2025-10-27 12:01 Tags:Mentol Models
https://www.kingswell.io/p/charlie-munger-q-and-a-2023-daily
**Mr. Munger, you’ve spoken about the importance of avoiding mental biases in decision-making. In your experience, what’s the most challenging bias to overcome and how do you personally guard against it？
CM: If I had to name one factor that dominates human bad decisions, it would be what I call denial. If the truth is unpleasant enough, their mind plays tricks on them and they think it isn’t really happening. Of course, that causes enormous destruction of business where people go on throwing money into the way they used to do things, even though it isn’t going to work at all well in the way the world is now, having changed.
If you want an example of how denial is affecting things, take the world of investment management. How many managers are going to beat the indexes, all costs considered? I would say maybe 5% can consistently beat the averages. Everybody else is living in a state of extreme denial. They’re used to charging big fees for stuff that isn’t doing their clients any good. It’s a deep moral depravity if some widow comes to you with $500,000 and you charge her one point a year when you could put her in the indexes — but you need the one point. So people just charge some widow a considerable fee for worthless advice. The whole profession is full of that kind of denial. It’s everywhere.
I always quote Demosthenes. It was a long time ago, Demosthenes. That was more than 2,000 years ago. He said, “What people wish is what they believe.of how much of that goes on. Of course, it’s hugely important. You can just see it.
I would say the agency costs of money management, there are just so many billions, it’s unaccountable. And nobody can face it. You want to keep your kids in school, you need the fees. You need the brokerage commissions. You need this or that, so you do what’s good for you and bad for them.
I don’t think Berkshire does that and I don’t think Guerin and I did it at the Daily Journal. Guerin and I never took a dime in salary or directors fees or anything. If I have business and talk on my phone or use my car, I don’t charge it to the Daily Journal. That’s unheard of. It shouldn’t be unheard of and it goes on in Berkshire and it goes on in the Daily Journal.
We have an incentive plan now in this Journal Technologies and it has a million dollars worth of Daily Journal stock. That did not come from the company issuing those shares, I gave those shares to the company to use in compensating the employees. I learned that trick, so to speak, from the guy at BYD which is one of the securities we hold in our securities portfolio.
BYD, at one time in its history, the founder/chairman didn’t use the company’s stock to reward the executives, he used his own stock. It was a big reward, too. Well, last year, what happened? BYD, last year, made more than 2 billion as a brand new entrant in the auto business, for all practical purposes? It’s incredible what’s happened. So there is some of this old-fashioned capitalist virtue left in the Daily Journal and there’s some left in Berkshire Hathaway and there’s some left in BYD. But, most places, everybody is trying to take what they need and just rationalizing whether it’s deserved or not
Did Berkshire’s sale of some BYD and Taiwan Semi shares have anything to do with the relations between the United States and China or was it for purely economic reasons?
And, by the way, I want to tell people the great contribution I made to the success of BYD. We got into it through Li Lu and it was a little company that knocked off the Japanese cell phones. The chairman — who’s kind of a genius — said, I’ll buy a bankrupt little crappy auto plant and we’ll go into the auto business. From dead scratch, when he was making cell phones, a little tiny nothing company. Both Li Lu and I tried to talk him out of it. We said, please, don’t do this dumb thing! You’ll get your head handed to you in the auto business, little BYD. Well, last year, they made more than $2 billion in the auto business from that standing start of zero. It’s unheard of. But Li Lu and I deserve all the credit because we tried to talk him out of doing what worked out so well, which shows that there is some accident in life
According to company filings, it appears that Alibaba shares were purchased with leverage and, when the stock price fell last year, you were forced to sell Can you confirm if it was bought with leverage and, if so, why would you do that? It seems to go against your philosophy.
CM: Yes, it’s true. I operated with no leverage for long stretches of my old age — Warren is the same way — and recently I did use a little bit of leverage here and in another place because the opportunities were so ridiculously good that I thought it was desirable to do that. You’re right, it’s unusual for us, but we did find a few things.
