The quotes were originally posted on 25iq. This article covers Munger's quotes on topics from letters F-K.
FACTS:
“The first rule is that you can't really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don't hang together on a latticework of theory, you don't have them in a usable form…. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life.”
“An idea or a fact is not worth more merely because it's more available to you.”
FAILURE:
It's a good habit to trumpet your failures and be quiet about your successes.
You don't want to be like the motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, “Won't anyone stand up and say anything nice for the deceased?” and finally someone said, “Well, his brother was worse.”
FLOAT:
“Growing float at a sizeable rate at low cost is almost impossible — but we intend to do it anyway.”
“I've been amazed by the growth and cost of our float. It's wonderful to generate billions of dollars of float at a cost way below Treasury notes.”
FOCUS INVESTING:
“Our investment style has been given a name — focus investing — which implies 10 holdings, not 100 or 400. Focus investing is growing somewhat, but what's really growing is the unlimited use of consultants to advise on asset allocation, to analyze other consultants, etc.
FOOD:
“My idea of a good place to shop is Costco – it has these heavily marbled fillet steaks. The idea of eating some wheat thing and washing it down with carrot juice has never appealed to me.”
FORECASTS:
“People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There's always been a market for people who pretend to know the future. Listening to today's forecasters is just as crazy as when the king hired the guy to look at the sheep guts. It happens over and over and over.”
“It's human nature to extrapolate the recent past into the future, but it's terrible that managements go along with this.”
“We have the same problem as everyone else: It's very hard to predict the future…”
FOREIGN CURRENCIES:
“In effect about half our spare cash was stashed in currencies other than the dollar. I consider that a non-event. As it happens it¹s been a very profitable non-event.”
FOREIGN INVESTING:
“As for what we like least, we don't want kleptocracies. We need a rule of law. If people are stealing from the companies, we don't need that.”
“We have a problem outside the U.S. because we aren't well known. The reason we could buy Iscar is because [Iscar was] so smart. We weren't smart enough to find them; they were smart enough to find us.”
“I agree with Peter Drucker that the culture and legal systems of the United States are especially favorable to shareholder interests, compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line. ”
FRANCHISES:
“You'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you'd have to know the people involved to fully understand what was happening.
FRAUD:
“If we mix only a moderate minority share of turds with the raisins each year, probably no one will recognize what will ultimately become a very large collection of turds.”
“Where you have complexity, by nature you can have fraud and mistakes. You'll have more of that than in a company that shovels sand from a river and sells it. This will always be true of financial companies, including ones run by governments. If you want accurate numbers from financial companies, you're in the wrong world.”
FUTURE:
“It's a rare business that doesn't have a way worse future than it has a past.”
GAMBLING:
“I knew a guy who had $5 million and owned his house free and clear. But he wanted to make a bit more money to support his spending, so at the peak of the internet bubble he was selling puts on internet stocks. He lost all of his money and his house and now works in a restaurant. It's not a smart thing for the country to legalize gambling [in the stock market] and make it very accessible.”
“Berkshire in its history has made money betting on sure things.
“You have a lottery where you get your number by lot, and then somebody draws a number by lot, it gets lousy play. You have a lottery where people get to pick their number, you get big play. …People think if they have committed to it, it has to be good. The minute they've picked it themselves it gets an extra validity. After all, they thought it and they acted on it. Then if you take the slot machines, you get bar, bar, walnut. And it happens again and again and again. You get all these near misses. Well that's deprival super-reaction syndrome, and boy do the people who create the machines understand human psychology. And for the high-IQ crowd they've got poker machines where you make choices. So you can play blackjack, so to speak, with the machine. It's wonderful what we've done with our computers to ruin the civilization. But at any rate, mis-gambling compulsion is a very, very powerful and important thing. Look at what's happening to our country: every Indian has a reservation, every river town, and look at the people who are ruined by it with the aid of their stock brokers and others.”
“To me, it's obvious that the winner has to bet very selectively. It's been obvious to me since very early in life. I don't know why it's not obvious to very many other people.”
GM:
“I have a greater sin to confess to. I once thought GM was a bulletproof franchise. But we have a method of coping: We just put it in the “too hard” basket. If something is too hard, we move on to something that's not too hard. What would be more simple?”
GOLD:
If you have the opportunities of Berkshire, an investment in gold is dumb.
GOVERNMENT:
“We're here at an institution [Stanford] founded by a man [Leland Stanford] who bribed Congress to get his railroad franchises…I'm not constantly bewailing the failures of government — it's not our main problem at all.”
GREED:
“It's amazing the way people have sold out. It's insane.”
“…all man's desired geometric progressions, if a high rate of growth is chosen, at last come to grief on a finite earth. And the social system for man on earth is fair enough, eventually, that almost all massive cheating ends in disgrace.”
