A recap of Charlie Munger’s Daily Journal Corporation annual meeting in 2022.
It’s a 2 hour-long video filled with pearls of wisdom from Munger.
Watch on Youtube: Why Charlie Munger Bought Alibaba – Daily Journal Annual Meeting Highlights
Here are my notes in 9 points:
1. Investing in Alibaba Alibaba is Munger’s top 3 holdings
Alibaba sells at a huge discount to the best US comparable, Amazon, which is almost triple BABA’s P/E.
Why doesn’t Warren invest in China?
Charlie Munger: Warren, like many other intelligent people, likes to invest where he’s personally comfortable. For some reason, I’m more comfortable with the Chinese than he is. That’s a minor difference.
I have all kinds of places where I’m just like Warren and I have all kinds of things where I’m not comfortable and I just don’t go near them. I think an old guy is entitled to invest where he wants to invest. It’s okay to have some things that you just don’t want to bother with. I don’t think Alibaba is as entrenched as something like Apple and Alphabet. I think the internet is going to be a very competitive place even if you’re a big internet retailer.
Munger’s thoughts on crypto, which is not surprising.
Charlie Munger: Well, I certainly didn’t invest in crypto. I’m proud of the fact I’ve avoided it. It’s like, you know, some venereal disease or something. I just regarded it as beneath contempt.
Some people think it’s modernity, and they welcome a currency that’s so useful in extortions, kidnappings, tax evasion, and so on. And, of course, the envy… everybody has to create their own new currency. I think that’s crazy, too. I’m not having it. I wish it had been banned immediately. I admire the Chinese for banning it. I think they were right and we’ve been wrong to allow it.
As Guy Spier mentioned in Ep 414 of the ‘We Study Billionaires’ podcast, Munger is probably trying to guard everyday investors against crypto losses.
For the vast majority, it’s rat poison squared.
3. Rising interest rates
On whether Munger expects a major increase in interest rates in the upcoming decades.
Munger said it’s a very intelligent and very difficult question.
He gave the example of Japanese government buying back a lot of their debt and common stocks and printing tons of money.
Yet the civilisation is still very admirable, they didn’t have terrible consequences.
Culture has a part to play, Japan being mono-ethnic, unlike in the US with many different ethnicities.
Charlie Munger: I think it’s encouraging that Japan can print as much money as it has and remain as civilized and admirable as it has. So I hope to God the United States has a similar happy outcome but I think the Japanese are better adapted for stasis than we are. I think it’s a duty-filled, civilized bunch of people—a lot of them older, not many young people. They just suck it in and cope.
In our country, we have terrible tensions. It’s way harder to run a country that is not mono-ethnic like Japan. There’s some professor at Harvard that has written extensively on this subject. It’s way harder to run a nation like the United States— with different ethnicities, groups, and so forth—than it is to run Japan. Japan is basically sort of a mono-ethnic civilization that is proud of its ethnicity. Of course, they can cope with troubles better than some other people can.
4. Dealing with inflation
On how to deal with the negative impact of inflation apart from owning quality equities. Don’t need to diversify by owning 20 stocks. It’s not about the number of stocks you own, but the stocks must have different exposure to risk.
Charlie Munger:Well, it may be that you have to choose the least bad of your options. That frequently happens in human decision making. The Mungers have Berkshire stock, Costco stock, Chinese stocks through Li Lu, a little bit of Daily Journal stock, and a bunch of apartment houses. Do I think that’s perfect? No. Do I think it’s okay? Yes.
I think the great lesson from the Mungers is that you don’t need all this damn diversification. You’re lucky if you got four good assets. If you’re trying to do better than average, you’re lucky if you have four things to buy. To ask for 20 is really asking for egg in your beer. Very few people have enough brains to get 20 good investments.
5. The Great Resignation
On what Munger makes of the massive trend of people quitting their jobs during COVID.
Working habits are changing and many prefer work from home arrangements.
Munger believes that a lot of it is going to remain forever.
People are never going back to five days a week.
He also thinks that the government was perhaps too liberal in giving out welfare.
