- Charlie Munger discussed GameStop, Bitcoin, SPACs, and other hot topics.
- Warren Buffett’s business partner spoke at the Daily Journal annual meeting.
- Munger warned the speculation in stocks will end badly.
- Visit the Business section of Insider for more stories.
Warren Buffett’s right-hand man issued a warning to stock-market speculators, criticized the trading platforms enabling them, blasted SPACs, and downplayed the significance of bitcoin at the Daily Journal annual meeting on Wednesday.
Here’s a roundup of the 97-year-old executive’s key comments during the meeting, lightly edited and condensed for clarity.
“These things do happen in a market economy, you get crazy booms. I’ve been around for a long time and my policy’s always been to just ride it out.”
“A lot of investors are buying stocks in a frenzy, frequently on credit, because they see them going up. That’s a very dangerous way to invest.”
“Shareholders should be more sensible and not crowd into stocks and just buy them just because they’re going up and they like to gamble.”
“I think it must end badly but I don’t know when.”
“That’s the kind of thing that can happen when you get a whole lot of people who are using liquid stock markets to gamble the way they would bet on racehorses.”
“The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers. When things get extreme you have things like that short squeeze.”
“It’s very dangerous and it’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors. Of course that is going to cause trouble, as it did.”
Robinhood and trading apps
“If you’re selling people gambling services where you make profits off the top like many of these new brokers who specialize in luring gamblers in, it’s a dirty way to make money and I think we’re crazy to allow it.”
“[Wretched excess in the financial system] is most egregious in the momentum trading by novice investors lured in by new types of brokerage operations like Robinhood. All of this activity is regrettable, civilization would do better without it.”
“Human greed and the aggression of the brokerage community creates these bubbles from time to time. Wise people just stay out of them.”
“When you pay for order flow, you’re probably charging your customers more in pretending to be free. It’s a very dishonorable, low-grade way to talk. Nobody should believe that Robinhood’s trades are free.”
Stock valuations when interest rates are low
“Everybody is willing to hold stocks at higher price-earnings multiples when interest rates are as low as they are now. I don’t think it’s necessarily crazy that good companies sell at way higher multiples than they used to.”
“On the other hand, I didn’t get rich by buying stocks at high price-earnings multiples in the midst of crazy, speculative booms, and I’m not going to change.”
“The world would be better off without them. This kind of crazy speculation, in enterprises not even found or picked out yet, is a sign of an irritating bubble. The investment-banking profession will sell shit as long as shit can be sold.”
“I don’t think bitcoin is going to end up the medium of exchange for the world. It’s too volatile to serve well as a medium of exchange.”
“It’s really kind of an artificial substitute for gold and since I never buy any gold, I never buy any bitcoin. I recommend that other people follow my practice.”
“[The Daily Journal] will not be following Tesla into bitcoin.”
Tesla and bitcoin
Munger was asked to choose which was more ridiculous, bitcoin trading at $50,000 or Tesla’s fully diluted enterprise value of $1 trillion.
He quoted author Samuel Johnson, who when presented with two choices, said, “I can’t decide the order of precedency between a flea and a louse.”
“I feel the same way about those choices,” Munger said. “I don’t know which is worse.”
“Banking, run intelligently, is a very good business. The kind of executives who have a Buffett-like mindset and never get in trouble are a minority group, not a majority group.”
“It’s hard to run a bank intelligently. There’s a lot of temptation to do dumb things which will make the earnings next quarter go up, but are bad for the long term.”
“There’s no question that Wells Fargo has disappointed long-term investors like Berkshire. The old management were not consciously malevolent or thieving, but they had terrible judgment in having a culture of cross-selling, with incentives on the poorly paid employees that were too great to sell stuff the customers didn’t really need.
“When the evidence came in that the system wasn’t working very well because some of the employees were cheating some of the customers, they came down hard on the employees instead of changing the system. That was a big error in judgment. It’s regrettable.”
“You can understand why Warren got disenchanted with Wells Fargo. I’m a little more lenient. I expect less out of bankers than he does.”
“BYD stock did nothing for the first five years we held it and last year it quintupled. What happened was that BYD is very well-positioned for the transfer of Chinese automobile production from gasoline-driven cars to electricity-driven cars.”
“It’s in a wonderful position and that excited the people in China – which has its share of crazy speculators – and so the stock went way up.”
Selling overvalued stocks
“I so rarely hold a company like BYD that goes to a nosebleed price, that I don’t think I’ve got a system yet. I’m just learning as I go along.”
“It’s been amazing that one little company, starting up not all that many decades ago, could become as big as Costco did, as fast as Costco did. Part of the reason for that was cultural. They have created a strong culture of fanaticism about cost and quality and efficiency and honor, all the good things, and it’s all worked.”
“People really trust Costco to deliver enormous values and that is why Costco presents some danger to Amazon. They’ve got a better reputation for providing value than practically anybody, including Amazon.”
“Value investing, the way I conceive it, is always wanting to get more value than you pay for when you buy a stock. That approach will never go out of style.”
“All good investing is value investing. It’s just that some people look for value in strong companies and some people look for value in weak companies.”
“In wealth management, a lot of people think that if they have 100 stocks, they’re investing more professionally than they are if they have four or five. I regard this as insanity, absolute insanity.”
