mr. Munger, uh Jeff Walsh from Rochester, New York. Uh I have a two-part question. One, um are there other opportunities for acquisition of technology companies to add to our existing uh unit, um or are we simply trying to grow that organically going forward? And the second part, um I know you've stated that this is not a mini Berkshire, but if there was an opportunity to shoot fish in a barrel after the water was drained out, would the board consider it? I think our aged board is capable of shooting fish in a barrel. But, I don't think we'll get many opportunities. And we got an opportunity like that when we bought Wells Fargo stock at eight and change. I don't anticipate a lot of future opportunities like that one. I regard that as a one-time fluke. And now, the fluke we earned the right to have by accumulating money from discipline and good service and so forth. But, we're closing the book. But, no, I don't think that we if we happen to succeed in this one, which I think is more likely than not, uh I don't think the experience has seemed so easy to us that we want to try it again. You know, if you walked across the river from ice floe to ice floe where if you fell in the water, you're going to die, and you reach the other side where there was prosperity, you look at that back at that river, I don't think you'd want to step back and try it again. And so, I don't think it's going to happen again. We, of course, would buy something to help what we're already doing. But, we're not looking for to be new venture capitalists at our present age. It's an activity we didn't even do when we were young. I don't know why we did it. It was mostly Geico's idea. Thank you, Mr. Munger. Munger, I have two questions. Uh the first question is uh on what morning rituals you've used over the past either when you were a younger lawyer or today that you know, that show if that has helped your productivity over the years, and the second question is uh would you like to No, let's repeat the first question. Uh are there any Can you get the mic a little closer to your mouth? This technology is too much for me. Uh actually uh no. The Do you have any morning procedures or rituals that you use to which you might uh attribute your tremendous productivity in life? That's the first question, and the second question is uh do you have any comments on the passing of one of the greats of uh 20th century um uh Lee Kuan Yew? I'm not following the second question. Oh, yes. Well, that's that's Well, I like people who serve me puff balls. Number one, I eat whatever I want to eat. I've never paid any attention to my health. I've never done any exercise I didn't want to do. Any idea what would improve my life. And if any success has come to me, it came because I insisted on thinking things through. That's all I was capable of doing in life was thinking my thinking pretty hard about trying to get the right answer and then acting on it. I didn't ever learn to do anything else, so all these people think they're going to get ahead by jogging or something, more power to them. As far as Lee Kuan Yew is going, I just realized I'd made a mistake. When he died, I'm going to commission a bust of Lee Kuan Yew and stick it somewhere important. That is the most important governmental leader, it's the most important nation builder that ever existed in the history of the world. There is no other record equal to Lee Kuan Yew's unbelievable achievement. A malarial swamp turned into a modern civilized powerhouse. And then using that example to utterly change and transform China. And not only China but Vietnam. It was the example of Lee Kuan Yew that the North Koreans of all people turned to turn Vietnam into a powerhouse that's civilizing. There's never been a career like that Lee Kuan Yew's. He did two things that strike me that shows how smart he was. There was one person in Lee Kuan Yew's high school or that was smarter than he was. That was his wife. And it was a female one year older. So, he married her. And of course his son is all the children of the spouse one of them is the prime minister of Singapore. Yeah. It's This guy just is very rational. And other people went for the lady with the most curvaceous whatever. He hired the He hired the one that got higher grades than he did and she was the only one who did. And he had he had this practical judgment. Peter Kaufman loves the story of when he came to power, he's surrounded by Muslims who hate him. He has no assets, no army, no nothing. He says he's in a very dangerous position. He realizes that in his new nation he has to have an army. And he asked the world to help him create an army and a defense system. Everybody in the world declines. After all, it's a malarial swamp. And one country says, "We'll help you." And it was Israel. And how can I have Israel help me when the Muslims hate Israel and I'm surrounded by Muslims who hate me? He solved his problem. He accepted help from the Israelis and he told everybody they were Mexicans. Anyway, there's never been anything like it. And it's been a privilege to live in the same world with a man who accomplished us so much. And has used so much discipline and intelligence and decency. He totally eliminated bribery when he went on his anti-corruption kick, one of the first person that succumbed was it wasn't his best friend, it was almost his best friend. And when the guy committed suicide, the wife came to him, was also a friend, and said, "Chinese culture, it's doing suicide is a loss of face for the family. Can we cover the suicide up?" He said, "I cannot help you in any way." This guy was a very tough about getting done what had to be done. Singapore was a very corrupt place. And if his example causes China to clean up, which looks to me like it's a better than 50% bet, it'll be one more unbelievable example of the achievements of probably the most admirable man, judging by consequences, of any of whom I've shared the planet. So, I'm glad you mentioned him. How are you smart enough to know how good Lee Kuan Yew was? What's your background? I just read about you all the time. That's all. Well, I've got an echo. Next question. Yeah. Hi, Charlie. I'm Cameron Kennedy from San Diego. It's also a privilege to live in the same world as you. Uh I've Well, go through with the mic. I said it's also a privilege to live in the same world as you. I've studied the concepts you've taught intensely and continuously after graduating from law school 8 years ago. Thank you for everything you've taught me. I've even expanded on some important areas. For example, I think vanity precedes envy as the driver of man, but you are so popular that it's it's hard to have a meeting of the minds. And Dale Carnegie said there's no such thing as constructive criticism. So out of all the questions Carnegie was wrong on that. Out of all the questions I'd like to ask, like who introduced you to Ronald Berkle, Ron Berkle, I think the best question I can ask is about longevity and diet and an organic diet. Do you think the way to live to be at least 91 like you and Lee Kuan Yew is to eat organic fish you caught yourself at Cass Lake? No, I think peanut brittle is the way to go. I think my peanut brittle. Yeah. Hi. Mr. Munger, I've come from India and there's a big fan following in India as well, or you can call it groupies. It's a privilege and honor to be here. I want to thank you all for your things that I learned from you. You are the best teacher I had in my life. My question is what's your advice to a 30-year-old individual who wants to achieve financial freedom through investments? Well, achieving success through investments has been pretty easy in my lifetime. If you were rational and disciplined and had a tailwind of a 10% per annum on average going for you pre-tax from carefully selected stocks, that was a big tailwind and I you saved your money and lived well within your means and were shrewd and so forth. That was enough to take care of you. Just old discipline and saving and the passage of time would do it. Now if the world is going to get 10% out of indexes, which I don't think it will in the future and in real terms, getting more has proven to be quite difficult. And some of you who have come along later are finding that if you stay in the big stocks, it's damn near impossible for most people. And when things are damn near impossible, maybe you should stop trying. That was not my system. But I do not recommend my system to everybody. I do as a way of life, but uh I don't think all you have to do is read Charlie Munger and you'll get rich. If it were that easy, why this place would be a football stadium. Charlie says the way to get rich is to keep $10 million in your checking account in case a big deal comes along. By the way, that was the advice from Hard Amundsen to a young bunch of starving graduates. Rich people sometimes get a little bombastic. Mr. Munger? This is Harshil Gosalia. Thank you for having us. I'm from San Francisco Bay Area. Engineer at Google. Um you said you like shooting fish in a barrel when the water is drained out. I had a question about the POSCO position, the Daily Journal portfolio. I've heard you say it's a low-cost producer. Uh talk about the Korean productivity. Uh right now the steel