We Study Billionaires - The Investor’s Podcast Network - TIP147: Billionaire Charlie Munger and the Daily Journal (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, how's everyone doing out there? Today, we've got an interesting show for you that covers one of our favorite billionaires, Mr. Charlie Munger. Munger's net worth is about $1.5 billion, and as most people know, he's Warren Buffett's vice chairman at Berkshire Hathway. As we've talked about on previous episodes, Munger is really a brilliant individual that's considered a polymath.

Starting point is 00:00:23 But something that few people know about Charlie Munger is that he's an investor with the Daily Journal Corporation in Los Angeles, California. As a result, he does a question and answer period every year at their annual shareholder meeting. One of our good friends, Hari Ramachandra, was one of the few people that were lucky enough to attend the Daily Journal's meeting this year. And while he was there, he captured some of the best comments that Charlie gave. So similar to the way that we cover the Berkshire Hathaway shareholders meeting each year, get ready for an interesting show that captures one of the smartest people's thoughts on a variety of investing topics. So here we go.

Starting point is 00:01:01 You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, how's everyone doing out there? And like we said in the introduction, we're going to be talking about Charlie Munger today. We're really excited to have Hari Ramachandra with us. As everyone knows, he's part of our mastermind group. And Hari was the one who brought this one to us because Hari was privileged enough to us. actually attend the Daily Journal annual meeting with Charlie Munger. And it's not a big group. I know from

Starting point is 00:01:45 the video that I had access to that I watched, it was a pretty small room, Harry. It looked like there was about 100, 200 people there at most, right? Yes, about 200 people, I would say. Before we start diving into some of the questions and doing our analysis of Charlie's comments, I want to have Hari described to us what the Daily Journal is, why Charlie Munger is a part of it, and kind of a little bit about the meeting. Daily Journal Corporation is a publishing company. It is headquartered in Los Angeles, California. They have two divisions.

Starting point is 00:02:17 One is a newspaper division, which is their traditional business. However, they also have a new venture. They call it as journal technologies. And the journal technology essentially makes software. And these are case management software systems for courts and prosecutors and public defenders and stuff like that. And this is a venture bet as Munger calls it. And the reason Daily Journal got popular is because Munger is a long time vice chairman of this company since 1977.

Starting point is 00:02:53 However, nobody paid attention until Munger invested $20 million of Daily Journal's cash during the 2009 crash into few companies like Wells Fargo, U.S. Bank and Costco. And by end of 2016, that $20 million was worth $166 million in the Daily Journal portfolio. Wow. And from then on, I guess before that, there were only few who attended the Daily Journal annual meeting. First of all, how did you get asked or how did you get access to this meeting? The fact that very few people know about this meeting makes the audience much less than number than the Berkshire and I hope after this show next year when I go I don't have too much competition so what Hari was saying is this was the last time they're having the meeting this meeting will probably never happen again right Harry but anyway so it's a very small gathering and it's just

Starting point is 00:03:56 Charlie and Charlie's answering questions for about two hours for anybody in the room from what I understand after he's done asking all the questions he's very accessible I I got a Christmas card from Hari this year that had a picture of him and Charlie Munger together arms wrapped around each other like they were brothers. Is that true, Hari? I mean, what did you get to say to him after the meeting was over? One of the interesting thing about this meeting is Charlie is much more relaxed and much more colorful than he is at Berkshire. And he spoke almost an hour or two after the two hour long meeting with folks who had come from all over the place. conversations are very candid and very interesting.

Starting point is 00:04:39 So I would encourage everyone to listen to that. So we're going to have links to Hari's article in our show notes. And just so people know, Hari blogs at a blog called bitsbusiness.com. But we'll have the links to all that in our show notes. And he has links to these videos that you can watch the full cut. What we're going to do is we're going to go through some of the audio of Charlie's responses to what we've kind of picked out as being some of the better questions

Starting point is 00:05:04 and some of the better responses that he provided during the meeting. Some really, really interesting stuff. So the first thing that we're going to play here for you is in the past, anyone who tracks cryptocurrencies and payment processing things that are really kind of emerging and evolving here, Charlie has been a real naysayer of a lot of this stuff. I forget what his exact quote was whenever he was on CNBC when he was asked about Bitcoin, but it was something of the lines like this stuff is absolutely an abomination or a just a disaster. I can't remember what he said, but very, very negative position on it.