“I’m way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage.”
Amazon founder Jeff Bezos
“I’m a great admirer of Jeff Bezos, whom I consider one of the smartest businessmen who ever lived.”
Alibaba founder Jack Ma
“Jack Ma was very arrogant to be telling the Chinese government how dumb they were and how stupid their policies were and so forth. Considering their system, that is not what he should have been doing.”
The pandemic enriching the wealthy
“We were trying to save the whole economy under terrible conditions. We made the rich richer not as a deliberate choice; it was an accidental byproduct of trying to save the whole civilization. It was probably wise that we acted exactly as we did.”
Modern monetary theory
“So far, the evidence would be that maybe the modern monetary theory is right. Put me down as skeptical.”
“I’m way less afraid of inequality than most people who are bleating about it. Inequality is absolutely an inevitable consequence of having the policies that make a nation grow richer and richer and elevate the poor. I don’t mind a little inequality.”
Munger bemoaned the rising amount of “hatred and irrationality” in politics, but argued the country had been well-governed for the past century.
“The system of checks and balances and elections that our founders gave us, actually gave us pretty much the right policies during my lifetime, and I hope that will continue in the future.”
The evolution of business
“Long-term business success is a lot like biology. In biology, the individuals all die and eventually so do all the species. And capitalism is almost as brutal as that.”
“Think of what’s died in my lifetime. Who ever dreamed when I was young that Kodak and General Motors would go bankrupt? It’s incredible what’s happened in terms of the destruction.”
“I think I had the right temperament. When people gave me a good idea, I quickly mastered it and started using it and just used it for the rest of my life. It’s such a simple idea. Without the method of learning, you’re like a one-legged man in an ass-kicking contest.”
“It’s one of the most ignorant professions in the world,” Munger said, highlighting that many psychologists fail to connect their theories and insights with other types of knowledge.
Adapting to technological change
“If you have a fixable disadvantage, remove it, and if it’s unfixable, learn to live without it. What else can you do?”
Challenging one’s beliefs
“I’m not really equipped to comment on a subject until I can state the arguments against my conclusion better than the people on the other side. If you’re looking for disconfirming evidence, that’s a good way to help remove ignorance.”
“When we shout our knowledge out, we’re really pounding it in, we’re not enlarging it.”
“Warren and I are better at buying mature industries than we are at backing startups. I would hate to compete with Sequoia in their field, they would run rings around me.”
“I got close to Sequoia when, with Li Lu, we bought into BYD. We were buying into a venture-capital-type investment, but in the public market. With that one exception, I’ve stayed out of Sequoia’s business because they’re so much better at it than I would be.”
The Queen’s Gambit and investing
“I have seen an episode or two. What I think is interesting about chess is to some extent, you can’t learn it unless you have a natural gift. And even if you have a natural gift, you can’t be good at it unless you start playing at a very young age and get huge experience.”
“Any intelligent person can get to be pretty good as an investor and avoid certain obvious traps, but I don’t think everybody can be a great investor or a great chess player.”
Do managers have a moral responsibility to have their shares trade as close to fair value as possible?
“I don’t think you can make that a moral responsibility because if you do that, I’m a moral leper. The Daily Journal stock sells way above the price I would pay if I were buying a new stock.”
“The management should tell it like it is as all times and not be a big promoter of its own stock.”
Oil and gas
“The oil-and-gas industry will be here for a long, long time even if we stop using many hydrocarbons in transportation. The hydrocarbons are also needed as chemical feedstocks. I’m not saying that oil and gas is going to be a wonderful business, but I don’t think it’s going away.”
Wealth and happiness
“Most people are born with a happy stat, and their happy stat has more to do with their [inherent] happiness than their outcomes in life,” Munger said. He argued that most people wouldn’t be significantly happier if they were richer or much more miserable if they were poorer.
Physics and investing
“I don’t use much physics in solving my investing problems. Occasionally some damn fool will suggest something that violates the laws of physics, and I will always turn off my mind the minute I realize the poor bastard doesn’t know any physics.”
“A little wisdom in spouse selection is very desirable. You can hardly think of a decision that matters more to human felicity than who you marry.”
Creativity in old age
“I don’t have any wonderful new thoughts. To the extent that my thoughts have helped my life, I’ve pretty well run the course. I don’t think I’m likely to have any new thoughts that are going to work miracles either. But I find that the old ways of doing things still work. I’m kind of pleased that I’m still functioning at all. I’m not trying to move mountains.”
Secrets to a long, happy, and healthy life
“I’m alive because of a lucky genetic accident. I don’t have any secrets. I think I would have lived a long time if I’d lived a different life.”
“The first rule of a happy life is low expectations. If you have unrealistic expectations, you’re going to be miserable all your life. Also, when you get reverses, if you just suck it up and cope, that helps more than if you just fretfully stew yourself into a lot of misery.”
“Rose Blumkin [of Nebraska Furniture Mart] had quite an effect on the Berkshire culture. Her mottos were, ‘Always tell the truth’ and ‘Never lie to anybody about anything.’ Those are pretty good rules and they’re pretty simple.”
Life after the pandemic
“When the pandemic is over, I don’t think we’re going back to just the way things were. We’re going to do a lot less travel and a lot more Zooming. The world is going to be quite different.”