By the way, if you go back early in my career, I used some leverage. I sometimes ask myself a mental question. I say, “What is the appropriate percentage of your net worth you should put in a stock if you think it’s an absolute cinch?” If you’re the kind of fellow who’s right when you think something is a cinch, the answer is 100%. Or maybe 150%. But nobody teaches people to think that way in finance. If the opportunity is great enough, the logical answer is 100%. Or maybe 200%.
Well, I thought he didn’t use leverage😅.
Why would you use leverage if that’s one of the three things that can destroy somebody?
CM: You’re right. I used a little on my way up and so did Warren, by the way. The Buffett Partnership used leverage regularly, every year of its life. What Warren would do is he would buy a bunch of stocks and then he’d borrow against those stocks and he’d buy into what they used to call event arbitrage. Liquidations, mergers, and so forth that didn’t go up and down with the market. That was like an independent banking business.
Ben Graham’s name for that type of investment, he called them Jewish treasury bills. It always amused me that that’s what he would call them. But Warren used leverage to buy Jewish treasury bills when on the way up and it worked fine for him. I don’t think either of us ever buys… Well, no, Berkshire has stock in Activision Blizzard and, whether that will go through or not I don’t know, but that’s a Jewish treasury bill.
I think most people should avoid it, but maybe not everybody need play by those rules. I have a friend who says, “The young man knows the rules and the old man knows the exceptions.” At least, if he’s lived right, he knows them.
Q13: How should investors view geopolitical events in regards to their investment in foreign countries? How do you look at the situation of the recent Chinese spy balloon in regards to the Alibaba investment?
CM: It was a very interesting thing. Jack Ma was a dominant capitalist in Alibaba and, one day, he got up and made a public speech where he basically said the Communist Party is full of malarkey. They don’t know their ass from their elbow and they’re no damn good and I’m smart. And, of course, the Communist Party didn’t particularly like his speech and pretty soon he just sort of disappeared from view for months on end and now he’s out of [Alibaba]. He was pretty stupid. It’s like poking a bear in the nose with a sharp stick. It’s not smart and Jack Ma got way out of line by popping off the way he did to the Chinese government. Of course, it hurt Alibaba.
I regard Alibaba as one of the worst mistakes I ever made. In thinking about Alibaba, I got charmed with the idea of their position in the Chinese internet and I didn’t stop to realize that it’s still a goddamn retailer. It’s going to be a competitive business, the internet. It’s not going to be a cakewalk for everybody. 他依旧是一个零售商的本质
Q14: Do you still maintain that China is a viable investment option for foreign capital or is China experiencing a similar regression as Russia has seen under Putin’s leadership that culminates in the invasion of Taiwan?
CM: That’s a very good question. I would argue that the chances of a big confrontation from China have gone down, not up, because of what happened in Ukraine. I think that the Chinese leader is a very smart, practical person. Russia went into Ukraine because it looked like a cakewalk. I don’t think Taiwan looks like such a cakewalk anymore. I think it’s off the table in China for a long, long time — and I think that helps the prospects of investors who invest in China.
The other thing that helps, in terms of the China prospects, [is] you can buy better, stronger companies at a cheaper valuation in China than you can in the United States. The extra risk can be worth running given the extra value you get. That’s why we’re in China. It’s not like we prefer being in some foreign country. Of course, I’d rather be in Los Angeles right next to my house. It would be more convenient. But I can’t find that many investments right next to my house.
Q16: How should we think about the political climate around Taiwan and the long-term impact on the semiconductor industry? Specifically, do you see the CHIPS and Science Act15 favorably?
CM: The semiconductor industry is a very peculiar industry. In the semiconductor industry, you have to take all of the money you’ve made and, with each new generation of chips, you throw in all the money you’ve previously made. It’s compulsory investment of everything if you want to stay in the game. Naturally, I hate a business like that. At Berkshire, we like a whole lot of surplus money to come in that we can do something else with.
