A Quick Chat with Charlie Munger

Probably the best 11 minutes you’ll spend all week….

 

On share price volatility:

  • There have been three times Munger / Buffett have seen their holdings in Berkshire go down 50% (top tick to bottom tick)
  • Volatility is in the nature of long-term shareholding – if you’re not willing to react with equanimity to drastic declines you don’t deserve to do as well as the long-term holders that do
  • It’s a temperament, one needs to be more philosophical about market fluctuations

How political ideology caused the markets to crash:

  • Can never take all the boom and bust out of a capitalist economy but they could be considerably dampened if there were certain wise restraints
  • The folks that made a lot of money due to the lack of wise restraints channeled their resources to lobby for even less restraints – aided by ideological nuttiness that assumes because free markets work so well compared to communism, it follows that no laws at all will work even better – not true, the economy will work worse if you don’t have any wise restraints

The idiot boom and the fringes of the US Democrat and Republican Parties

  • Both parties have wings that are full of idiots – that’s the nature of the game
  • The people in the middle usually can tune out the idiots and do pretty well but every once in a while the idiots get in control
  • Compares the idiot boom (the idiot expansion of consumer credit) to going on Heroine – your life would be pleasant for a few weeks but it will ultimately totally destroy you

On Alan Greenspan

  • To his credit, of all the major figures, he’s the only one that promptly said “I’m a horse’s ass”

The trouble with Wall Street culture

  • Wall Street attracts and rewards a “locker room culture” – people that just have to win.  They’re so competitive that whatever “A” is doing they have to be better than “A”
  • They’re not very squeamish about what they have to do to win and thus are willing to do enormous damage to the rest of us in order to win

Munger and Buffett’s checklist for picking a company to invest in

  • First filter: must deal in things they’re capable of understanding
  • Next, the business must have some intrinsic characteristics that give it a durable competitive advantage
  • Vastly prefer a management in place with a lot of integrity and talent
  • Finally, no matter how wonderful it is, its not worth an infinite price – must have a price that makes sense and provides a margin of safety
  • It’s a very simple set of ideas – they’re too simple – the professional classes can’t justify their existence if that’s all they have to do – it’s so obvious, so simple, what would they have to do with the rest of the semester?

Munger’s way of thinking about buying shares

  • We have the mindset of the person buying the whole business
  • We like buying individual shares at a price that’s lower than what we think a rational person would pay if he could buy the whole business
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