Charlie Munger Google Talk?

I just recently found out that Charlie Munger was interviewed by Ruth Porat, CFO Alphabet Inc. I found a set of notes from this blog: http://d0j.blogspot.com/2016/09/notes-from-charlie-munger-talk.html. The notes are from 2016. Despite the weird formatting, it looks legit and it’s Charlie in the picture. However I can’t find any video evidence of this. Usually Google Talks are recorded, available on Youtube with 40 views. There’s nothing on Google either (I even tried Bing in case Google was suppressing results). It appears to be a private talk. If anybody know more about this feel free to share.

Other business: I got back from the Fairfax AGM and have a ideas for a couple new posts in the coming weeks.

I made a copy of the notes below just in case they get lost on the Internet. It seems to be the only copy I could find.

Charlie Munger notes from Alphabet interview. Sorry for the formatting. It’s straight copy and paste from the website.

Reposted from d0j.blogspot.com
By thus spake hareesh nagarajan

Notes from the Charlie Munger Talk
Charlie Munger was interviewed by Ruth Porat, CFO Alphabet Inc earlier in the Mountain View campus today. Here are some (unedited) notes I jotted down:

munger: “What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.”

take a simple idea and take it seriously
to get a good spouse, you need to deserve a good spouse
the google culture is unique
what do you like about google culture?
you got more brain power
larry created a different culture
ruth “incrementalism leads to irrelevance”
charlie: not all companies keep growing. you cannot compound infinitely
berkshire hathaway is decentralized
we are similiar to google in how to accumulate money. we dont know what to do with it.
investing money is difficult
professional investment used to be simple and stupid in old days
when u compete with idiots you can do well
ruth “competition is one click away”
audience “which sectors are attractive to you”
folks that have momentum
if i had to buy one tech stock id buy google
the Chinese are hungry. the engineers are coming out of poverty

berkshire is like a swimmer that keeps swimming with or without the tide. we dont anticipate swings in the tide.
vc in 2000 took 100B
sam goldwyn — “Gentlemen, You May Include Me Out “

we own the biggest carbide cutting tools company
these israeli guys run it as fanatics
we dont know anything about carbide cutting tools.
but these israeli guys are winning
the culture they’ve created fosters winning

berkshire avoids mistakes by continous learning
judging people has been crucial
our philisophy: if a guy can juggle 20 milk bottles, then why would we interfere?

a mistake we learned from:
guy we had from beginning from berkshire had cancer. we kept him. but he signed bad contracts. we learned from that. you dont want wrong compassion

advice for the young:
underspend your income.
you may not get rich but you won’t do badly.
keep at it.
investing money is harder TODAY
world today is radically different
you don’t have the time to find value stocks like warren used to.

ibm let gates put out software on their hardware. they lost.
“it’s never going to be easy”
avoid the crazyness
crazy bubbles should be avoided.

“i want a fair advantage”
you have to specialize to succeed
specialization works
5-10% time to think of your hobbies

what i learned from other fields:
psychology was most important. “why is everyone so crazy”
i was going to synthesize psychology with everything else i do.
psychologists on the other hand just focus on psychology.
but i’m trying to figure out how to use psychology in investing and everything else i do .

you have to be alert when the rare opportunity comes by. u have to have patience.
‘your opportunities are rare but you have to move’ said his great grandfather
few decisions get to be very important
venture capital is a bubble. there has been overpaying.

i dont understand computer software. i dont understand your culture.

but it can’t be easy
what we are good at: “we know how to buy businesses”

you need to be able to destroy your own idea.
you should be ok with making a dumb mistake

everyone is useful. he can always be used as a bad example

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Survivorship Bias

Survivorship Bias
Credit: https://xkcd.com/1827/

 

If Consultants Ran Christmas

Repost from The Economist

An elf-and-safety nightmare

Memo from: Bognor Consulting Group. To: Santa Claus, North Pole hq, Lapland.

Thanks for asking us to have a look at your business model. Our staff have now recovered from their frostbite and have a number of significant suggestions for a revamp before next year.

First, the brand name. The business seems to use several different monikers, including St Nicholas, Santa Claus and Father Christmas. We suggest settling on one of the three. Father Christmas is clearly paternalistic and gender-biased. St Nicholas is too overtly religious. Santa Claus is a much more inclusive term. Once trademarked, there is a ton of money to be made from merchandising rights, particularly from greeting-card companies and department stores. Frankly, your intellectual property is an underutilised resource.