prices are at all-time lows. What are you talking about? The POSCO. Oh, POSCO. Yes. Okay. Why did uh would you like to give us your thoughts Well, that's a very interesting example, as a matter of fact, which also how hard the world is. That is the most efficient steel company in the world. And it had pretty close to a local monopoly of a whole country for a long, long time. And in spite of that, in spite of having some very important steel technology that they have and nobody else in the world has, Posco is selling when it got an ordinary commoditized steel company. It's very, very hard to avoid being commoditized in high-powered competition in the modern world. And places like Dow Chemical, you know, have all their complex chemical products commoditized in spite of the fact they got thousands of PhD chemists. And people as talented and brilliant as the people who created Posco just find the market's flooded and the price is bad and so forth. It shows how hard and dangerous it is to make money in a commoditized business and how many businesses that you formerly thought were usually advantage can be commoditized. So, you've done a wonderful service to this meeting by raising the cost of Posco. Posco is an excellent example for everybody to think about. It really shows how hard it is. Charlie Greg Stevenson from Toronto. So, thank you for having your AGM here in sunny LA. You have said in the past private mortgage insurance solution is flawed. Can you talk about why you think the current insurance system with Fannie and Freddie works and talk about some of the problems with bringing in private capital into the mortgage insurance market? Well, you remember what private insurance in the did uh when it caused the big financial crisis. And finance went plumb crazy in the United States. Crazy and immoral. That is not a good combination, crazy and immoral. And they added a third, they were deeply full of pride about the fact they were crazy and immoral. And so, that was really and they damn near caused a catastrophe. And the people who did it have one thing in common. Not one has any shame at all. I've never seen anybody who contributed this to the creation of the great financial crisis with shotty underwriting, lousy bonds. It just I've never met anybody who contributed my who was ashamed of himself. It's always somebody else's fault. Or maybe the government's fault. And that's that's just the way it is. So, it we have stumbled by accident in reaction to a crisis into what we did. All the things we did with great expediency given the terrible problems we had. And it's working after a fashion. The main risk is given the political pressures the government will start going crazy the way everybody else did and reducing the standards and reducing the standards and so forth. When you keep trying to enable your citizens to vote themselves rich by various stratagems like unlimited credit to people who don't deserve credit which is really a dumb idea. Uh You think people would know that by now? But I don't think they really do. So, I would I'm satisfied with the current system provided they keep the standards up. But of course, they don't want to do that. They want to lessen them as fast as they can, and that's what the politicians will keep urging them to do. I think it's a terrible idea. Well, I think I don't there's anything wrong with having a conservative system like the FHA was in the Depression and so on. It happened to involve the government. But, and letting private agencies and private insurance do what they please, we've shown how well that works. Our unregulated, wonderful people in finance. I think I'd rather trust some pathogens. Next case. A little bit stronger. My name is Andrew Toy. I'm from Toronto, Canada. Uh I'd like to get your thoughts on American Express. Uh do you think its moat has narrowed recently? Well, I don't think it was a desirable when it lost its fit. Its contract with Costco. Again, that's an example of how tough capitalism is. Uh Obviously, other people were willing to do it a lot cheaper. And it just shows how tough a position that looks impregnable can be in modern capitalism. It's what makes everything difficult for those who already have some money. I think that's just the way it is. And American Express has owned had a long period of very extreme achievement and prosperity. And I think they'll have a lot of prosperity in the future, but I don't think Uh it doesn't look quite so easy as it once did. Now, the head guy the head guy would say it's always been hard. He's been paddling hard. But, you know, we're we've paddled hard, too. And what good did it do us at the Daily Journals, print business? We paddled like crazy, didn't we, Jerry? That time Yeah. Paddled hard. Yeah, and know what happened? It just keeps receding, receding, receding. Welcome to adult life. Next Yeah, next page. Yeah, again, mic closer to the lips. Chidnesh Gujarati from Folsom, California. Thank you for having us here today. I recently watched Elon Musk interview on YouTube in which he said he had lunch with you and that you had given him all sort of reason why Tesla would fail. Would you Would you be Would you be kind enough to educate us why you thought Tesla would fail and would you be very specific why it actually succeeded? And if BYD can learn from some of its success. I think the auto business is very difficult. Very competitive and everybody has learned to make wonderful cars. And everybody already uh has enormous size and wealth and what have you. So, I regard it as a very, very tough business. Now, Elon Musk is a genius. And so, if anybody has a chance to do it, he probably is the man. But we have a saying at Berkshire Hathaway, "When a man with a reputation for genius takes on a business with a reputation for tough operating conditions, it's the reputation of the business that's likely to prevail." And I just think it's going to be that tough. Without government help, I think getting electric cars off the ground is really hard. And in China, if you look at the a lot better than it does here because their air is worse. But it will What Elon Musk really needs is to have a whole country have a disaster smog that kills everybody. Kills a lot of people. Short of that, I think it's going to be very difficult. I mean, he's a genius, but he's going to have to be. Yeah. Thank you. My name is Doug Malone from Houston, Texas. Um every year when I come to these kind of events, uh everyone asks you what you are reading. I'd like to ask you how you read. And when you are reading a book of significance and you appreciate that you are reading a paragraph or a chapter that's that's deeply meaningful, how do you retain and incorporate that information? Do you have a filing system? No, I don't. I've never taken notes. I've never kept notes when I was a student. Um I just read what I please when I feel like reading it and I think what I think when I feel like thinking it. And that's my system. I don't think it's the right system for everybody, but it seems to have worked well enough for me to enable me to get by. Can I have Mr. Malone again? Yeah. Uh my name is Craig Bolman with Happy Value Partners. My question is about uh robo advisors, robo funds. Uh will they complement current value that are value investing or just thoughts on the subject? Well, the robo funds are the index funds, the big ones. And you could hardly imagine more of a robo fund than an index fund. And of course they're beating 98% or something of the managed money if you over a long period of years, particularly the people who are managing billions. I just thank God that they didn't give me a the assignment of managing a few hundred billion dollars and beating the indexes. I would not have welcomed the challenge. It's very difficult and I think the people who still have a sense of value investing are people who are willing to work in less efficient markets very diligently and intelligently. But I think it is very hard to be a great value investor with 200 billion dollars under management. It takes a long time to buy and a long time to sell out. Other people copy your trade. It's just very difficult. Thank you. Yeah. Phil Luton Youth, Los Angeles, California. Financial economists in recent years have sort of rediscovered that highly profitable, high-quality companies are better investments than other companies. They try to figure out where this idea came from. They it takes them back to Buffett, and then Buffett points to Munger. But this is an insight that you seem to have had in the '50s or maybe the early '60s. Before you were maybe you were an attorney, you were you weren't anything Charlie Munger then. You were just somebody else. How did you How did you hit on this idea? Well, everybody who thinks at all knows that some companies are better than others. What makes it difficult is they sell at higher prices in relation to assets and earnings and so forth. And that takes the fun out of the game. If all you had to do was figure out which companies were better than others, an idiot could make a lot of money. But they keep raising the prices to the fact where they the odds change. And I always knew that the smart market they were teaching my colleagues that the market was so efficient that nobody could beat it. But I knew people who'd beat the system and I'm all I know more about horses than other people. I knew it was And when I was very young. And so I never went near business school. So I didn't get polluted by the craziness. I never believed it either. