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March 29, 2020 - November 15, 2024
Munger also suggested that it is very important to learn how to avoid being manipulated by lenders and vendors. He strongly recommended Robert Cialdini’s book, Influence, for the task. He also recommended Cialdini’s newest book, Yes, noting that Cialdini is the rare social psychologist who can connect the world of theory and daily life.
Buffett concluded that if you read 20 books on a subject you are interested in, you are bound to learn a lot.
MidAmerican Energy’s
Buffett added that this false precision only arises with very high IQs. You only need an IQ of 120 or so to be a good investor. In fact, he suggested, if you have a high IQ, keep your 120 and sell the rest. Higher math can lead you astray.
The Housing Bubble
20 trillion asset class, housing, out of the nation’s $50 trillion in assets, became increasingly levered up. And the blame is shared by all players.
Congress that presided over the two largest mortgage entities in the world, Fannie Mae and Freddie Mac, and both are in receivership.
Buffett believed the rating agencies are good businesses: there are few competitors, they affect a large segment of the economy and they don’t require much capital (though they are still very much attackable).
They drank their own Kool-Aid. Stupidity ran wild, and “everyone else was doing it” became the primary rationale. It’s hard to stop once there is such widespread industry acceptance.
There are about 1.3 million new households created each year.
During the bubble, we were building two million new homes annually, which far outstripped the household formation rate.
current total excess in homes is about 1.5 million. The building rate has plunged to about 500,000 units annually.
Buffett has four investment managers, inside and/or outside Berkshire, and each of the four did no better than the S&P 500’s 37% decline in 2008.
1) How to Value a Business, and 2) How to Think About Markets.
In valuing businesses, it is important to understand the language of accounting, to stay within your circle of competence, and to focus on what is meaningful and sustainable.
thinking about markets, it is important to remember that markets are there to serve you, not instruct you. The key here is emotional stability, to have an inner peace about your decisions. It is important to thin...
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It is simple, but ...
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The key with markets is that you cannot allow yourself to be forced to sell (from using too much leverage) and that you must not sell in a panic mode, emotiona...
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Buffett concluded with Max Plank’s observation of the inexorable evolution of science despite the strong resistance to new ideas by even the best and brightest of his peers: “Science advances one funeral at a time.”
He went on to say that there is one big no brainer that would hugely improve U.S. industry and commerce, and that is to build a nationwide electricity grid. We have the technology and know-how, and it would be 100% likely to make the system better.(111)
Shareholders are high grade with an average turnover of 20% a year, versus 100% for the average publicly traded large company.
Buffett said it is certain we will have some inflation over time. For the U.S. and governments throughout history, this is the classic way of reducing the cost of external debt. Inflate and pay the world back with cheaper dollars.
For all its flaws, the capitalist system works, unleashing human potential. Consider that there were 35,000 people at the Berkshire meeting – that would have been 10% of the entire population of the U.S. in 1790.
He noted that mankind is getting close to solving the technical problem of our time – solar power. Cheap, clean, storable power will change the world.
Buffett did have advice for Blankfein on how to handle crisis: “Get it right. Get it fast. Get it out. Get it over.”
He emphasized that there is no possibility of U.S. default – because it prints its own currency and can simply print more money.
Buffett noted that since 1930, the dollar has depreciated by over 90%, yet the U.S. has done okay.
Though, Munger added, investing in the equities of distressed companies can be a very promising area.
On a personal basis, Buffett emphasized how important it is to form good financial habits early in life.
Munger added that McDonald’s has been a great educator for the American workforce. It teaches folks to show up on time, do their work efficiently and so on. It’s had an enormous effect on training the country.
cartoon series seeking to train kids about money called “The Secret Millionaires Club.”
On a national scale, the government budget equals some 25%-26% of GDP, with roughly 15% from tax revenues and 10% from deficit financing.
Buffett admitted making a mistake with NetJets, buying too many planes at too high a price.
getting the operating costs more in-line with revenue.
founder, Wang Chuanfu (who was recently crowned China’s richest man due to the sharp rise in BYD’s stock price).
BYD will work out well as it solves significant world problems with its batteries and electric cars.
Currently, rates are soft, so Berkshire has been doing less business. Berkshire is willing to take on a maximum risk of $5 billion. Katrina was $3 billion, and 9/11 was $2 billion.
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
chapter 12 of John Maynard Keynes’ The General Theory of Employment, Interest and Money. (Buffett added that he thought Keynes’ chapter 12 was the best description of the way capital markets function.)
Wall Street has always been partly a casino operation, as well as a socially important operation in the raising and allocating of capital. However, this casino element became unbalanced with the advent of options and derivatives.
In addition, the contracts received preferred tax treatment, 60% long-term gain and 40% short-term gain, regardless of the holding period.
invest in places that are prosperous and disciplined – integrity still matters.
New York Times article from October 2008 entitled “Buy American. I Am.” Buffett noted that he writes very seldom, and he was pretty premature on that one.
equities were the best of a bad lot of opportunities and
there are 500,000 producing wells in the U.S. and that we’ve really exploited what took millions of years to create. It has contributed significantly to the world’s prosperity.
we may go from 85 million barrels/day to 55 million barrels/day over the next 50 years.
Munger poignantly quoted Pope Urban about Cardinal Richelieu: “If there is a god, he has much to answer for. If there is no god, he has done rather well.”
As in past years, Buffett asserted that health care costs are the biggest threat to American competitiveness. We’re spending something like 17% of GDP on health care, while our rivals are paying around 10%.
never done anything really well that he didn’t like to do.
Munger confidently predicted that there will be more solar generation in deserts than on rooftops. Berkshire’s big solar operations get very favorable terms and are located in the desert, so Berkshire will do fine.
