Commemorating Munger: The First and Last Time Sharing Wisdom on a Podcast

This article is compiled from Retail Observer.

On October 29, 2023, Charlie Munger, the 99-year-old Vice Chairman of Berkshire Hathaway, made his first appearance on a podcast. He was interviewed by the podcast Acquired, where he discussed his views, experiences, and lessons learned over the past 99 years.

(Note: Munger passed away on November 28, 2023, one month after the podcast)

The podcast lasted for 1 hour and 6 minutes. Retail Observer has summarized the key points and provided additional background information to allow readers to get closer to Munger's wisdom.

01

Retail investors are actually gambling in the stock market!

"They know nothing about the company or anything else. Retail investors just chase the rise and fall of prices. If I were in charge of this world, I would impose heavy taxes on short-term traders and drive these speculators out of the market."

02

Why are algorithm-driven trading institutions (such as Renaissance Technology) taking on too much risk?

"The simplest trades are the ones you know in advance. They increase leverage year after year to achieve returns, and the leverage keeps getting higher.

In the end, their trading volume becomes larger, but the profits become thinner, which exposes them to enormous risks. I would never do that myself. Having enormous leverage is the only way they can achieve these huge returns. If you are already wealthy enough, this leverage will drive you crazy."

03

How did Warren Buffett and I quickly change our mindset and make a lot of money when we realized that Diversified Retailing was under too much competitive pressure?

Background information: On January 30, 1966, Buffett, Munger, and Gottesman established a holding company called Diversified Retailing Company, Inc., with the goal of "acquiring diversified businesses, especially in the retail sector."

At that time, Buffett and Munger went to Maryland National Bank to request a loan for the acquisition.

The loan officer widened his eyes in astonishment and exclaimed, "The small Hochschild-Kohn's wants $6 million?" Even after hearing this, Buffett and Munger did not question their judgment or scream and run out.

In response to this, Buffett described it as follows, "We thought we were buying a second-rate department store at a third-rate price."

"We made a lot of money from Diversified Retailing, not from the retail industry."

"The whole story is very simple. Buffett and I bought a small chain of department stores in Baltimore. It was a huge mistake because the competition was too fierce! We realized this right after we signed the deal. So we decided to turn things around, take on the seemingly foolish consequences instead of letting it go bankrupt. In those recession years, we kept buying, and all the money went into those stocks, and of course, we doubled our investment."

04

The good old days gave us a good start

"Yes, we spent about $20 million to buy a small savings and loan company. When we left that company, we got back over $2 billion worth of securities from the $20 million 'small investment,' which became part of the capital base of Nebraska Insurance Company. That was the perfect start that everyone needs."

05

My favor for Costco

(1) Their prices are cheaper than anywhere else in the United States;

(2) Large, efficient stores;

(3) Huge parking lots;

(4) Special benefits for in-store customers through reward points;

(5) Making suppliers wait (for payment) until Costco receives payment from consumers.

What makes Costco so successful?

"It takes very good execution. You really have to be determined to do it and be passionate about it every day, every week, every year for 40 years. It's not easy. Do you think Costco's success is due to the magic of its business model and culture? Yes, it's culture plus model. Absolutely, and Costco has reliably and diligently done all of this for 40 years."

Why did it take Costco decades to open its first store in China?

"When they tried to open their first store in China, someone demanded a $30,000 bribe, and Costco refused. Jim Sinegal, the former CEO of Costco, was very disgusted by this. For the next 30 years, he wouldn't even talk about it."

06

Providing advice on finding quality investments for investors

"When you hold a stock for 5 years, you may gradually immerse yourself in it or have a deeper understanding of it. But when you realize that you have an advantage, you should go all-in. You know you're right, but business schools don't teach these things. It's incredible. You have to go all-in on the best investments!"

07

Why could I become partners with Buffett? "We are all very similar, we all want our families to be safe, to do a good job for investors, and so on. We have similar attitudes."