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle. And it's not there's nothing remarkable about I don't have any wonderful insights that other people don't have. I just a sort of a slightly more consistently than others I've avoided idiocy. Other people are trying to be smart. All I'm trying to be is non-idiotic. I find that's all you have to do to get ahead in life is to be non-idiotic and live a long time. It's harder to be non-idiotic than most people think. Yeah. Carter Posner from Atlanta. As chairman of a major hospital, can you speak to us about Obamacare? Well, of course that's one of the most complex subjects on Earth. And of course the system of medical care as evolved in the United States has much wrong with it. On the other hand there's as much that's good about it that all the new drugs, the new devices, the new operations. Uh Medicine has taken more territory in my lifetime than it took in the whole previous history of mankind. It's just amazing what's been done. And a lot of it has been obvious and simple like inoculating your children against infantile paralysis and scraping the tartar off your teeth so you don't wear plates when you're 55 years old. And so on and so on and so on. And people now take those benefits for granted, but I lived in a world where a lot of children died, and every city had a tuberculosis sanitarium, and half the people who got tuberculosis died, and it was a big It's just amazing how well medicine has worked. On the other hand, compared to the best it can possibly be, the American system is pretty peculiar. And it's very hard to fix because one kind of incentive is to say, "We'll pay you so much a month for taking care of the people, and everything you save is yours." That is the system the government uses in dealing with the convalescent homes. That's a great name, the convalescent home. You convalesce You convalesce in heaven. You don't convalesce at home. It's It's It's a tendency to have a euphemistic name, but that creates huge incentives to delay care, keep the money, and the government has strict rules and compliance systems, and so forth. If we didn't have that system, the cost of taking care of the old people in convalescent homes would be 10 times what it is. It was the only feasible solution. The rest of the world is going in that direction because the costs just keep rising, rising, and rising. If the government is going to pay A any thing he wants for selling services to B, who doesn't have to pay anything, well, of course the system is going to create a lot of unnecessary tests, unnecessary costs, unnecessary procedures, unnecessary interventions, psychiatrists that keep talking to the patient forever and ever with no improvement. It's Of course that system is going to cause problems. And the alternative system also causes problems. Now, add the fact you've got politicians and add the fact you've got existing players who are enormously rich and powerful who lobby like crazy. A state legislature now is just with 19% or whatever it is of GDP going to the medical system, imagine what the lobbying is like. So, we get these Rube Goldberg again systems, so we get this a lot of abuse of various kinds. There's hardly an ethical drug company that hasn't created multiple gross abuses which are in substance the equivalent to the bribery of doctors, which of course is illegal. And yet all these ethical companies, ethical meaning it's it's the designation of a drug company that has patented drugs. Um they've all committed big follies, and the device makers are in any event worse. And there's been a lot of abuse and craziness and the costs of course just keep rising and rising. And that's in a system that average style has been the greatest achiever in the history of the world. It's very complicated. And I think it will get addressed more because and we probably will end up with systems that are more like we do with the convalescent homes. If you look at medicine, what's happening is that more and more they're going to a system where they pay somebody the X dollars they keep. And that system has some chance of controlling the costs. If you go into a great medical school hospital today, you're within an a day of dying of some obvious thing like over advanced cancer, your admitting physician is very likely to ask for a test of your cholesterol and every other damn thing. And all the bills go to the government. And as long as incentives allow that, people will do it. They'll rationalize their behavior. And so something has to be done on that and more than is it's is now being done. And I think the drift will be more in the direction of the block care. I don't see any other system that would have controlled cost in the convalescent homes. And by the way, your doctor can't just walk by every bed in a convalescent home and send the bill to the government. That's not allowed by the law, but if you transfer the patient into the hospital, you can walk by the bed five times every day and send a $45 bill to the government. So if the incentives are wrong, the behavior will be wrong. I guarantee it. Not by everybody, but by enough of a percentage so that you won't like the system. Well, I think that's enough on a subject that's so difficult, but I think we can see where it's going. Yeah. Uh by the way, we may end up with a whole system that's in the Netherlands, they have a system where the same people are giving a free system to everybody in a concierge system to the others. It's actually working pretty well. So that's a possibility. Next. Yeah. Hi Charlie. Yeah. Um the man of the mic should speak. Uh my name Ninja. I'm a Chinese from living Austin, Texas. Uh first of all, thank you so much for all your teachings and wisdom imparting. Um I personally taking a lot taking on the multi-disciplinary approach in life and collecting a lot of follies and inanities. Uh it's a lot of fun and I can see things much clearer now and so thank you very much for all that. Uh my question is regarding to the Asian population in the United States. Um I think a lot of the proportion of the a lot of us go to the elite universities in the US such as Stanford and Caltech and a lot of us have a very performance in school and have better job after school, but very few of us uh make it to the top of the field and this is especially so in the investing world. So, I was wondering why do you think that is the case? Are there any, you know, uh guns, deals, and germs that's in the computer system that's working against us in this nation? No, no. What's working against you is the laws of arithmetic. It's a strange thing, but you know, exactly 99% of the people are in the bottom 99%. And that will always be true no matter what. So, of course very few people get to the top 1%. In fact, only one person can get there. Next. What? Whitney? Mr. Munger, uh Whitney Tilson, uh long time Berkshire shareholder from New York and as a as such I was delighted to see the latest deal with the 3G guys announced last night or this morning. And I understand you may not be able to comment on that uh specifically, but uh could you just talk about your experience with Heinz and with 3G and what you hope for the future and what's so special about these guys that they're able to squeeze out such extraordinary performance out of fairly stable, slow-growth businesses? Well, of course 3G has through enormous discipline. It's enormous will and enormous intelligence. They have adopted a zero-based budgeting system which is more extreme than anybody else's. And yet they've been able to do it time after time in a way where the place ends up as strong or stronger after they've removed a lot of the cost. And of course, that's a very interesting example. The same thing went on the nonprofit side. When the great financial crisis came, every university I know of laid off 6%, 8%, 10% of their people. I know of no case where the university didn't work better after they got rid of the 10%. None. Zero. Successful places tend to get bloated, fat, complacent. It's the nature of human life. And so, somebody is tough enough and shrewd enough and knows enough not to cut the wrong things and the dirty things they Of course, has an opportunity to buy things and cut out expenses they don't really need. And of course, 3G is probably the most extreme large operation in the world doing that. I actually think they will probably end up increasing the sales as well. What's interesting about 3G is they're teaching us something about reality. Namely, that successful places contain a lot of unnecessary I could have told them that just by observing them. I mean, if you went into the Department of Agriculture with Jerry, you'd have the feeling the thing was understaffed. And I think you'd find many a corporate headquarters wondering what in the hell are all these people doing. And the Daily Journal, I do not think is overstaffed. I don't think it ever has been. Jerry, I want you to comment on that. He's watched it all these years. I don't think we've had a lot of unnecessary costs ever. Well, we haven't had a lot of unnecessary costs and as at one time the Daily Journal by itself had approximately 300 employees and now we have about 150 employees. So, you can see that we have we have taken uh the direction of the company and reduced expenses accordingly. Take for example the foreclosure business which went from about uh 2006 to 2010 or 11 just like that. We added one and a half people to handle all of that additional work. And when the boom went the other direction, we eliminated the one and a half plus maybe a little bit more. And so we tried to head us be ahead of the game in terms of anticipating and certainly using technology because that's the way we were able to handle that particular sequence of events. Yeah, but normally if you're just super successful if the sky just rains gold every vice president gets an assistant and pretty soon the assistant has an assistant. It's just the way human nature works. It's sort of like cancer. And somebody who's really tough about that can remove a lot of costs but only from certain kinds of companies. 