Making better use of it could help address your most glaring challenge: the lack of any revenue stream. Mince pies, carrots and glasses of brandy are not a sound basis of remuneration for a multinational organisation. And who pays for the raw materials needed to make the presents? Given the lack of paperwork about your funding, we are surprised that the authorities have not launched an investigation into money-laundering.

Next, the distribution system. We admit you have an excellent record to date. However, in attempting to deliver millions of presents from a single point over the course of one night, you have been flying by the seat of your sled. It would take just one injured reindeer or a chimney accident and the whole system would grind to a halt. It is far from clear how you co-ordinate your flights with air-traffic-control systems.

Outsourcing is the obvious answer. Amazon, Fed Ex and ups would do the job just as efficiently. If the chimney-delivery route is still preferred, then small drones may be the answer.

Now let us turn to working conditions. Basing your operation at the North Pole exposes your workers both to extreme cold and, thanks to climate change, melting ice. It is a health-and-safety (or should that be elf-and-safety) nightmare. Speaking of which, our human-resources department is unsure whether employing elves should be classed as an admirable diversity policy or discrimination against Homo sapiens. As with distribution, the operation could be outsourced. The elves could be retrained, perhaps as shoemakers.

Our team was also very concerned about animal welfare. Asking reindeer to fly around the world in one night, pulling a heavy load, must put an enormous strain on their physiques. One of the reindeer has a very shiny nose and we recommend immediate veterinary attention.

The next issue is data protection. You tell us you have a “list” which records whether children are “naughty or nice”. We are afraid that checking it twice is simply not an adequate safeguard. Children, and their parents, have the right to inspect the list to see whether they agree with your assessment. Even keeping the list is a breach of data-protection rules around the planet. And how are the data compiled? The fact that you see children when they are sleeping, and know when they are awake, suggests surveillance on an Orwellian scale. This must be stopped immediately. If you insist on pre-gift monitoring, simply look at the children’s Snapchat accounts. That should tell you all you need to know.

While we are on the subject, how do you know which families celebrate Christmas and which do not? In some jurisdictions, you may be liable to a religious-discrimination lawsuit.

We are also worried about succession planning. No insult intended but the white beard suggests you are past retirement age and your rotund physique does not bode well for your health. You need to hire a graduate, preferably from an Ivy League college such as Yule University.

The good news is that you do live up to many of the precepts of modern business theory. Just-in-time delivery, a flat management structure and a purpose-driven ethos are all things we recommend to other clients. And no one can say that flying reindeer are not “agile”.

Finally, we need to talk about the terms of our bill. Our expenses were considerable; have you seen the price of a first-class seat on Lapland Airways? Your offer of a train set and slippers was very kind, but we prefer a bank transfer. Mind you, if you could drop a hassle-free Brexit solution down the chimney, the people of Britain would be very grateful.

Why Gotham’s Greenblatt Likes ‘Gushing’ Cash-Flow Stocks

Good video by one of the market’s great, Joel Greenblatt. Joel also wrote one of the best book on investing ever with one for the worst title ever: You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits.

“We try to stick to companies gushing free cashflow. Huge returns on capital, meaning they deploy their capital well.

That avoids some of the value traps from ‘traditional’ value. I think that brings up the point – we don’t really think of value as low price-to-book, low price-to-sales investing. We’re actually valuing businesses based on cashflow, like a private equity investor would.

So if you’re trying to figure out what a company’s worth and buy it for less, at a bigger discount, that will never go out of favor even if value as defined by companies like Morningstar, which is low price-to-book or low price-to-sales investing. That may or may not stay in vogue. It may be out of favor sometimes, in favor, it may not even outperform the market going forward.

That doesn’t mean that much to me because those have been correlations that have worked with more than your fair share of companies that are out of favor. I imagine they’ll come back a some point. We’re actually valuing businesses based on cashflows. That’s what stocks are, ownership shares in businesses.”

After the Crash – Wall Street Week Oct. 23, 1987

1987 Newspaper cover
Composite of newspaper headlines reporting the Stock Market Crash of 1987 (Associated Press)

Thank you to value investor François Denault for the find.

The interview is hosted by Louis Rukeyser, guests included one of the world’s best investor: John Templeton, Steven Einhorn and William Schreyer. It was taped just after the market crash on Black Monday October 19 1987. That day The Dow Jones index fell exactly 508 points to 1,738.74 (22.61%), it’s largest daily percentage losses in history. You can tell from their display of emotion that this was not a normal week. The show starts at 1:44 min and the host had to reassure the viewers that they “just lost money and not their life”.

