In Charlie Munger’s December 14, 2020 interview with CalTech business professor Jean-Laurent Rosenthal, the 97-year-old Charlie shares his life experiences and thoughts on how society is changing. Charlie recalls how becoming a lawyer wasn’t his wisest decision, and worked in someone else’s law firm until age 38.
With an “army of children” to support, Charlie lived below his means and was able to invest his “pitiful small earnings” and ended up making more money than what he earned working at that law firm. Although Charlie started his own law firm, it looks like being an investor rather than an attorney was Charlie’s calling in life.
Keys to Charlie’s success include: he kept underspending, he kept investing smartly and boldly, he would rub his nose in his mistakes, and he would try to avoid errors. He tried keeping things simple and sticking to the fundamentals. He liked the engineering concept of margin of safety, which gives you a buffer or margin of error to work with in case you are not the most correct about your investment decisions. It means buying companies at a significant discount to their intrinsic business value.
One key is not only having a lot of knowledge, but also having the right temperament to do this kind of investing. The ability and willingness to wait where we defer gratification until our investments grow someday and then we reap the rewards. Charlie said that investing is a weird combination of patience and aggression.
Charlie avoids the things that are outside of his circle of competence, citing an example where he wasn’t on the cutting edge of technology years ago. He said a poker player will succeed by practicing it and likens it to a temperament needed to do long term investing like how he and Warren Buffett invest.
He pokes fun at academia a little bit and he thinks that great investors are like great chess players, they almost have to be born to be great investors. He laments the notion that a lot of people are now attracted to finance in the pursuit of making a lot money.
Charlie seems prescient in projecting a lot of frenzies of speculation, as if he could have predicted the recent epic tale of what transpired with Gamestop and Wall Street Hedge Funds. He doesn’t play the speculative “game” to get an advantage out of the booms and busts and feels that the rewards in this game are foolish.
While it seems likely that returns will be lower in the future as one of the outcomes of the heavy money printing going on, Charlie also said he didn’t make his fortune by predicting the future. No matter what happens in the markets, he and Buffett just keep swimming along.
We’re in uncharted waters with the extent of governmental quantitative easing, which Charlie says leads to inflation and we’re playing with fire. It’ll be “interesting” as to what will happen because we’ve never been at these market highs before and the world’s economic achievement to date. Apple’s market cap of $2.3T towers over the height of Standard Oil at $1T, we’ve never been here before.
“Nobody knows when bubbles blow up,” when Charlie was asked as to whether the NASDAQ is in a bubble. Charlie believes technology is both a killer and an opportunity. He looks for companies that have a durable, competitive advantage (moat) and which use technology to reinforce their moats.
In an optimistic tone, Charlie believes that the coronavirus vaccine will spread around the world, and the pandemic will shrink to insignificance. Costco’s adaptation to the pandemic situation enabled them to thrive in their retail operations.
One of my favorite takeaways was Charlie saying that over the long term, big American companies behave more like biology than anything else. Things like department stores, newspapers, steel, and oil were great when he was younger and now have “gotten clobbered.”
“We can’t lead a successful life without doing some difficult things that sometimes go wrong,” Charlie said. It’s up to us to adapt and figure out how we can be the best investors we can be.
All of us are on the journey towards FIRE (Financial Independence, Retire Early) and it is one filled with much gratitude and enlightenment, and I look forward to making more investor friends.
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