3G would perish if it tried to reduce a lot of costs at the Daily Journal Company. They would starve to death. Charlie. Yeah. Hi, my name is James Armstrong from Pittsburgh, Pennsylvania. Uh indexing has grown a lot last 30 years or so as a form of investment management for a lot of good reasons. You said a few years ago that if we ever get to the point where everybody is indexing, it's not going to work very well. Of course. I'd love you to explain a little more about that and what would that lead to? Thanks. Well, it's far enough away from happening. So, I don't spend much time thinking about it. And I think human nature is such that it will never happen. So, I don't spend much time thinking about what is almost certain never to happen. Uh, in the world as it is, indexing has gained a lot. And it probably should have gained a lot because it's quite rational. And it's bad for a lot of people who'd otherwise be earning money as stock pickers. And it probably should have been bad for those people. It doesn't make it pleasant to have it happen any more than it helped Japan be have a pleasant time when Korea came up so fast as a competitive powerhouse. And even more so when China rose. But, uh, but I think indexing is here to stay. And I think it's a fact of life. And if you stop to think about it, civilized man has always had soothsayers and shamans and faith healers and God knows what all in the stock picking industry is 4 or 5% super rational disciplined people. And the rest of them are sort of like faith healers or shamans. And that's just the way it is, I'm afraid. And it's nice that they keep an image of being constructive, sensible people. When they really would be faith healers. It just keeps the self-respect up. Charlie, Wayne Peters from Sydney. I'd like to just come back to Lee Kuan Yew. His main mantra, repeat what works, has been phenomenal as you've highlighted today. What are the chances of that culture continuing with the current government and future governments of Singapore? Well, they're pretty good. Lee Kuan Yew left a base. He eliminated the corruption, made it hard to get in, and paid the people enough Oh, a lot. There's no There's no real incentive to steal in Singapore. If you're either in Parliament or an advanced government ministry, you get paid very well. And Confucian civilization, you're admired and so forth. Oh, I think what he's left in Singapore will continue to do very well. But of course, he rose when he was doing it, and China wasn't. Now, Singapore has to compete with China. China makes it harder. So, changes since his son or protege has come in, for example, allowing casinos to come into Singapore. Well, I would have hated that. And how do you get that? I think that talk about envy. It You make so much money running a casino compared to any normal human business. There are no inventories, there are no It's just a It's like having a license to print money. And people just can't stand the temptation. So, he organized the casino business only foreigners can play and not ruin the locals. I would not have sucked with the devil that much, but he was no longer really in power when that happened. And of course he And if he'd still been young, I He would not have done that. I do not consider it desirable in the United States that we've created casinos everywhere and lotteries everywhere. That is That was not a desirable development in an advanced civilization. And the goddamn politicians that solve their short-term problems like bringing in this poison deserve to be in the lower circle of hell, but that means that I'm consigning practically all of them there cuz practically all of them done it. I can hardly find a place where they aren't putting in new casinos. And the advertising on TV happy people winning at the table. Talk about false advertising. You should look at the desperate faces of people trying to get even at the table. Yes, sir. Imagine making your living putting the candy images on television. I would rather be in CHILD PROSTITUTION. ON THAT NOTE YEAH. YOU and Jerry were talking earlier about paddling hard in a business that was structurally challenged. As a leader, how do you deal so well with failures and upsets and disappointments better than other people? I have so many fewer. It's very simple. An isolated example that's very rare is much easier to endure than a perfect sea of misery that never ceases. As a follow-up to that is Recently there's been I think in some of the letters that you've written talked about there's a lot of talk about the benefits of trust. So all along you talked about the trust, but it becomes helpful Just useful. Having dealing with people you can trust and getting all the others they allow out of your life is just it ought to be taught as a catechism. The trouble with doing it is in ordinary school you'll immediately cast about 40% of the people into oblivion. Nobody even talked to them and I'm not sure our egalitarian civilization is willing to be that tough, but wise people you want to avoid other people who are just total rat poison. And there are a lot of them. When do you When do you assess that you know, how much do you let someone in or how does someone earn that trust or disappoint or fail that trust? Well, you do it partly by experience. You get trust by deserving. The simplest way to get trust is to deserve it and just keep deserving it. It's just what else is going to work as well? Now, the casino strategy to earn trust by having a happy winner appear on television. But do we any of us trust casinos? Would any of us say, "Oh, goody." when the daughter brings home a boyfriend who makes his living in the credit department of a casino? And by the way, a lot of our major capitalistic institutions that parade as really respectable, they're just casinos in drag. What do you think a derivative trading desk is? It's a casino in drag. And the people come down feeling they're contributing to the economy and they're managing risk. They got all kinds of they make the witch doctors look good. Uh Mr. Mr. Munger, I'm Tim Medley from Mississippi. Yeah. Uh about 20 years ago you gave a talk uh on the investment management of endowment funds for nonprofits, colleges, and so on. Uh many people in the pension and endowment fund business are now following the Yale model, so-called David Swensen They certainly are. Uh this and this recommends a significant percentage of assets toward hedge funds and private equity. And I think recently I heard you on a television program, perhaps, say that if you were managing endowment funds, you would have it virtually all in common stocks. Would you comment on this? Well, I don't manage it. endowment funds And I don't like the polarization that exists in places like big state pension funds and so forth. And of course, it's very difficult to manage empty billion dollars with various results. And of course, since David Swensen was so extremely successful at Yale, of course, the system has spread. Any successful system will spread by example. The other thing that's spread is the leverage buyout system. And those people actually have an advantage in a world that has been like the one we have. Your common stocks are yielding 10% average over time, pre-tax. And you have a different way of handling investment in common stocks, and what you use leverage, and you also eliminate some unnecessary costs, like 3G and a few other tricks. Just with the natural financial engineering, you have a natural advantage. And of course, they had wonderful experience in selecting the best the top 25% of the LBO funds have served their endowment plans very well. And that is part of what people like David Swensen did. And when it gets to hedge funds, you know, Warren has been famously uh skeptical about billions and billions and billions hundreds of billions uh trillions really of money in hedge funds and I think he's right. I think there'll be a lot of very bad experience. There will also be some good experience. And I think a few people have been able to select a few advisers for some of these private equity things where they really