GUILT:
“Economic systems work better when there's an extreme reliability ethos. And the traditional way to get a reliability ethos, at least in past generations in America, was through religion. The religions instilled guilt. … And this guilt, derived from religion, has been a huge driver of a reliability ethos, which has been very helpful to economic outcomes for man.”
HEALTHCARE:
“I think that if you have a single payer system and an opt-out for people who want to pay more [for better service, etc.], I think it would be better – and I think we'll eventually get there. It wouldn't be better at the top – [our current system] is the best in the world at the top. But the waste in the present system is awesome and we do get some very perverse incentives.”
“The quality of the medical care delivered, including the pharmaceutical industry, has improved a lot. I don't think it's crazy for a rich country like the US to spend 15% of GDP on healthcare, and if it rose to 16-17%, it's not a big worry.”
HEDGE FUNDS:
“It's amazing the brainpower being drawn into the hedge fund industry. When I was young, guys in the investment business were mediocre at best – they had eastern [East Coast] tailoring and didn't know very much. Now, it's a cascade of brainpower. Collectively, they add nothing to the GNP. Indeed, they're adding costs, collectively. If you take the money invested in common stocks, and then subtract the 2% per year that goes out in investment management costs and frictional trading costs, that's more than companies pay in dividends. It's more than the twin deficits. This would fit very well into Alice in Wonderland: pay dividends of X and pay the same amount to investment managers and advisors.”
“I don't think there's any business that we've bought that would have sold itself to a hedge fund. There's a class of businesses that doesn't want to deal with private-equity and hedge funds…thank God.”
“You ask a heard hedge fund operator why the charge 2 and 20, and they say because I can't get 3 and 30, he says. “[For hedge funds], it's not about thinking what is fair and right — but merely how much can I get. It's a ghastly culture … there will be terrible scandal in due course”
HIRING:
“This is a good life lesson: getting the right people into your system is the most important thing you can do.”
HONESTY:
“I think track records are very important. If you start early trying to have a perfect one in some simple thing like honesty, you're well on your way to success in this world.” Poor Charlie's
“Bernie Ebbers and Ken Lay were caricatures – they were easy to spot. They were almost psychopaths. But it's much harder to spot problems at companies like Royal Dutch [Shell].”
“Well in the history of the See's Candy Company they always say, “I never did it before, and I'm never going to do it again.” And we cashier them. It would be evil not to, because terrible behavior spreads. ”
HURDLE RATES:
“We're guessing at our future opportunity cost. Warren is guessing that he'll have the opportunity to put capital out at high rates of return, so he's not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we'd change. Our hurdles reflect our estimate of future opportunity costs.”
IDEAS:
“It's not the bad ideas that do you in, but the good ones.”
“Our ideas are so simple that people keep asking us for mysteries when all we have are the most elementary ideas”
INDEPENDENCE:
“Like Warren, I had a considerable passion to get rich. “Not because I wanted Ferraris– I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don't know where I got that notion from, but I had it.' From Buffett , The making of an American Capitalist, Roger Lowenstein at page 75. “I wanted to get rich so I could be independent, like Lord John Maynard Keynes.”
INSURANCE:
“I'm glad we have insurance, though it's not a no-brainer, I'm warning you. We have to be smart to make this work.”
IMMIGRATION:
“…I'm very pleased when the smartest people come [to theU.S.] and almost never pleased when the very bottom of the mental barrel comes in….”
“We have never had the will to enforce the immigration laws. What you see is what you'll continue to get.”
INCENTIVES:
“His bread I eat, his song I sing.”
“Expect hogs to eat a lot more in the presence of a lot of hog wash.”
“If you want good behavior, don't pay on a commission basis. Our judges aren't paid so much a case. We keep them pretty well isolated with a fixed salary. Judges in this whole thing have come out pretty well – there have been relatively few scandals. ”
“I think I've been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it. And never a year passes but I get some surprise that pushes my limit a little farther. ”
INDEX FUNDS:
“Our standard prescription for the know-nothing investor with a long-term time horizon is a no-load index fund. I think that works better than relying on your stock broker. The people who are telling you to do something else are all being paid by commissions or fees. The result is that while index fund investing is becoming more and more popular, by and large it's not the individual investors that are doing it. It's the institutions.”
“[With] closet indexing….you're paying a manager a fortune and he has 85% of his assets invested parallel to the indexes. If you have such a system, you're being played for a sucker.”
“Stock brokers, in toto, will do so poorly that the index fund will do better.”
“One could imagine a period like Japan 13 years ago, however, in which indexing over time wouldn't work.”
INFLATION:
“One of the great defenses if you're worried about inflation is not to have a lot of silly needs in your life – if you don't need a lot of material goods.”
“I think democracies are prone to inflation because politicians will naturally spend [excessively] – they have the power to print money and will use money to get votes. If you look at inflation under the Roman Empire, with absolute rulers, they had much greater inflation, so we don't set the record. It happens over the long-term under any form of government.”
