Charlie Munger: 2021 Daily Journal Annual Meeting Transcript
Firstly, he gives his views on why China has enjoyed so much economic success inspite of not letting its citizens enjoy the freedom that people in the West are accustomed to: “China’s economic record among the big nations is the best that ever existed in the history of the world. And that’s very interesting.
A lot of people assume that since England led the Industrial Revolution and had free speech early that free speech is required to have a booming economy as prescribed by Adam Smith. But the Chinese have proved that you don’t need free speech to have a wonderful economy. They just copied Adam Smith and left out the free speech and it worked fine for them.
As a matter of fact, it’s not clear to me that China would have done better if they’d copied every aspect of English civilization. I think they would have come out worse because their position was so dire and the poverty was so extreme, they needed very extreme methods to get out of the fix they were in. So I think what China has done was probably right for China and that we shouldn’t be so pompous as to be telling the Chinese they ought to behave like us because we like ourselves and our system. It’s entirely possible that our system is right for us and their system is right for them.”
Then we hear Mr Munger’s views on bitcoins and cryptocurrencies: “Well, I don’t think I know exactly what the future of banking is and I don’t think I know how the payment system will evolve. I do think that a properly run bank is a great contributor to civilization and that the central banks of the world like controlling their own banking system and their own money supplies.
So, I don’t think Bitcoin is going to end up as the medium of exchange for the world. It’s too volatile to serve well as a medium of exchange. It’s really kind of an artificial substitute for gold, and since I never buy any gold, I never buy any Bitcoin. I recommend that other people follow my practice. Bitcoin reminds me of what Oscar Wilde said about fox hunting. He said it was the pursuit of the uneatable by the unspeakable.”
Thirdly, he talks about the current state of the American stockmarket, the Robinhood day traders and in that context valuations of high P/E companies: “You get crazy booms. Remember the Dot Com boom when every little building in Silicon Valley ran into a huge price and a few months later about a third of them were vacant. There are these periods in capitalism. I’ve been around for a long time and my policy has always been to just write them out. And I think that’s what shareholders do.
In fact, what a lot of shareholders actually do is crowd in buying stocks on frenzy—frequently on credit—because they see that they’re going up. And, of course, that’s a very dangerous way to invest. I think that shareholders should be more sensible and not crowd into stocks and buy them just because they’re going up and they like to gamble….
And that’s what we have going in the stock market in a frenzy that’s fed by people who are getting commissions and other revenues out of this new bunch of gamblers.
And, of course, when things get extreme you have things like that short squeeze. It’s not generally noticed by the public but clearinghouses clear all these trades. And when things get as crazy as they were in the event you’re talking about, there are threats of clearinghouse failure. So it gets very dangerous. And it’s really stupid to have a culture that encourages as much gambling in stocks by people who have the mindset of race track betters. And, of course, it’s going to create trouble as it did.
I have a very simple idea on the subject. I think you should try and make your money in this world by selling other people things that are good for them. And if you’re selling them gambling services where you make profits off of the top, like many of these new brokers who specialize in luring the amateurs in, I think it’s a dirty way to make money. And I think that we’re crazy to allow it…
I do think that we don’t know what these artificially low interest rates are going to do or how the economy is going to work in the future as governments print all this extra money. The only opinion I have there is that I don’t think anybody knows what’s going to happen for sure. Larry Summers has recently been quoted as being worried that we’re having too much stimulus. And I don’t know whether he’s right or not….
I think everybody is willing to hold stocks at higher price-earnings multiples when interest rates are as low as they are now. And so I don’t think it’s necessarily crazy that good companies sell at way higher multiples than they used to.
On the other hand, as you say, I didn’t get rich by buying stocks at high price-earnings multiples in the midst of crazy speculative booms. I’m not going to change. I am more willing to hold stocks at high multiples than I would be if interest rates were a lot lower. Everybody is.”
And, finally, he talks about value investing and why it will never lose its relevance: “Value Investing will never go out of style. Because value investing—the way I conceive it—is always wanting to get more value than you pay for when you buy a stock. That approach will never go out of style.
Some people think that value investing is you chase companies that have a lot of cash and they’re in a lousy business or something. I don’t define that as value investing. I think all good investing is value investing. It’s just that some people look for values in strong companies and some look for values in weak companies. Every value investor tries to get more value than he pays for.
What is interesting is that in wealth management, a lot of people think that if they have a hundred stocks they’re investing more professionally than they are if they have four or five. I regard this as insanity. Absolute insanity.
I find it much easier to find four or five investments where I have a pretty reasonable chance of being right that they’re way above average. I think it’s much easier to find five than it is to find a hundred.
I call it deworsification—which I copied from somebody. I’m way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage.”