done well by being shrewder. Some of the money they made at Yale and at Harvard in derivatives was actually made shrewdly. They used leverage and I wouldn't have done myself because I don't like balance sheets swelling with vast amounts of leverage. I'm afraid of human nature. But nevertheless, a lot of what they did was quite shrewd. And of course they did have large returns. I don't think it's easy to do, nor do I don't think anything in a any ordinary person can do easily is likely to work that well. What David Swensen did was select with the aid of Yale's reputation and his own some of the smartest people around and nurture a bunch of It was a It's like a guy figured out how to make successful plays on Broadway. The fact that he succeeded doesn't mean it was easy. He did something very remarkable. And of course the example spreads. Uh but I don't think there's any real easy solution for anybody. Anything that's really likely to work is likely to be hard. Um my question um So love things respect for your time. I actually follow Berkshire Hathaway when I worked at Sumitomo Mitsui Banking Corporation, one of the largest Japanese banks in the world. And I did look at you look at Berkshire Hathaway and I did follow the two stocks. So I wanted to ask you of being the CEO of two companies and love things respect.com and .org and being a female, I want to ask you the usage of new internet platforms for starting campaigns such as Kickstarter. What do you think about that? And um I don't know anything about new internet platforms. What would you What advice would you give for early entrepreneurs CEO / young game changers? Let's say in the old way of thinking, let's let's omit the internet. Well, I don't know anything about the new world managing a big network based on computer science. It all came up and developed after I was too fixed in my habits to want to go back and learn to play a different game. And what I was doing worked well enough, so I didn't feel deprived. So I just uh I let it pass. Yeah. And I wish everybody well who's good at it. I feel the same way about a guy that walks across the tightrope over Niagara Falls. It's his way of making a living, but I'm not inclined to try it. And so I'm just I'm not trying to uh outdo Page and his partner at Google. Uh And I don't have any advice for young men who want to get rich. Basically, I think the desire to get rich fast is pretty dangerous. My own system was to get rich slow. And that protect protracts a rather pleasant process. So, I recommend my system to everybody. After all, if you get rich fast, all you can do is be robbed by your own employees on your yacht and so forth. Whereas, if you get rich slowly, you can keep yourself amused over a lifetime. So, my advice to you is to go to the get rich slow system. Hi, I'm Jeremy Carr, entrepreneur from San Francisco. As an as a an operator, I'd be curious about your thoughts on long-term defensibility. So, any themes you've distilled from the thousands of companies that you've invested in or looked at? Or anatomy sort of the first principles We tend to look for easy decisions. And we find it very hard to find easy decisions. And but we've just found enough, barely, to handle our own problems. And I don't have a system since I barely have enough for myself. I do not have a vast surplus to give to the multitudes. I'm not holding back on you. I just don't have Yeah, in the middle of it. This one here? Hi, I'm Sumit Shah from Austin, Texas. Um in the past you've mentioned how you didn't want to use up the US's hydrocarbons because you considered it as vital to the civilization. Um now it's now it seems like the world is awash in oil, and there's been a lot of interesting geopolitical developments as a result of it. Um I wonder if you could you us your updated thoughts on the global oil market and You'll be surprised to know that I have not changed my mind. I think the hydrocarbon reserves of the United States are one of the most precious things we have. Every bit as precious as the topsoil of Iowa. And just as I don't want to export all the topsoil to in Iowa to Iran or something just because they're willing to give us some money, I don't like exporting our hydro- I love the hydrocarbon reserves we have in the ground. The fashion is to be independent and to use them up as fast as we can. I think that's insanity as a national policy. I must be in a minority of 1% tops. But of But of course I'm right. We have no substitute for those hydrocarbons. We use them to make our fertilizer. We're not going to be able to run our airplanes without hydrocarbons, Dave. We do not want to use up all that. It's chemical feedstock. It's it's finite. Uh it's not at all safe to assume there's a substitute. It has a long record of over time of appreciating in value. We're just damn lucky we didn't learn to remove this frack stuff earlier or we would have done it. And uh but everybody else just has the idea that anything that happens in the free market is all right even if it's an axe murderer. And they think exporting hydrocarbons is makes sense. I think it's a ridiculously stupid policy. But if you have a little oil lease and don't like the current price of oil, of course you want to export. But I don't think it's good for the country at all. I love the fact we have a lot of hydrocarbons left that we haven't exploited. Why wouldn't you be pleased to have it? How have we all be we were importing 100% of our hydrocarbons right now? Like Japan. We'd feel exposed and dangerous, right? We'd be right to feel exposed and in danger. And would we feel like some big power in the world that might turn on other people for misbehaving? We had no hydrocarbons at all and we're dependent on others. No, I think the fact that idea is so unconventional doesn't mean it was wrong. It just means other people don't think very well. Uh Mr. Munger, uh thank you for holding the meeting. Uh Jason Leader from uh Bellaire, Texas. You mentioned earlier about unexpected change and also technological change and the impact it's had on some industries such as the newspapers. Going forward, what kind of unexpected changes or maybe I should say under-appreciated changes or technological changes do you think are most relevant and which industries do you think will be most impacted? Thanks. Well, I think the one that affects say the next 50 years for you young people is I think it's very unlikely that we won't have some major catastrophes. I think we've had a very favorable period. And but I don't think it's terribly constructive to spend your time worrying about things you can't fix. So, I'm all for your as long as when you're managing your money you recognize that terrible things can happen. The rest of your life you can be a foolish optimist. Hi. Ben Franklin said a very wise thing. He says you should keep your eyes wide open before marriage and half shut thereafter. And regarding those are catastrophes that you can't fix, you should probably be have Franklin's way and keep your eyes half shut. I've got to do most of us do anyway. But I think that's the change that's most likely. And I don't see how we bring back the age where an uneducated man could march ahead rapidly as long as we have free trade and worldwide competition. And I don't want to stop having free trade with a big nuclear power like China. China and the United States have to get along. They would each country would be out of its mind not to get along with the other. And I think they would I think the trade helps us get along. And so, if it hurts some people, why you know, life is always going to hurt some people in some ways and help others. And I think there should be more willingness to take the blows of life as they fall. That's what manhood is. Taking life as it falls. Not whining all the time and trying to fix it by whining. Uh Mr. Munger, this is David Samra from um San Francisco, California. Uh one of the most more peculiar things that we see in the markets today is the existence of persistent negative interest rates on certain government bonds. And I'm wondering if you just have any thoughts around that. Thank you. Well, it's basically never happened before in my life. I can remember 1/2% rates, you know, World War II and a little after that. But, you're talking about something that never happened before in my whole life. It certainly surprised all the economists. It surprised the people who created the life insurance industry in Japan who basically all went broke because they guaranteed to pay a 3% interest rate. Imagine thinking that your life company could go broke because it guaranteed to pay a 3% interest rate for a long time. And it's it's a it's very surprising. And I think everybody's been surprised by it. Including all the people who sort of were in the economics profession who kind of pretend they knew it all along. But, I think practically everybody was flabbergasted. I think we're all still flabbergasted. I was flabbergasted when they went low when they went negative in Europe. I'm I'm really flabbergasted. Negative interest rates? How many in this room would have predicted negative interest rates in Europe? Raise your hands. See, that's exactly the way I feel. So, how can I be an expert on something I never