“I see almost no change in the price of the composite product that flows through Costco I don't feel sorry for the people who pay $27 million for an 8,000-square-foot condo in Manhattan. So inflation comes in places.”
Charlie Munger (Trades, Portfolio) on Inflation: "We're Flirting With Serious Trouble" (from the February 2022 Daily Journal Annual Meeting)
INTEREST RATES:
“Neither Warren nor I have any record of making large profits from interest rate bets. That being said, all intelligent citizens of this republic think a bit about this. In my lifetime, I've seen interest rates range from 1% to 20%. We try to operate so that really extreme interest rates in either direction wouldn't be too bad for us. When interest rates are in a middle range, as they are now, we're agnostic.”
INTRINSIC VALUE:
“If you buy something because it's undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That's hard. But if you buy a few great companies, then you can sit on your $%@. That's a good thing.”
“The basic concept of value to a private owner and being motivated when you're buying and selling securities by reference to intrinsic value instead of price momentum – I don't think that will ever be outdated.”
“I like the stocks of both Berkshire and Wesco to trade within hailing distance of what we think of as intrinsic value. When it runs up, we try to talk it down. That's not at all common in Corporate America, but that's the way we act.”
INVESTING:
“Investing is where you find a few great companies and then sit on your ass.” Berkshire Hathaway's 2000 Shareholder Meeting
“The investment game is getting more and more competitive.”
“An investment decision in the common stock of a company frequently involves a whole lot of factors interacting … the one thing that causes the most trouble is when you combine a bunch of these together, you get this lollapalooza effect.”
“It's not given to human beings to have such talent that they can just know everything all the time. But it is given to human beings who work hard at it – who look and sift the world for a mispriced bet – that they can occasionally find one. And the wise ones bet keenly when the world offers that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple.”
“If (investing) weren't a little difficult, everybody would be rich.”
To us, investing is the equivalent of going out and betting against the pari-mutuel system. We look for a horse with one chance in two of winning, and that pays three to one. In other words, we're looking for a mispriced gamble. That's what investing is, and you have to know enough to know whether the gamble is mispriced.”
Berkshire Hathaway VP Charlie Munger (Trades, Portfolio) Talks Investing on CNBC: Feb. 15, 2019
INVESTMENT BANKS:
“The general culture of investment banking has deteriorated over the years. We did a $6 million deal years ago for Diversified Retailing and we were rigorously and intelligently screened. They bankers cared and wanted to protect their clients. The culture now is that anything that can be sold for a profit will be. ‘Can you sell it?' is the moral test, and that's not an adequate test.”
“The interesting thing about it to me is the mindset. With all these “helpers” running around, they talk about doing deals. We talk about welcoming partners. The guy doing deals, he wants to do a deal and then unwind it in the near future. It's totally opposite for us. We like to build lasting relationships. I think our system will work better in the long term than flipping deals. I think there are so many of them [helpers] that they'll get in each others way. I don't think they'll make enough money to meet their expectations, by flipping, flipping, flipping.”
“Warren talked to guy at an investment bank and asked how they made their money. He said, “Off the top, off the bottom, off both sides and in the middle.” ”
IPOs:
“It is entirely possible that you could use our mental models to find good IPOs to buy. There are countless IPOs every year, and I'm sure that there are a few cinches that you could jump on. But the average person is going to get creamed. So if you're talented, good luck. IPOs are too small for us, or too high tech, so we won't understand them. So, if Warren's looking at them, I don't know about it.”
IQ:
“A lot of people with high IQs are terrible investors because they've got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.”
“A money manager with an IQ of 160 and thinks it's 180 will kill you,” he said. “Going with a money manager with an IQ of 130 who thinks its 125 could serve you well.”
“The hedge fund known as “Long Term Capital Management” collapsed last fall through overconfidence in its highly leveraged methods, despite I.Q.'s of its principals that must have averaged 160. Smart people aren't exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.”
“You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don't have the cast of mind, you're destined for failure even if you have a high IQ.”
“A foreign correspondent, after talking to me for a while, once said: “You don't seem smart enough to be so good at what you're doing. Do you have an explanation?”
“When we were young, there weren't very many smart people in the investment world. You should have seen the people in the bank trust departments. Now, there are armies of smart people at private investment funds, etc . If there were a crisis now, there would be a lot more people with a lot of money ready to take advantage.”
“It is remarkable how much long-term advantage people like [Warren Buffett (Trades, Portfolio) and myself] have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
JUDGMENT:
“Although I am very interested in the subject of human misjudgment — and lord knows I've created a good bit of it — I don't think I've created my full statistical share, and I think that one of the reasons was I tried to do something about this terrible ignorance I left the Harvard Law School with.”
KOREA:
“I live surrounded by Koreans in L.A. I would regard Korean culture and what they've created as one of the most remarkable in the history of capitalism. We don't think it's an accident that Iscar discovered Korea. If you try to find 10 countries better than Korea … you won't get through one hand. We are huge admirers of Korea.”