Starting point is 00:05:39 When you hear this clip, I'm curious to hear what people will think after they hear what he has to say now. American Express Value Papages is more in terms of payment or is more in terms of service and rewards. I want to say, I'm confused too. I think that if you think you understand exactly what's going to have into payment systems 10 years out, you're probably under some stated pollution. It's very hard to know. So if you're confused, all I can say is welcome to the club. They're doing the best they can. They've got some huge advantages. It's a reasonable bet, but nobody knows.

Starting point is 00:06:14 I don't know if IBM is going to sell that much of Watson. I always say I'm agnostic on the subject. And you're talking about the payment system 10 years out. I'm agnostic on that too. I think if you keep trying, do the right thing, and you play the game hard, your chances are better. but I don't think those things are normal. Think of how fast they change.

Starting point is 00:06:37 So this was a fascinating exchange. The person initially asked in case you didn't hear that, he was asking about American Express and where he thought that was going to go, and he basically said, hey, if you think you understand where this is going, you have no idea. Something that I also found interesting

Starting point is 00:06:51 at the tail end there was the jab at IBM. You know, I mean, that was a real jab that he threw there at IBM. I don't even know that they can sell this Watson. And was this meeting before the, Berkshire, this was in February, right? Yes. Yeah, so this was back in February. So this was before the Berkshire meeting,

Starting point is 00:07:08 which basically showed his hand a little bit of what was to come with the IBM pullback as well. Yeah, what is interesting, Kristen, is even in the meeting one year before, the DJS you has annual meeting. So even in 2016, somebody had asked Munger about Berkshire's IBM bet. And Munger had even then said that he is. is not sure about IBM and he said, I'm agnostic and it is not a cinch. It is not something that Warren would really understand as much as he would when he invested in Coca-Cola, for example. Yeah. No, and I remember that from the year before because we went to the meeting two years ago.

Starting point is 00:07:50 And I think Stig, we even talked about this on the show, right? They basically did this tap dance routine for like one minute and literally gave nothing away, kind of like, oh, yeah, we understand it. And then like that was it. And then they like ran away from the question and they didn't talk any IBM stuff. So. And I think whenever you listen to channel Monger, he's usually a very honest, very candid, especially with the recordings that you were going to listen to later in this episode. Whatever he says in public, especially when he is with Warren, that's really because he doesn't want to be disloyal in any way. I think whenever you Google something about channelmonger and IBM, which we did prior to the show as research, he never really thought it would be a good idea.

Starting point is 00:08:31 And it's not really in hindsight today where he's like, well, it didn't pan out like immediate whenever Warren Buffett made the purchase, he was really, really skeptical about it. So I just think it's really interesting to see him in that role as well. So, Hari, did you read into his response as kind of a nod towards blockchain technology there with the payment processing and all that kind of stuff changing in the next 10 years? Because that's how I took it. Yeah, I think what Mangar is saying. is that the rate of change is so rapid.

Starting point is 00:08:58 And in such an environment, it's really hard for anybody to make prediction. He doesn't want to take any sites because as Munger would say, unless he can argue well from both sides, he doesn't allow himself for hold an opinion. I think he hasn't completed his homework yet. That's how I see about payment systems and cryptocurrencies. When we interviewed Ed Thorpe, I saw the exact same approach. to basically designing his idea of the probabilities on both sides. If he couldn't really argue one side or the other,

Starting point is 00:09:33 it was just an immediate 50% default. And you're seeing kind of the same thing with Munger and the way that he kind of answers this question. When Munger is later asked about what book he would recommend that he's currently reading or something that would be a good read, he actually recommends Ed Thorpe's new book that came out whenever we interviewed him on our show. So that was kind of interesting that Munger was recommending his book.

Starting point is 00:09:55 Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjillo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world,

Starting point is 00:10:27 many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like

Starting point is 00:11:14 your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com, with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NetSuite is the number one AI cloud ERP, trusted by over 43,000 businesses.