even thought about it? It seemed so unlikely. It's perfectly it's new territory. Edmund Caram, Orange County. Come here. I want to go back to uh Juno Technologies. You mentioned that getting into the software business is difficult, it's hard, and one of the things you're looking to do is solve the problems of your customers. Can you talk about what's challenging or difficult about it? And what are your customers' problems that you're trying to solve? Well, every government department needs all kind of automation it doesn't have. And it's complicated systems interact with other systems. It's It's a very, very complex activity and software is more and more important. And it's very, very difficult. And the governments have their own way of doing businesses that are created by history and local legislation and so forth. So, it's not It's there's nothing simple about it. It's plenty difficult. And uh and You know, a company like Microsoft they're in a business somewhat similar to ours when they bought that thing in Planes or whatever it was the name was and they've succeeded with it moderately. So, even Microsoft finds it difficult to do anything but have moderate success when they buy some thoroughly proven software system more or less similar to what we're trying to do. And it there's nothing easy about it. And but it's very necessary. It's a huge market. And the right idea, of course, is to really serve the customer correctly. And uh somebody is going to win. Thank you, Mr. Munger. Uh Chris Cerone from Middleburg, Virginia. I have two questions. The first is you've had a front row seat uh as the newspaper industry has gone into decline. You also uh have had a unique perspective with Cap Cities ABC in the television industry and I'm curious whether or not you see any parallels uh between what's happening today in television and what's happened uh to the newspaper industry. Well, the newspaper industry, of course, is easy. It had a revolutionary change in technology. And the worst single thing was to take the classified ads out of the paper cuz that was the total goldmine. And I don't think that's fixable. And our newspapers are they were impregnable local powerhouses and very constructive parts of the political system of the country. And of course they've been gradually they've been enormously weakened. And I think that was not good for the country. I think it just happened by accident. We lost all these local powerhouses that could have total integrity because they had impregnable financial positions. And the way they go television is a different thing. And I've been a little surprised how well television has survived the new world of the internet and cable television. So I mean the old broadcast networks and so on. But I'm not sure I understand the situation well enough to predict what's going to happen over the next 25 years. I'm a little suspicious about all the local incumbents. None of them look immune to me to uh technological change. I don't even understand what's Something happened recently which I watched in China. When the Berkshire report came on it created a great buzz in China. China is interested in We look confused to the Chinese. They like elderly rich men. We're We're trying to trying to be wise. That's So that's the Chinese system. And so we were getting a great buzz with the Berkshire report all through China. And all of a sudden the buzz stopped. And what had happened? One woman in China took 150,000 of her own money and a year of her life and created a documentary film. And she ran the thing through the air over the internet. What was a film? She got 200 million reviews. And what she did was a long thing about smog and how all the people were dying in China and how Los Angeles had fixed its smog problem by taking the sulfur out of the air when people burn coal and oil and so on and so on and so on. Terribly well done. Well, somebody nobody's ever heard of. Then the Chinese plenary Communist Party meeting this one woman is changing the policy of China. She had no newspapers, she had no television station, nobody ever heard of her. And one damn documentary. That is a new world. It's a new source of power and I don't know where a world like that is going to end up. I just know it's different. And it's important and in this case it was very constructive. China has been dead wrong to allow people to die 10 years early in Beijing because the air is so lost. Immoral, stupid, not a good combination. China's going to fix it. And this woman is actually helping with one program. The world changes like that so rapidly. It's hard to know who's going to have the power and what's going to happen. And that's the way I feel about a lot of the media. I understood it better when the people who had the printing press controlled the newspaper and the people who had the network allocation controlled the broadcasting. And Murphy liked it better when they were all in black and white and there were only three networks. And he had a big strong position. He did not welcome all the new competition. And I don't know what we're having. I do not understand how they get so damn much information through space at the same time. You and I grew up in a world where these radio stations they interfered with one another, right? That's the world we That's why you couldn't have very many channels. And now one woman can put 200 million hits on a whole damn movie. Through God knows what. How do they How do the bits not conflict with one another? It's very complicated and I don't understand it and you know, I understand peanut brittle. And Charlie, just as a follow-up on the question about low interest rates, are there any specific unintended consequences that you are concerned about now that we've had such a prolonged period of low interest rates which are clearly altering folks' risk behavior. Well, I think something so strange and so important is likely to have consequences. I think it's highly likely that the people who confidently think they know the consequences, namely the economics profession, none of whom predicted this. Now they know what's going to happen next. Again, the witch doctors. I never wanted to be a witch doctor. I just wanted a few things I could actually know something about. And I wouldn't like a profession that required me to be a witch doctor. I mean, I might guess you know what's going to happen. Hell, I don't know what's going to happen. I regard it all as very weird. Have interest rates go to zero and all the governments of the world print money like crazy and prices going down. Of course I'm confused. Anybody who isn't intelligent is not confused is doesn't understand the situation very well. Yeah, I think that if you find it puzzling, you're you're you're brain is working correctly. Yeah. I'm Frank Glenn. I'm from Houston. My question for you is what do you think in your mind is the least talked about or most misunderstood moat by the public that is highly important? Moat? Yeah. Type of moat? Oh, well, everybody would like to have a misunderstood moat. I must say you're the greatest fellow that's spoken. All you want to know is have a moat that you can understand that other people don't. What a modest wish. So, you're going to ask a 91-year-old man how to do it? Reminds me of one of my favorite stories. A young man comes to Mozart. To Mozart because Oh, I hear you help my mother compose symphonies. I want to be a creator of symphonies. Mozart says, "You're too young to be composing symphonies." He says, "But you were doing symphonies when you were 10 years of age and I'm 21." Mozart says, "Yes." He says, "But I wasn't running around running around having other people how to do it." That's That's the way I feel about your question. All you want is a misunderstood moat. Fair enough. Yeah. All right. Yeah. Go ahead. Wait for a mic. This one has to do with human nature. You've met a lot of people in your life and Wait a minute. Wait for the mic. Hi, Max Blair from Marina del Rey. This question has to do with human nature. You've met a lot of people throughout your life, and some of whom have been very remarkable. What has surprised you the most about human nature, particularly in the last several years? The one thing that has surprised me all my life is how many people with high IQs do massively stupid things. And it's it's Now, you go to our academia, you go to a great faculty department. I said this once to the Michigan Law School. She says, "Nobody in my law school would be surprised by highly intelligent people doing a massively stupid thing." So, it happens everywhere. But, it is surprising how extreme the stupidity is and how talented the people are who do them. And I think the human mind was almost made to malfunction on a lot of different ways. And so, I do think it's quite surprising, and it makes the world a very dangerous place. Because the man with whom you trust, because he's your physician, your doctor, your investment manager, what have you, can go plumb crazy. And so, I would say I give an example of surprise me. I'm used to doctors who think a procedure that's good for them as good for you. And they're wrong. But, in Redding, California, a couple of doctors rose who gave everybody who consulted them open heart