Now, if you’re enough ahead of it — like Taiwan Semiconductor is — that may be a good buy at these prices. It’s not at all clear to me that they’re not going to succeed mightily. It’s a business with enormous promise for the big winner, but it’s a difficult business in requiring everybody to keep increasing the bets on and on with all of the money. It’s not perfect, that semiconductor business.
Remember when Intel owned the world? Intel was once the Taiwan Semiconductor business of the world. They invented the damn business and they dominated it for decades. It’s not clear to me that Intel’s gonna have a very decent semiconductor business, getting as far behind as they are now. My answer is that it’s not so damn fool-proof as it has looked.
Do you worry about any conditions that the government would put on companies that end up using any of that money, with semiconductors or anything else?
CM: Of course, all of that. It’s deeply intertwined with government policies of both China and the United States, so I would rather have something that’s more foolproof, myself, but I do think Taiwan Semiconductor is the strongest semiconductor company on Earth. I’m a big admirer of what they’ve achieved. It’s just incredible what they’ve achieved.
And, by the way, it may be a wonderful investment. The fact that I don’t like it because I’m an old man and I don’t like learning new tricks, but that doesn’t mean it isn’t right for some younger person who understands it better than I do.
To crypto:
CM: I don’t think there is a rational argument against my position. This is an incredible thing. Naturally, people like to run gambling casinos where other people lose. The people who invented this crypto crappo, which is my name for it, sometimes I call it crypto crappo and sometimes I call it crypto shit.
It’s just ridiculous that anybody would buy this stuff. You can think of hardly nothing on Earth that has done more good to the human race than currency, national currencies. They were absolutely required to turn man from a goddamn successful ape into a modern successful humans and human civilization, because it enabled all these convenient exchanges. So if somebody says I’m going to create something that sort of replaces the national currency, it’s like saying I’m going to replace the national air. It’s asinine. It isn’t even slightly stupid, it’s massively stupid.
It’s very dangerous and the governments were totally wrong to permit it. I’m not proud of my country for allowing this crap — what I call the crypto shit. It’s worthless, it’s no good, it’s crazy, it will do nothing but harm, and it’s anti-social to allow it. The guy who made the correct decision on this is the Chinese leader. The Chinese leader took one look at crypto shit and said not in my China. And, boom, there isn’t any crypto shit in China. He’s right and we’re wrong. There is no good argument on the other side. I can’t supply it.
Q22 BQ: Why do you think everything else is going to do so poorly?
CM: Because the valuations start higher now and because government is so hostile to business. 2023年他都认为估值高 其实现在才是真的太高了 我对未来盈利也持悲观态度
BQ: And that’s a view over the next five, ten, twenty years? How far out are you thinking?
CM: I would say it will fluctuate, naturally, between administrations and so on. But I think, basically, the culture of the world will become more and more anti-business in the big democracies and I think taxes will go up, not down. I think, in the investment world, it’s going to get harder for everybody. But it’s been almost too easy in the past for the investment class. It’s natural that it would have a period of getting harder.
I don’t worry about it much because I’m gonna be dead. It won’t bother me very much when I’m lying there dead. (Laughs)
Q27: On that point, should we continue to maintain a debt limit? What’s the purpose if we continue to budget beyond our means and then the bill comes due?
CM: If you take the history of democracy in the world and go back far enough, it fails a lot and gets succeeded by dictatorships and all kinds of awful things. As a matter of fact, the worst thing that happened to the human race in my lifetime was when an advanced civilization like Germany was taken over by a dictator as awful as Adolf Hitler. That happened as a consequence of a big worldwide depression. It would never have happened if we hadn’t had a big depression.
Once Hitler got in, that meant World War II was inevitable — and that could have worked out a lot worse than it did for people like the United States. So these things are quite important and they’re not going to be done perfectly in the future, no more than they were done perfectly in the past. You’ve got to expect a certain amount of future trouble in the world and your government is going to do some things that aren’t exactly right.
On the other hand, I would argue that the U.S. government did some things magnificently right. I have said on many an occasion that the thing that makes me proudest of my own government is the way we handled the sequel to World War II. Instead of punishing the Germans and the Japanese, we made them into some of our best friends on Earth. Now, that was a stunt.