Munger also offered some advice for long-term partnerships:

"It would be helpful if you like each other and enjoy working together. But I don't use any formula. Many long-term partnerships that work well are because one person is good at one thing and the other person is good at another. They naturally divide the work, and each person enjoys what they are doing."

08

I think Berkshire can use more leverage

"Buffett is still more concerned about the safety of Berkshire shareholders than anything else. If we had used a little more leverage from the beginning, our leverage now would be three times what it was, and the risk wouldn't be so great."

09

My view on venture capital

"For VCs, it is very difficult to make good investments. I think it is almost impossible to consistently make good investments in venture capital."

"Some projects can become very hot, and you have to make quick decisions. Everyone is just gambling."

"VCs who do well, it is a very legitimate business. If you want to give the right people the rights and help them grow, you have to help them. You know the tricks of the game, so you can help them do business well without interfering too much. They will hate you. In general, after dealing with a large number of people from VCs, people in the company often dislike this group of VCs."

"They don't see VCs as their partners, they don't see this group of VCs as helping them, on the contrary, they think VCs only care about themselves, so they don't like this group of VCs."

10

How can venture capital do better?

"At Berkshire Hathaway, they know we won't try to sell them at the highest price. You see, even if some idiot investment banker offers us a 20 times price-to-earnings ratio for some of our bad businesses, we won't sell them."

"But if it's a business problem that we can't solve, we will sell them. But if it's a decent business, we won't sell. This gives us a reputation for 'doing what is helpful to us'."

"You don't want to make money by deceiving investors, and that's what many venture capital firms do."

11

Why is Buffett's investment in Japan a no-brainer?

"If you are as smart as Buffett, maybe two or three times in a century, you will have this idea. The interest rates in Japan have been only 0.5% per year for the past ten years. And these companies are indeed well-established old companies, they have all these cheap copper mines and rubber bases, so you can borrow all the money ten years in advance and buy stocks, and pay a 5% dividend." "Don't need to invest, don't need to think, and there is a large amount of cash flow. How long will it take for you to find such an opportunity? If you can get one or two opportunities like this in a century, you are lucky enough. We can do this - because of Berkshire's credit, but others can't."

12

I like companies with strong brands - they have strong pricing power

"Well, it's hard not to like brands because we were fortunate enough to acquire See's Candy for $20 million. As our first acquisition, we quickly found that we could raise prices by 10% per year, and no one cared."

"We didn't increase sales or anything like that, just increased profits. So over the course of these 40 years, we raised prices by 10% each year. It's a very satisfying company. We didn't get any new capital. That's the beauty of it, very little new capital."

13

If you were to start building Berkshire Hathaway from scratch today, what would you do?

Three things, intelligence, hard work, and very lucky.

14

My view on China

"My view on China is that the Chinese economy has better prospects in the next 20 years than almost any other large economy. That's one. Second, Chinese giants are stronger and better than giants anywhere else, and much cheaper. So, naturally, I'm willing to take some risks from Chinese companies in my investment portfolio."

15

Why am I so obsessed with BYD?

"This guy (referring to Wang Chuanfu) is a genius. He has a PhD in engineering, and when he sees someone else's parts, he can make that part: look in the morning, look in the afternoon, and he can make it. I've never seen anyone like him. He can do anything. He's a natural engineer, a production manager who can make everything."

"It's a huge wealth: it's valuable to have so many talented people gathered in one place. They have solved all the problems of electric vehicles in terms of motors, acceleration, braking, and so on."

Comparing Wang Chuanfu with Musk:

"Wang Chuanfu is a fanatic who knows how to make things himself, so he is closer to the source. In other words, BYD's Wang Chuanfu is better at actually making things than Musk."

16

My advice on building a family

"You have to get along with everyone. You have to help them through tough times, and they will help you too. But I don't think it's as difficult as it seems. I think half of marriages in America work quite well." "If two people have to marry someone else, the situation will be the same."

"You must establish trust with your spouse, especially when it comes to raising children."