Review & Outlook

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Wise Words from Charlie Munger

1 April, 2015 by Ben O'Brien in Commentary


Charlie Munger is Warren Buffet’s right hand man, the vice chairman of Berkshire Hathaway. He is widely followed by investors for is wide-ranging and often contrarian insights on business and life. Munger wears many hats, and one of his less known roles is his position of chairman of Daily Journal Corporation, a small legal publishing company. Daily Journal recently had its annual meeting which included a free-wheeling interview with Munger. You can read the whole interview, which is interesting throughout, here. The following are a few highlights:

On Darwinism in business:

“The perfect example of Darwinism is what technology had done to businesses. When someone takes their existing business and tries to transform it into something else – they fail. In technology that is often the case. Look at Kodak: it was the dominant imaging company in the world. They did fabulously during the great depression, but then wiped out the shareholders because of technological change. Look at General Motors, which was the most important company in the world when I was young. It wiped out its shareholders. How do you start as a dominant auto company in the world with the other two competitors not even close, and end up wiping out your shareholders? It’s very Darwinian – it’s tough out there. Technological change is one of the toughest things. IBM, on the other hand, dominated the market of «machines», and when business became obsolete, they dominated computers – it was a miracle and rarity.”

On the impact of the internet in China:

“Here is what happened: one woman in China took $150K of her own money and created a documentary film. She streamed the film over the Internet, and it had 200 million viewers in a week. The documentary was about smog in China. This one woman whom no one ever heard of is changing the policy of China. That is a new world. That is a new source of power, which I can’t understand, but I know that it is different. What’s important is that in this case it was very constructive. China was dead wrong for allowing people to die 10 years early in Beijing because the air is so lousy. This is how I feel about the new media. I understood it better when people were buying newspapers.”

On why Tesla will likely fail:

“I think that the auto industry is very difficult and competitive. Everyone is making affordable cars and everyone has an enormous size and wealth. Elon Musk is a genius, and if anyone can do it right he probably is the one. But as we say at Berkshire, when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. I just think it is going to be that tough. To get electric cars off the ground is really hard.”

On exporting oil from the US:

“You will be surprised, but I haven’t changed my mind. I think that hydrocarbon reserves are one of the most precious assets that we have in the US. It is as precious as the soil in Iowa. Just because we can export that soil for pay doesn’t mean we should do it. I like the fact that we have hydrocarbon that we have in the ground. The fashion now, is to be independent and to use them up as fast as we can – I think it is insanity as a national policy. I am probably 1% of those who think that way, but of course I am right. We are just lucky that we didn’t know
about fracking earlier, otherwise we would be in trouble. It sounds like it makes sense to export extra oil we have, but it is not right thing to do. If we were like Japan, importing all the oil without having our own, we would feel exposed and in danger, and rightfully so. We would not have leverage against other countries because we would be dependent. The fact that my idea about the subject is unconventional doesn’t mean it is wrong – it just means that other people don’t think very well.”