"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." - Charlie Munger
Not a transcript; just detailed notes. Errors mine; corrections welcome.
Q: Charlie, I'm here from Sydney, Australia. I'd like to just come back to Lee Kuan Yew. What are the chances of that culture continuing with the current government and future governments of Singapore?
Mr. Munger: They're pretty good. Lee Kuan Yew left a base, eliminated the corruption, made it hard to get in, and paid the people a lot. There's no real incentive to steal in Singapore. Either in Parliament or as an advanced government administrator, you get paid very well, and you're admired, and so forth.
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.
Q: What about the changes since his son or predecessor came in, for example, allowing casinos to come into Singapore...
Mr. Munger: I would have hated that. You make so much money running a casino, compared to any normal human business. There are no inventories, it's like having license to print money, and people just can't stand the temptation. So, he organized a casino business. Only foreigners can play; he didn't want to ruin the locals. I would not have slept with the devil that much. But Yew was no longer really in power when that happened. If he'd still been young, I'd like to think he would not have done that.
I do not consider it desirable in the United States that we've created casinos and lotteries everywhere. That was not a desirable development in an advanced civilization, and the damn politicians that solve their short‑term problems by bringing in this poison deserve to be in the lowest circle of hell. That means that I'm consigning practically all of them, since practically all of them have done it. I can hardly find a place where they aren't putting in new casinos. And the advertising on TV is happy people winning at the table.
[laughter]
Talk about false advertising! You should look at the desperate faces of people trying to get even at the table. Imagine making your living putting those kinds of images on television.
Q: How do you deal so well with failures and upsets and disappointments?
Mr. Munger: I have so many fewer.
[laughter]
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.
Q: Recently you've written about the benefits of trust....
Mr. Munger: Oh, it's just so useful dealing with people you can trust and getting all the others the hell out of your life. It ought to be taught as a catechism. The trouble with doing it is, in an ordinary school, you'd immediately cast 40 percent of the people into oblivion.
Nobody would even talk to them, and I'm not sure an egalitarian civilization is willing to be that tough. But wise people want to avoid other people who are just total rat poison, and there are a lot of them.
Q: How does someone earn that trust?
Mr. Munger: You do it partly by experience. The simplest way to get trust is to deserve it, and just keep deserving it.
Now, the casino has tried to deserve trust by having a happy winner up there on television, but do 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?
[laughter]
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. People feeling they're contributing to the economy, and they're managing risk. They make the witch doctors look good.
Q: About 20 years ago you gave a talk on the investment management of the endowment funds for nonprofits, colleges, and so on. Many people in the pension and endowment fund business are now following the Yale model, the so-called David Swensen model. This recommends a significant percentage of assets toward hedge funds and private equity. And I think recently I heard you say on a television program that if you were managing endowment funds, you would have it virtually all in common stocks.
Mr Munger: I don't manage endowment funds, and I don't like the politicization that exists in places like big state pension funds and so forth. It's very difficult to manage umpteen‑billion dollars. 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 leveraged buyout system, and those people actually have an advantage in a world like the one we have. If common stocks are yielding 10 percent average over time pre‑tax? And you have a different way involving investment in which you use leverage, and you also eliminate some unnecessary costs, like 3G, and a few other tricks. Just with the financial engineering, you have a natural advantage. Of course they'd have wonderful experience in selecting the top 25 percent of the LBO funds, and have served their endowment clients very well. That is part of what people like David Swensen did.
When it gets to hedge funds, Warren has been famously skeptical about trillions of dollars 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. A few people have been able to select a few advisors for some of these private equity things where they really done well by being shrewder.
Some of the money they made at Yale or Harvard was actually made shrewdly. They used leverage. I wouldn't have done it myself, because I don't like balance sheets swelling with vast amounts of leverage. I'm afraid of human nature.
Nonetheless, 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. I don't think anything any ordinary person can do easily is likely to work that well. What David Swensen did, with the aid of Yale's reputation and his own, was select some of the smartest people around.
It was a like a guy who figured on how to make successful plays on Broadway. The fact it succeeded doesn't mean it was easy. He did something very remarkable and of course the example spreads. I don't think there's any real easy solution for anybody. Anything that's really likely to work, is likely to be hard.
Q: What do you think of new Internet platforms for starting companies such as Kickstarter?
Mr. Munger: I don't know anything about new Internet platforms.