Starting point is 00:11:58 It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the Netsuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business. And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI at Nessuite.com slash study.

Starting point is 00:12:40 The guide is free to you at Nessuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world,

Starting point is 00:13:11 and 10% of all e-commerce in the U.S. from brands just get to be. Getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions, and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support.

Starting point is 00:13:41 your business today with the industry's best business partner, Shopify, and start hearing sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify. com slash WSB. All right. Back to the show. He also had a lot of good things to say about Ed Thorpe.

Starting point is 00:14:09 He actually spoke quite a bit about Ed Thorpe. and then the book. So that was interesting. All right. So let's go ahead and go to the next question. Now, this is one that I've seen a lot on Twitter. This is something that I've seen in some of the forums. Because ETF investing has become so popular lately. You've got a couple people that you'll read from time to time talking about how, because everyone's piling into ETFs that whenever we do see a contraction and we do see the market pullback, that it's going to be this really abrupt and size. kind of event that occurs because so much of the money is being pushed into these ETFs and then spread across the breadth of the entire market. So this next question hints at that and we're going to hear what Munger says and thinks about

Starting point is 00:14:55 that topic. Hello, Mr. Munger. William Andreskin, student at USC, wonderful stories. With regard to the proliferation of index funds, do you think that there may be issues of liquidity anytime we go through another large crisis? And then do you think that that will create large disruptions? between the price of the index fund and the values of the securities underneath? Well, the index funds of the S&P is like 75% of the market,

Starting point is 00:15:22 so I don't think the exact problem you're talking about is going to be a big problem if you're talking about the SEP index. But is there a point where index funds theoretically can't work, of course? If everybody bought nothing but index funds, the whole world wouldn't work as people expect. There's also the problem. problem. One of the reasons you buy a big index, like the S&P, is because we buy a small index and it gets popular. It's a self-defeating situation. When they nifty-50 were the rage, J.P. Morgan talked to everybody in buying just 50 stocks. And they didn't care what the price was. They just bought those 50 stocks. And of course, in due time, their own buying forced those 50 stocks up to 60 tax earnings, whereupon it had broke. and everything went down by about two-thirds quite fast. In other words, if you get too much fattishness in one sector or in one narrow index, of course you can get catastrophic changes

Starting point is 00:16:23 like they had with the 50-50 in that form of era. I don't see that happening when the indexes, three-quarters the whole market. The problem is the whole thing can't work perfectly forever, but it'll work for a long time. Ninety-five percent of the people have almost no chance of beating it over time. Although the people expect if they have some money, they can hire somebody who will let them beat the indexes. And of course, the honest, sensible people know they're selling something they can't quite deliver.

Starting point is 00:16:57 And that has to be agony. Most people handle that with denial. They think it'd be better next year. They just don't want to think about them. And I understand that. I don't think of my own death either. But it's a terrible problem, needing those indexes. And it's a problem that investment professionals didn't happen in the past.

Starting point is 00:17:21 And what's happening, of course, is that the prices for managing really big sums of money are going down, down, 20 basis points and so on. The people who rose in investment management didn't do it by getting paid 20 basis points. But that's what we're going, I think, in terms of people who manage big portfolios. who say American equities in the equivalent of the S&P. So it's a huge, huge problem. And it makes your generation of money managers have way more difficult. And it causes a lot of worry and fretfulness.

Starting point is 00:17:56 And I think the people who are worried and fretful are absolutely right. I would hate to manage a trillion dollars in the big stocks and try to meet the indexes. I don't think I could do it. In fact, if you look at Berkshire, take out 100 decisions, which is like two a year. The success of Berkshire came from two decisions a year, over 50 years. We're hardly great. You may have beaten the indexes, but we didn't do it by having big portfolios of securities, and having subdivisions managing the drugs and subdivisions.