Q32: Do you think Elon Musk’s ownership of Twitter, specifically his hands-off approach to content moderation, is good or bad for American society?
CM: I don’t use Twitter, so I’m not a good judge on that subject. My policy on Elon Musk is that he’s a very talented man, but also quite peculiar. I don’t buy him and I don’t sell him short. I just say, well, he’s a very unusual person. hahaha
Q38: When assessing the character and competence of a business’s management, have you ever made a mistake? If so, when did this occur and what did you learn from the experience?
CM: Everybody makes mistakes. I’d say one of the most interesting things that happened in my lifetime was the rise of IBM and the fall of IBM. IBM was the most admired company in America for most of my young life. They just marched from triumph to triumph to triumph and, in the last ten or fifteen years, they’ve slipped and they’re falling back in relation to other people in their field. As the Apples and the Googles and so forth came ahead, IBM just kind of missed the boat. I think that’s almost inevitable. Kodak missed the boat of the change to digital photography, too.
I’ve heard Bill Gates say that it’s almost the rule that [when] a really disruptive technology comes along, the incumbents screw up their reaction to it. It’s hard to change your ways when they’ve been successful for a long time and go into a totally different way of behaving and thinking. 我喜欢这个观点
Look at where we’re sitting. We’re sitting at the Daily Journal Corporation. We’re adapting to the new world. Think of how different it is, publishing a newspaper and inventing software for courts to automate. These are two radically different businesses.
BQ: What would you push in that direction if you had a class full of finance students in college? What are a few lessons?
CM: I would teach to the people who can learn and, if the others couldn’t keep up, the hell with them. What can’t be improved, can’t be improved. I don’t believe in butting my head against the wall. By the way, that’s the way most education works. They just throw out those who can’t keep up. That’s the way academia works. That’s the reason they get so good at the top.
I talked yesterday on Zoom with a law professor at a great place. My god, this is an admirable guy. He’s just so goddamn smart and balanced. Incredible. But he’s a very senior law teacher at one of the great law schools of the world, so I would expect him to be pretty good, but he was more than pretty good, he was awesome. I thought, my god, academia is quite competitive.
By the time you get to the top of the professors at a good place, you’ll find some very remarkable people. But there’s a limit to what they can accomplish. One of the reasons that they turn out such good people is they take in such good people. That’s their secret. They can’t fix the clods. Nobody can. There’s an old saying, “Dumb is forever.” hahhaha. I like it. 我佛只渡有缘人呐
Q42: Many entrepreneurs say that you have to dream really big. Instead, you say Charlie that the secret to a happy life is having low expectations. Could you please expand on that?
CM: Yes. You climb as hard as you can by just advancing one inch at a time. That’s the secret of life. Now, there’s always somebody who’s a little nuts and who succeeds, but for every guy who succeeds there are a thousand failures.
Ben Graham actually made more than half of all the money he made in his life out of one stock — and that stock was GEICO, which was a great business. If you actually looked at the great Ben’s own life, you’d see that what he taught wasn’t the way he got rich himself. (Laughs)
Q46: When you’re evaluating a company for a potential investment, what do you place the most emphasis on — the business or the management? Do you differ with Warren when it comes to what you place first?
CM: No, I think we’re the same. We like the business great first. Then, second, we want a great manager. But we have not made a huge success by investing in great managers who take over lousy businesses. That is not the way we rose. If you’re a lousy manager, you really need a great business.
BQ: Can a great business be run by a lousy manager?
CM: Sometimes. Coca-Cola was run for years by a man with very severe mental impairment. The directors just assumed he was drunk and let him stay there year after year. Now, that’s my idea of a wonderful business — you can be mentally defective and run it pretty well. That was Coca-Cola in its heyday.
Q55: Many large companies, including Meta (which owns Facebook) and various insurances, are choosing to self-insure against liability, either for directors or for the business risks. Would you share your thoughts on this, please?