I wonder how people would react today to a catastrophic drop this big. Just look at the hysteria when the stock market goes down 2%. I can’t imagine the punch in the stomach of 22% drop.

By the way in 1987 there was no recession at the time and the Dow finished the year in the positive.

Bruce Flatt of Brookfield on owning the backbone of the global economy

Bruce Flatt of Brookfield on owning the backbone of the global economy

Reposted from The Financial Times
By Peter Smith

It is a windy Tuesday in London and from a Canary Wharf skyscraper, Bruce Flatt, chief executive of Brookfield Asset Management, surveys a corner of his global empire.

Close by is Newfoundland, 62-storeys of homes for rent beside the Thames. In the distance, nestled among City of London towers, is 100 Bishopsgate, a 37-floor office building under construction. To the right, in fashionable Shoreditch, the 50-storey residential Principal Tower is taking shape.

What about the West End, which is studded with cranes? No, nothing there is big enough for Brookfield. “The sites are small and our advantage is scale,” says Mr Flatt.

Toronto-based Brookfield keeps a low profile but its scale is vast. In 20 years under Mr Flatt, it has become one of the largest real estate and infrastructure investors, with a footprint in 35 countries. Continue reading “Bruce Flatt of Brookfield on owning the backbone of the global economy”

Paul Singer, Doomsday Investor Notes

Paul Singer
Paul Singer from Elliot Management. Source: Wikipedia and World Economic Forum

Sheelah Kolhatkar from The New-Yorker wrote a long-form piece on Paul Singer and Elliot Managment. Like most pieces from the New-Yorker, it’s long and very detailed. Sheelah wrote a great article on one of the most feared and successful investor. Below are some of the notes:

    • Paul Singer, the head of Elliott Management has developed a uniquely adversarial, and immensely profitable, way of doing business.
    • Singer grew up in the Bronx and in Teaneck, New Jersey, one of three children of a pharmacist father and a homemaker mother. Paul is now 73 years old. Elliot is his middle name.
    • Singer is deeply involved in everything Elliott does.
    • The firm has many kinds of investments, but Singer is best known as an “activist” investor, using his fund’s resources—about $35 billion in AUM—to buy stock in companies in which it detects weaknesses.
    • Elliott then pressures the company to make changes to its business, with the goal of improving the stock price.

Continue reading “Paul Singer, Doomsday Investor Notes”

Magic: The Gathering or Stocks?

Last week I posted about Lego’s 7,500+ Piece Millennium Falcon set. You can find one for about $1,000. While on the topic of shopping, I just saw a set of Magic: The Gathering cards going for $199,998 on Ebay. I don’t know anything about the game and I’m not qualify to provide any insights on the cards. However, I do know something about investments and this sounds like a lot of money for a bunch of playing cards. I remember seeing people playing in the 90s, who knew that your cards would be worth something one day? I know that rare things could be worth of money over time, but I had no idea that very expensive playing cards were a thing. For the people who bought packs when it was cheap, good for them. I should have bought that instead of hockey cards. My hockey cards are worth as much as the paper it was printed on.

It’s hard to make sense of sound financial advice when you see things like that. If you want a successful retirement,  we are told to buy some stocks, some bonds, some gold, keep some GICs and invest in some non-correlated assets. We are constantly reminded about how important a diversify portfolio is.

Or you can forget about all that and buy Magic: The Gathering booster packs.

Magic The GatheringMagic The Gathering 2.JPG

Charlie Munger At The 2018 Daily Journal Corporation AGM

It’s been a while since I posted anything on Seeking Alpha. I was due. The post is part of my California trip. More posts on the subject will come later. Here’s the part of my trip at that concerns Charlie Munger.

The article is available on Seeking Alpha. They have exclusive rights. Here’s a preview:


Charlie Munger At The 2018 Daily Journal Corporation AGM

Reposted from Seeking Alpha
From Brian Langis

Summary

  • Charlie Munger did a two-hour Q&A. He answered questions on a variety of topics.
  • DJCO is a cult stock. It’s not in an attractive business, but the company has gained a following with Munger as its Chairman.
  • In 2009, DJCO invested its excess cash in a portfolio of securities that has gained in value. This portfolio of securities and dividend provides a cushion to DJCO.
  • DJCO is not a mini Berkshire Hathaway.