surgery. And they really convinced themselves that everybody needed open heart surgery, that this kind of a normal heart was a widow maker. And I said, "If you replace it with carbon or nylon or something, they were way better off." They did massive amounts of open heart Now, I expect the worst of human nature. But, they had the feeling they were doing the right thing and really helping the patients. That surprised me. I'm always being surprised by something like that. It seems impossible. How could anybody behave that way? And how could it go on for year after year? Tenet was sending its other executives up there to learn how to run this other hospitals this way. And by the way, their surgical results were wonderful. Nobody survives open heart surgery better than the guy who doesn't need it at all. So, that kind of surprise I get all the time. Don't you find that case surprising? Yes. Is it like a confirmation bias or something that people want to believe their own results and their own theory? No, it's a incentive bias. They were making money and status and they were demonstrating skills and so forth. But, it's so extreme you'd think that couldn't happen. And if it did happen, you'd think it would be identified by other people early. It ran on for years. What their bosses were doing is trying to get their other hospitals to have the same results. Amazing. Were they sued? Uh Were they sued? Uh of course. What happened was that they did that uh take away the doctors' licenses. But, nobody went to jail. That's mad. You'd think they'd go to the lowest circle of hell, but they didn't. They just lost their licenses. Yeah. Hi. Hi, Mr. Munger. Carl Keefer from Simi Valley. When might you believe the software industry will catch up with the law profession in the form of reduced billable hours due to processes and systems. I didn't understand the question. I wouldn't hold your breath. Yeah, I do think there is some trend to limit the idea of hiring a lot of young people and have them all build their teen hours and so on. Trying to increase the billable hours. And that is not just the law profession, the consultants do it, lots of people do it. Accountants do it. Uh it's just again human nature operating. And uh but I do think in law you're seeing the elements of rebellion. Some clients are insisting on different systems. It's uh it's gone too far. Hi. My name is Jing Guo from China. Actually, um the question about Singapore again. Um the first point is actually even in China there are debates about if China should learn the Singapore's management style because this type of very tight management style maybe only a tiny place like a Singapore, a city-state. Um I don't know your opinion, you will think it will really work like that in a big country, for example, China or India or even United States. And the second point is um because recently Mr. Lee just passed away. So there are a couple of articles mentioned actually Lee himself um talked about say it's not about smartness or uh intellectual, it's about he just applied the British legal system. So I just mean uh for me if I look at that, it's the characteristics of those management style or you say the combination, it's more like in the one party then plus the legal system. Well, what China adopted from Singapore was not its total management system. It adopted its uh system of uh of economic management business. It had private ownership of business and so forth. And before that, the Chinese government had owned practically everything. And Lee Kuan Yew never felt that his exact Singaporean system with its democracy would necessarily be the right place for China immediately. It may well be that some other model will work better for a place as big and as backward as China was. And it may well be that the system of the Chinese lucked into by accident when they took part of what Lee Kuan Yew what uh was done in Singapore, it may have been about right for China. China's weird combination of authoritarianism and free enterprise has worked wonders for the economic output of China. And Lee Kuan Yew's example had a lot to do with it, but he didn't think necessarily that what was right for a small city-state was right for a whole backward country uh of a different nation. Uh but I think almost everybody with any sense in China admires Lee Kuan Yew. It's hard to think of a person of a Chinese uh what do you call it, racial identity, country identity. It's hard to think of anybody who has more a more credible record than Lee Kuan Yew in the history of the world. He's hugely admired in China and deserves to be. And then of course people are proud of him. Yes, but Which they should be. Yes, you are, but it's like maybe But nobody thinks that just his exact solution. But I do think the anti-corruption part of China that was right out of Lee Kuan Yew's book. But I think if you think about this, um if talk about one party plus the legal system, it might be the case in Singapore. If you think about like more than one party plus the legal system, that could be the case in Hong Kong, right? And in Hong Kong, no corruption in the government official, too. Well, there's no question about the fact that Hong Kong has been hugely successful. But China had a lot of corruption while it increased its GDP at 8 or 9 10% per annum for decades. How is it? They weren't perfect, but it was a lot of achievement from where they started. The whole thing is just very, very interesting, but what's really interesting is how much influence on this outcome one human being had. And he started as a leftist labor leader. It's perfectly amazing. I wish I could have him more often. Somebody? Yeah. Armen Carapetian from Irvine, California. And I'm right here. Uh I had a question about the appropriateness of the use of debt in investments. How would What methods would you use to quantify the appropriate amount of debt in an investment, whether it be real estate or private equity or public corporation? Well, the appropriate amount of debt varies with the circumstances. So, I don't have any general rule. Generally speaking, if you're in a thing is in certain says running a big complicated enterprise, there's a lot to be said for having a lot of extra wealth and liquidity. You're a huge social safety net if you're a controller of capitalist power. Do we want them all leveraged to the gills so they can buy back the maximum amount of stock? They are big social enterprises that should have reserves of safety. And the idea they should all leverage themselves to the guild to please a bunch of activists strikes me as it could be like taking all the safety margin out of the bridges. On that theory we'd save steel. It's a dumb idea. Hi Mr. Munger, Alex Rubalcaba from Los Angeles and owner of zero daily journal shares. But I'm a Berkshire owner. You talked about indexing and its effect on investing. Could you speak about the growing market share of indexing in the and the effect that will have on the relationship of shareholders to the companies that they own and the relationship between It's likely to have a significant effect over time because now you got a bunch of permanent owners. The people who run the index funds are now in effect they are permanent owners. They can't sell. And yes, of course they will drift into using more of that power. And will it be used intelligently, the new power? I doubt it. But then I'm a have a certain natural cynicism. Yeah. Can you speak to the general level of market prices today? If you had all your money in a tax deferred account, would you be tempted to increase the level of cash. Well, you're asking me for a position I don't occupy in life. And if you said, "Charlie, how would you practice dentistry if you'd been a dentist?" I might not be able to give you as good an answer as I could about something I thought about a lot. I'm content owning virtually 100% stocks. But I really think I own stocks that are better than other people's on the average. And therefore my decision is easier. What I would have to do if I had to own average stocks like everybody else, I'm not so sure. I've carefully avoided that fate. And I've I've been able to do it for a while and decades. Now, the margins are not what they used to be. But you know, an old man is lucky to have any advantage at all. Yeah. Hi. My name is Anish. I'm from San Francisco Bay Area. My question is regarding modes of technology companies. Louder. Uh my question is regarding modes of technology companies. Do you think companies like Google and Apple have long-lasting modes considering that they are right at the center of technology or is the fast-changing technology makes their mode too thin? Yeah. I am not an expert on the modes of technology companies. And the reason by and large I don't own them is cuz I do not understand whether or not their modes uh will last or not. I do think Google is a very remarkable company. And if you put a gun to my head and said, "Charlie, you got to buy a big technology company." I might choose Google. Uh they certainly hire brains. And they're getting the best brains, I think, of anybody. And they're certainly fanatic. And they certainly have an entrenched position. But do I understand the value of their moat compared to the value of