Scott Derue the Edward J. frey Dean of Business gleans life and investing insights from the incredibly intelligent Charlie Munger.
Benjamin Franklin once said, there are two things you can do in life. “You can write something worth reading or do something that is worth writing about.”
Charlie Munger has definitely done something worth writing about. Growing up in Omaha during the great depression left a lasting impression on Charlie. Most people that are currently alive have no idea what it was like. Charlie described growing up near a hobo jungle not too far from his grandfather’s house. The rich people didn’t even have any money and people were begging for a meal.
You have a morally duty to make yourself as unignorant and unstupid as you possibly can. Rationality is a moral duty. – Charlie Munger
Living through the great depression was a tough period. He saw his grandfather and uncles’ children (highly educated, civilized, generous and decent people) do quite well in the 1920s. But when the 1930s came, there was no work. Everyone went broke and they had to “cut their houses in half” and move their relative into one house. But, they were not all that unhappy. In fact, you can cope pretty well because you get used to it.
Charlie Munger jokes that a good day when you are old is when you wake up in the morning and nothing new hurts.
The great depression was fixed accidentally by Keynesian economics. Keynesian economics advocates increased government expenditures and lower taxes to stimulate demand and pull economy out of the depression. Germany adopted the same economic policy through Adolf Hitler during the 1930s to 1940s though unintentionally. You could see Germany growing and becoming one of the strongest European countries.
Charlie’s values:
- Family comes first
- Be in a position so you can help others when they need it
- Being prudent – acting with or showing care and thought for the future.
- Moral duty to be reasonable
Charlie went to law school because it was the least bad of the options and nowadays it people probably go to business school. In his first 13 years of law career, he made $350k total in the law business and he had to feed an army of children. It wasn’t a lot of money. When he started his investment firm, he had over $300k in liquid capital which was ten years of living expenses. He was a cautious squirrel and saving more acorns then he needed to.
As soon as the capitalist career succeeded, he saw the potential and was planning on lifting his second foot. He wanted more independent and hated needing money from richer people.
The whole game in life is to make sure your brain doesn’t mislead you through cognitive biases.
Charlie met Warren Buffett in 1959. Warren bought Berkshire Hathaway because it was cheap (cigar butts), but Charlie and Warren knew that the business was going downhill. You can’t scale the cigarbutts business. The only way to make money was to liquidate it, which in hindsight is a dumb way to proceed.
The reason Berkshire has been successful is because they try to buy things that don’t need managerial talent at headquarters. If the business is lousy enough, no good management will be able to save it.
Private equity usually buys a business and then hires talent. Berkshire usually hires with management in place. It may not be the top person but it could be the #2 that gets promoted. Everyone thinks you can judge a person through an interview, but the paper records is a better predictor of performance.
An executive recruiter found Ajit Jain and he didn’t have any experience at all. He came in and created an insurance business from scratch. He talked with Warren every night. Now it is the biggest reinsurance business in the world with at least $60B in net worth.
On Bitcoin and cryptocurrency, Charlie thinks that it is a crazy bubble. They say that bitcoin is limited, but man is somehow capable of creating more bitcoin unlike Gold. When there is enough incentive, bad things will happen. If it worked it would be bad for you because then you would try and do it again.
Suppose you have an advanced nation and another country that is living in poverty. Then you open up free trade, both sides are going to live better. China is going to go up way faster than the U.S.. Soon enough China, will become the dominant nation. The United States has to trade with China because the other countries are already trading with them. This means they will reach growth no matter what and therefore it is prudent that we are on good relations with them.
Last final advice
Marriage will affect your life for the better or worse. Charlie’s advice on marriage – keep your eyes wide open before marriage and half shut after marriage.
Get up, keep plugging, and keep learning and it is amazing how it turns out okay. Don’t have a huge ambition because the odds are against you. It is better to aim low. Most successful people have discipline, good virtue, and a lot of luck to get to where they are.