*I was in LA for the DJCO AGM. If you are reading this article for an advance analysis on DJCO, you won’t really find it. This article is about the AGM and Charlie Munger.

I recently attended the annual shareholder meeting of Daily Journal Corp. (DJCO) in Los Angeles. I am not a shareholder in DJCO, and I don’t plan to be one anytime soon. But I wouldn’t overlook the company either. I will explain later. So, why attend? The main reason for attending a DJCO AGM is not for its results or the company itself, but for the opportunity to hear Charlie Munger’s wisdom in his Q&A segment, who is the chairman of DJCO. Also, part of the reason for attending is the DJCO meeting reveals itself as a community gathering of fun, fellowship, and learning. There are dinners, lunches, and social gatherings related to investing. It’s great to see familiar faces and to meet new people. Ideas are generated and exchanged. You learn a lot. Attending these investment events is a way for me to regenerate myself. It’s like adding wood to a fire. It fuels the core of why I do this for a living. I can’t wait to get back to my desk. Value investing is a lone wolf business. You spend a lot of time in your bubble. Sometimes, you can drift, so it’s good to re-center yourself. Like the Berkshire Hathaway (BRK.A) AGM, the DJCO one offers a great experience for any serious investors on a much smaller scale. Continue reading “Charlie Munger At The 2018 Daily Journal Corporation AGM”

Berkshire Beyond Buffett

Berkshire Beyond BuffettI finished Berkshire Beyond Buffett by Lawrence Cunningham (@CunninghamProf). Prof Cunningham is well known for his work on Berkshire Hathaway (BRK) and Warren Buffett. Prof Cunningham’s books on BRK and Buffett are among the best. He’s been a follower for decades and has direct access to Buffett and its managers.  If you want to read this book, I would assume it’s not your first book about Buffett and BRK. There’s ton of material you can read before this one. If you don’t know where to start, here’s a good start: The Essays of Warren Buffett: Lessons for Corporate America.

This book on Buffett/BRK book is different. This is not a Warren Buffett centric book. It’s more like the bio of BRK. And not just a book full of happy stories about BRK.

BRK is structually complex and highly decentralized. Lawrence had access to many people in BRK organization to realized this book with Buffett’s blessing. Despite its popularity, few people understand Berkshire and many assume it cannot survive without Buffett. They are wrong and this book proves them wrong. This is a comprehensive portrait of the corporate culture that unites BRK’s subsidiaries and the traits that ensure the conglomerate’s continued prosperity.

“The special Berkshire culture is deeply ingrained throughout our subsidiaries, and these operations won’t miss a beat when I die” – Warren Buffett

The book also goes on to explain why many companies picked BRK as their home, even when a more lucrative offer was on the table. It goes beyond the dollar amount. For many entrepreneurs, their business is their baby. It’s their life’s work. And it’s very important for them to preserve it.

I’m glad I read this book. I was looking forward for a book like that for a while. One that goes inside and throughout the subsidiaries. Even the smallest ones. Cunningham talked to many family businesses belonging to the Blumkins, Bridges, and Child and several entrepreneurs like at FlightSafety and Justin Boots.

An interesting question why aren’t there many more companies like BRK? Markel is the closest clone that I can think off. BRK has been cloned before, but you don’t seem to hear about their success. The reason is because it goes beyond the corporate structure. It’s about the attitude. Berkshire takes a partnership attitude toward its shareholders whereas most corporations are hierarchies, with shareholders seen to own a residual claim on firm assets, an equity stake after liabilities are covered by assets. BRK is simple, but hard to replicate.

Here are some characteristics among many others:

  • Decentralized. The managers of the subsidiaries have massive power.
  • It rarely uses intermediaries — brokers, lenders, advisers, consultants and other staples of today’s corporate bureaucracies.
  • No strategic plans administrated by an acquisitions department.
  • Berkshire defined itself as a partnership from the outset: “While our form is corporate, our attitude is partnership.”
  • While American companies borrow heavily, Berkshire shuns debt as costly and constraining, preferring to rely on itself and to use its own money.
  • BRK generates abundant earnings and retains 100 percent, having not paid a dividend in more than 50 years.
  • Berkshire earns some $30 billion annually — all available for reinvestment.
  • In addition, thanks to its longtime horizon, Berkshire holds many assets acquired decades ago, resulting in deferred taxes now nearing $100 billion.
  • The principal leverage at Berkshire is insurance float. This refers to funds that arise because Berkshire receives premiums up front but need not pay claims until later, if it all.