everybody else's moat? The answer is no. You're asking the wrong person. And by the way, anybody who does give you the answer is probably full of, you know, what. I'm not sure anybody else knows, either, is what I'm saying. Mr. Munger Yeah. A few days ago, the United Nations declared World Happiness Day. And as part of the reading I did about that uh I discovered that I think that Denmark was declared the most happy world the most happy country in the world. Any thoughts on that? It may be true. It may be true. And you've got a hit. Nordic nation without all tropical diseases you've got a big social safety net. It's mono-ethnic, so they don't have the tensions of different groups making a place hard to govern. They're situated they're surrounded by advanced civilizations, so they can live pretty well without having to invent anything new themselves or not. It's very favorably located. And if you are in a small group with which you closely identify you don't mind supporting one another more. It's just the way the human mind works. It may well be that if you measure happiness physiologically by time spent smiling and so forth that Denmark may well be happier than almost any place else. I suspect it's true. That does not make me want to live in Denmark. I'll I'll take the world the way it is in where I live. I prefer it. But I suspect it's pretty close to true. By the way, if you also want to be happy, join the Mormon church. I think that on average they're happier than the people in Denmark. It works. Thank you, Charlie Munger, for coming out and talking to us. I'm Andrew Grangaard, a Caltech engineer. And I have a slightly different question. Been coming listening for years here. Um how do we reincentivize or at least arrange things so that we're not losing, you know, we only have 200 undergrads every year. So many of them go off to finance, which is just a waste on society. How do we actually get them fixing the problems of tomorrow? How do we keep people in science? Thank you. The answer to that is I don't know. I don't think it's good having all the brains go into finance. Just so I don't think it's good having a so many gambling casinos and gambling casinos in disguise in the financial markets. So I don't think that the current development is good. And if I were running the world as a omnipotent emperor, I would change the laws so the outcome changed. I would change the incentive. But the chances of anybody paying attention to my ideas about the laws are zero. So I guess that you and I are going to have to just take it as it comes. But it But it is not a good outcome. And it's it's not desirable. And that the laws and customs that cause this huge drift of talent into finance, it's not a desirable outcome at all. And as a follow to your early one, if you want to know how to pitch get around and go hit everything in the waves, happy to talk to you on that. I think you're coming a little late. I could have understood it though I'd started younger. Hi, my name is Steve Check. I'm from Orange County, California. Um, this was the 50th year for the Berkshire uh report and uh each you and Warren wrote a letter that neither had read before. Your letter seemed to be a little bit more optimistic about the future of Berkshire than Warren's and anyway, just like your comments on what you thought of Warren's letter. Well, I think Warren's letter was very, very useful. And I particularly like it where he was criticizing things. Take the growth of the conglomerate movement which is sort of a chain letter game that people played with financial accounting and the accountants all blessed it. Accountants never should have blessed the conglomerate craze with constantly buying low quality earnings and making earnings go up but it was it was an evil system and it was an evil way to make money and it was an evil way to run the accounting profession to bless the outcomes of the And nobody else is talking that way. So, I tend to admire Warren when he gets up on important subjects like that. Where he's totally right. The chances that anybody will pay a lot of attention to him in a way that changes anything is I think quite small. But for a few of the cognoscenti like you people, how many people here really approve of the way say IT&T played the conglomerate game and the way their accountants blessed their earnings reports. Raise your hands if you who it was wonderful. The answer is it wasn't wonderful. And so I like what Warren did. Nobody else is doing it. What other CEO is saying that American bank shares and their accountants grossly misbehaved for a long time. Nobody. Well, I think it's useful when somebody does that. And he's totally right. It was awful. And the fact that everybody went along with it, including the investment managers. And that's still happening. Valium, the pharmaceutical company, is like ITT come back to life under Harold Geneen. Except the guy's worse. Worse. So, it's just like my story about the unnecessary heart surgery in Reading. You know, however bad you think it is, somebody actually comes by and does it worse. It wasn't moral the first time. On the second outcome, it's not better. And people are enthusiastic about it. I'm holding my nose. That's the only correct response. Yeah. Uh Mr. Munger, at the Wesco meeting about 20 years ago, um you were asked a question, and I think it was "What do you consider the most important invention of the 20th century?" This was about 1995. And I was surprised by your answer. Uh but you said it may be air conditioning. And you then talked about huge swaths of the United States that really were tropics before air conditioning. What would you say today has been the most significant invention of the last 100 years? Well, it's hard not to say the internet. We have the good transportation. We have the airplanes, the trains, the air conditioning, the good pharmaceuticals, and so on. And but having the internet and the instant cell phone and the little portable computers, the iPads, and so on. That's what made this one woman in China change a whole governmental outcome with no power before. And it's having other dramatic changes, including destructive changes of investments. So, I would say the internet is a very important Uh I don't think everybody feels that way. I do. Yeah. Hello. Uh Charlie Eric Speron from about two more questions. Uh Irvine, California. Yeah. Um just uh wondering um you mentioned Mr. Abel in your letter, and I want to ask something about utilities. Um you also mentioned Elon Musk over there. He's out um having, you know, kind of a hell of a time trying to disrupt autos, but it looks like he could have more success in utilities. Berkshire's put a lot of money um behind um MidAmerican Energy. Uh you know, how do you see that playing out? Very well. I think it'll work out very well. Yeah. Again, we're trying to do the right thing by the regulators, the customers, the engineering, the safety, you name it. And uh you know, I think it'll work very well for Berkshire. And I think it'll very well work very well for the customers of MidAmerican Energy. So, I wish I was as optimistic about everything as I am about that one. I would regard that as almost a no-brainer. Hi Charlie. Jordan Flannigan from uh Thunder Bay, Canada. Um I just wanted to know what separated Henry Singleton from other people that developed conglomerates and why you and Warren seem to respect him. Well, we respect Henry Singleton. Very simple reason, he was a genius. Henry Singleton never took an aptitude test where he didn't score an 800 and leave early. And he competed in the Putnam, the major mathematical symposium in the United States. Even when he was an old man, he could play chess blindfolded at just below the grandmaster level. He had an awesome intellect. It was so far into the top 1,000 to 1%. So, he was very interesting in that respect. This is an extreme intellect. And of course, he did create a conglomerate because it was legally allowed at the time and they and he did it the way everybody else was doing it and he did it better and he made a lot of money. When they ran out of favor, the stock went way down and he bought it all back for less than it was worth. And of course, he died a very wealthy man. He was totally rational human being in things like finance. What I found interesting about Henry Singleton and has interesting educational implications is I was watching both Henry and Warren invest and operate at the same time. So, I had two great windows of opportunity to examine human nature. What was interesting to me was how much smarter Warren was at investing money than Henry. Henry was born a lot smarter, but Warren had thought about investments a lot longer. And Warren just ran rings around Henry as an investor. Even though Henry was a genius and Warren was a mere almost genius. I that just fascinating. Just absolutely fascinating. And Henry was very rational. He was quite similar to Berkshire in some ways. Henry never issued a stock option. He had certain commonalities with Warren that were just logical outcomes. I bet this is my last question because we reached the time when the directors meet. And besides even for a group of addicts, you probably had all you can take. Thank the gallery. Thank you.