[laughter]
Q. All right. What advice would you give for early entrepreneurs, young game changers, in the old way of thinking?
Mr. Munger: I don't know anything about the new world of managing a big network based on computer science. It all came up and developed after I was convicted in my habits, to then go back and learn to play a different game. What I was doing worked well enough, so I didn't feel deprived. I let it pass.
I wish everybody well who's good at it. I feel the same way about a guy that walks across the tight rope over Niagara Falls. It's his way of making a living, but I'm not inclined to try it.
[laughter]
I'm not trying to outdo Page and Brin at Google, and I don't have any advice for young people 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.
It 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 and your yacht and so forth. Whereas if you get rich slow you amuse yourself over a lifetime.
[laughter]
My advice to you is to go to the "get rich slow" system.
Q: I'd be curious about your thoughts on long-term defensibility. Any themes you've distilled from the thousands of companies that you invested in?
Mr. Munger: We tend to look for easy decisions, and we find it very hard to find easy decisions, but we've just found enough barely to handle our own problems. 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 them.
[laughter]
Q: In the past you mentioned how you didn't want to use up the U.S.'s hydrocarbons. Now it's seems like the world is awash in oil. Could give us your updated thoughts on the global oil market.
Mr. Munger: You'll be surprised to know that I've not changed my mind.
[laughter]
I think the hydrocarbon reserves in the United States are one of the most precious things we have, every bit as precious as the topsoil of Iowa. Just as I don't want to export all the topsoil in Iowa to Iran or someplace, just because they are willing to give us some money, 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 in a minority of one percent tops, but of course I'm right.
[laughter]
We have no substitute for those hydrocarbons. We use them to make our fertilizer. It's chemical feedstock. We are not going to be able to run our airplanes without hydrocarbons. We do not want to use that all up. It's finite. It's not at all safe to assume there's a substitute.
They have a long record over time of appreciating in value. We're just damn lucky we didn't learn fracking earlier to remove them all or we would have done it. But everybody else just has the idea that anything that happens in the free market is all right even if it's an ax‑murder.
[laughter]
They think exporting hydrocarbons makes sense. I think it's a ridiculously stupid policy, but if you have a little oil lease, 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 happy would we all be if we were importing 100 percent of our hydrocarbons right now, like Japan? We'd feel exposed and in danger. We'd be right to feel exposed and in danger.
Will we feel like some big power in the world that might prevent other people from misbehaving if we have no hydrocarbons at all, if we are dependent on others? No, I think the fact that that idea is so unconventional doesn't mean it's wrong. It just means other people don't think very well.
[laughter]
Q: Going forward, what unexpected or under‑appreciated changes changes do you think are most relevant, and which industries do you think will be most unhappy?
Mr. Munger: I think the one that affects the next 50 years for young people: it's very unlikely that we won't have some major catastrophes. I think we've had a very favorable period, but I don't think it's terribly constructive to spend your time worrying about things you can't fix. As long as when you are managing your money, you recognize that a terrible thing is going to happen, in the rest of your life you can be a foolish optimist.
Benjamin Franklin said a very wise thing. He said, "You keep your eyes wide open before a marriage and half shut thereafter."
[laughter]
I think those are catastrophes that you can't fix. Franklin is right, keep your eyes half shut. I think that's what most of us do anyway. Though I think that's the change that's most likely.
I don't see how we bring back that age where an uneducated man can 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. Each country would be out of its mind not to get along with the other. I think trade helps us to get along.
If it hurts some people, life is always going hurt some people in some ways and help others. 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.
Q: One of the more peculiar things that we see in the markets today is the existence of persistent negative interest rates on certain government bonds. I'm wondering if you just have any thoughts around that.
Mr. Munger: This has basically never happened before in my whole life. I can remember 1½ percent rates. 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. I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted.
I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted. How many in this room would have predicted negative interest rates in Europe? Raise your hands.
[No hands go up]
That’s exactly the way I feel. How can I be an expert in something I never even thought about that seems so unlikely. It’s new territory….
Q: 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?
Mr. Munger: 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 – none of whom predicted this – now they know what’s going to happen next? Again, the witch doctors.
You ask me what’s going to happen? Hell, I don’t know what’s going to happen. I regard it all as very weird. If interest rates go to zero and all the governments in the world print money like crazy and prices go down – of course I’m confused. Anybody who is intelligent who is not confused doesn’t understand the situation very well.
If you find it puzzling, your brain is working correctly.
***