CM: In my own life, I’m a big self-insurer and so is Warren. It’s ridiculous for me to carry fire insurance on my houses because I could so easily rebuild a house that had burned down. Why would I want to bother fooling around with a claims process and all kinds of things?
You should insure against things that you can’t afford to pay for yourself. But if you can afford to take the bumps — some unusual expense coming along doesn’t really hurt you that much — why would you want to fool around with some insurance company if your house burned down? I would just write a check and rebuild it.
All intelligent people do it my way. Well, I won’t say all… Maybe I should say all intelligent people should do it my way. There should be way more self-insurance in life. There’s a lot of waste. You’re paying, when you buy insurance, for the other fellow’s frauds — and there is a lot of fraud in life.
If you can afford to take the risk yourself and not fool around with claims and this and that and commissions and time, of course you should self-insure. It’s simpler and so forth. Think of what I’ve saved in my life. With one exception, I’ve never carried collision insurance on a car and, once I got rich, I stopped carrying fire insurance on houses. I just self-insure. That is the right way to do it. 关于买保险的看法 有点意思吼
Q58: What should a good government do — and not do — for economic growth?
CM: What you’ve got to do if you want growing GDP per capita, which is what everybody should want, you’ve got to have most of the property in private hands so that most of the people who are making decisions about how a property is going to be cared for own the property in question. That makes the whole system so efficient that GDP per capita grows.
And a system where you have easy exchanges due to a currency system and so on. That’s the main way of a civilization getting rich — having all these exchanges and having all the property in private hands. If you like violin lessons and I need your money and we make a transaction, we’re gaining on both sides, so of course GDP goes [up] like crazy when you’ve got a bunch of people who are spending their own money and running their own businesses and so on.
Nobody in the history of the world, that I’m aware of, has ever gotten from hunter-gathering to modern civilization except through a system where most of the property was privately owned and a lot of freedom of exchange. By the way, I just said something that’s perfectly obvious but isn’t really taught that way in most education. You can take a course in economics in college and not know what I just said. They don’t teach it exactly the same way.
Q59: Throughout your experience with Berkshire Hathaway, what are a few of the things that surprised you most? How have you used some of those surprises in your quest to become a better learning machine?
CM: Some of the things that surprised me the most was how much dies. The business world is very much like the physical world where all the animals die in the course of improving all the species, so they can live in niches and so forth. All the animals die and, eventually, all the species die. That’s the system.
When I was young, I didn’t realize that that same system applied to what happens in capitalism to all the businesses. They’re all on their way to dying, is the answer, so other things can replace them and live. It causes some remarkable death.
Q61: What quality has helped you the most in life?
CM: That’s easy — rationality. If you’re just not crazy, you have a big advantage over 95% of the people. Most people have all kinds of crazy patches. If you’re just consistently not crazy, you get a big advantage in life. If you’re patient and a gratification-deferrer, in addition to being not crazy, then it’s practically a cinch. If you’re exceptionally good at satisfying your commitments to other people, then you’ve just automatically improved your resources and your chances in life enormously. It’s so simple.
BQ: Is that the favorite stock you’ve ever purchased? BYD or Costco?
CM: I would say that I’ve never helped do anything at Berkshire that was as good as BYD — and I only did it once. (Laughs) Our 270,000 investment[29](https://www.kingswell.io/p/charlie-munger-q-and-a-2023-daily#footnote-29-103894416) there is worth about 8 billion now or maybe $9 [billion]. That’s a pretty good rate of return.
BQ: That’s more than pretty good.
CM: We don’t do it all the time. We do it once in a lifetime. We’ve had some other successes, too, but I don’t think hardly anything like that.
We made one better investment. Do you know what it was? We paid an executive recruiter to get us an employee and he came up with Ajit Jain30. The return that Ajit has made us — compared to the amount we paid the executive recruiter — that was our best investment at Berkshire, was paying an executive recruitment firm to get us Ajit Jain. But, again, it only happened once. 我也觉得人才其实更重要π