With the amount of welfare given, you can staying at home and get more than if you go to work.
When that agony from unemployment is taken away, it becomes disruptive Amercia’s economic system.
Charlie Munger: If you stop to think about it, what makes capitalism work is the fact that if you’re an able-bodied young person and you refuse to work, you suffer a fair amount of agony. It’s because of that agony that the whole economic system work. The only effective economies that we’ve had that brought us modernity and the prosperity we now have, they imposed a lot of hardship on young people who didn’t want to work.
If you take away all the hardship and say you can stay home and get more than you’ll get if you come to work, it’s quite disruptive to an economic system like ours. The next time we do this, I don’t think we ought to be quite so liberal.
6. Investing in Costco
Costco is overvalued now.
But if Munger had a longer time horizon, say 30-50 years, he would buy Costco at the current price.
There is a price too high to pay. “Nothing is worth an infinite price.”
Charlie Munger: Well, that’s a very good question. I’ve always believed that nothing was worth an infinite price. Even an admirable place like Costco could get to a price where you would say that’s too high.
But I would argue that if I was investing money for some sovereign wealth fund or some pension fund with a 30,40, 50-year time horizon I buy Costco at the current price. I think it’s that strong an enterprise and that admirable place.
7. Investing styles
On Munger’s advice to a 22-year-old on dividend, income vs growth investing.
Charlie Munger: I don’t think I have a one size fit all investment. I think some people are gifted enough that they can invest in hard-to-value, difficult things and I think other people would be very wise to have more modest ambitions in terms of what they choose to deal with. So I think you have to figure out your level of skill, or the level of skill your advisor has, and that should enter the equation.
But to everyone who finds the current investment climate hard, difficult, and somewhat confusing, I would say, “welcome to adult life.” It is hard. It’s going to be way harder for the group that’s graduating from college now. For them to get rich, stay rich, and so forth is going to be way harder than it was for my generation.
There’s no one-size-fits-all investment. Choose an investment that suits your style.
8. Worries and optimism about the economy and stock market
On Munger’s worries and optimism about the economy and stock market.
Charlie Munger:With all this enormous increase in living standards, freedom, diminishment of racial inequities, and all the huge progress that has come, people are less happy about the state of affairs than they were when things were way tougher. That has a very simple explanation. The world is not driven by greed; it’s driven by envy.
So the fact that everybody’s five times better off than they used to be, they take that for granted. All they think about is somebody else having more now and it’s not fair that he should have it and they don’t. That’s the reason that God came down and told Moses that he couldn’t envy his neighbor’s wife or even his donkey. I mean, even the old Jews were having trouble with envy. So it’s built into the nature of things.
I like the religion of the old Jews. I like the people who were against envy, not the people who were trying to profit from it. But if you stop and think of the pretentious expenditures of the rich, who in the hell needs a Rolex watch so you can get mugged for it? I mean it’s — yet everybody wants to have a pretentious expenditure, and that helps drive demand in our modern capitalist society. My advice to the young people is don’t go there. The hell with the pretentious expenditure. I don’t think there’s much happiness in it. But it does drive the civilization we actually have.
Despite the rising living standards, we are not happy.
“The world is not driven by greed, it’s driven by envy.”
Quit playing status games and “to hell with the pretentious expenditure”.
9. Secret to a happy life
What is Munger’s secret to a happy life?
Charlie Munger: I always say the same thing: realistic expectations, which is low expectations. If you have unreasonable demands on life, you’re like a bird that’s trying to destroy himself by bashing his wings on the edge of the cage. And you really can’t get out of the cage. It’s stupid.
You want to have reasonable expectations and take life’s results good and bad as they happen with a certain amount of stoicism. There’ll never be any shortage of good people in the world. All you got to do is seek them out and get as many of them as possible into your life. Keep the rest the hell out.
Set realistic expectations, which is lower expectations.
Don’t be like a bird in a cage, trying to destroy yourself by bashing your wings on the edge of the cage and you can’t get out of the cage.
Seek out good people in your life, and keep the rest out.