Starting point is 00:18:34 And so, no, the indexes are a hell of a problem for you. new people. But, you know, why should life be hard? It's what had to happen, what's happened now. So, Harry, I would like to kick this over to you here soon because early in one of our mastermind discussions, you actually brought up the concept about Nifty 50, which is a really interesting point, especially giving the stock market we have today. So perhaps if you can briefly explain what it is, the concept, and then also how it relates to today and then passive investing. Yeah, I remember that conversation at stake, and it was in the context of the nifty-50 era back in the 70s, where companies like Xerox and a couple of the favorites, McDonald's, were believed to be so good that the price didn't matter, and people were increased to just buy it and forget it. And I guess Munger is talking about those eras and the index funds are funds focused on those nifty 50s during that time, later on basically were self-defeating in the sense that the stocks became so expensive that eventually it was a disaster for many investors.

Starting point is 00:19:47 And Munger is basically talking about how index funds can basically self-destruct if taken too far. However, as you noticed in the talk, he thinks it has not approached that level yet as long as we are focusing on a broad index. Yeah, because it's really interesting what he talks about. He's talking about how you can bid something up to 60 times earnings. That's what he's talking about, which seems like outrageous today until you actually read the income statements for a lot of different companies. One company that might come to mind is something like Tesla. I mean, Tesla would be really happy if they had a P.E. of 60. They don't. I have a market cab around $60 billion as far as I remember. And I think last year,

Starting point is 00:20:29 they lost something around $7 or $800 million. So, I mean, they would love a p ratio of 60. But that's actually what's happening right now. And that's also what he's discussing, even though he's saying that right now it might not be so much of a problem. But if you're buying an in-ings fund that includes Tesla, then you are, you're buying into a company that's losing money. And if everyone does that, that's basically what the question is all about. What happens then? just bidding up stocks that might not make any kind of profit at all. And what Chalmanka talks about is what happened with the Nifty 50, they just lost, you know, two, third of the market value just like that. Because in the end, if the evaluations can be sustained, that's just what happens.

Starting point is 00:21:10 And the narrative is really hard to understand because whenever you're reading, you know, the empirical evidence about fund managers, and that's also what Chalmonga talks about, he's saying, well, 95% of people can't beat the market. So why shouldn't be invested in index funds? So if you have this idea that you should just always invest in index funds because you have no idea about the market, it can also be disastrous. Kristen and you were having a conversation before the show and it all boils down to your investment horizon. Many folks limit their investment opportunity just by their preferences. But if you are a savvy investor, as you rightly mentioned, stick, then index points is just one of the options. options for you, but you are looking at individual companies, real estate, or commodities,

Starting point is 00:22:01 or even cryptocurrencies, and you are making a conscious decision based on what's the right investment at that particular point of time. Yeah, and to respond to your question and also to hand it over to you again, Ari, I'm curious to hear your thoughts because you hear someone like Warren Buffett, he's been saying multiple times that call it 98% of Vesta should be invested in the index funds, especially. if you don't have the time and skill to be invested in the market. Whenever you hear, Chal Munger's response to the question, do you think we should evaluate what Warren Buffett is saying,

Starting point is 00:22:33 or do you think if Chalmonger has a different opinion? Is that how you interpret it? To be fair to Buffett, I think he is clear in his advice. He says for no-nothing investors, the safest option is indexed ones. He doesn't necessarily say it's the best option for everyone. But for diligent enterprising investors like him, he wouldn't recommend index funds. I don't see Berkshire buying index funds yet. And probably there is a reason for that.

Starting point is 00:23:03 And another thing that I always keep in mind is whenever I am thinking about returns, the first thing I ask myself is do I deserve it? I might want 15% returns annually, but do I deserve it? to have the intellect and the time to do the homework. And if I don't, then I should be satisfied with whatever returns I would get from an index, however flawed they might be. But based on the historical record and data we have, index funds have a track record of delivering 6 to 7% return, at least in the US, which I think most investors will be happy to take. Okay, so the next part here that we're going to play, I found this exchange really quite interesting because one of the things that I think Charlie is really, really good at is just psychology in general and kind of mixing psychology with investing. And this next exchange covers that topic.

Starting point is 00:24:06 And it's an idea of discarding your best ideas. You said that any year in which you don't destroy one of your best loved ideas is a wasted year. It's well known that you help coax Warren towards quality, which was a difficult transition for him. I was wondering if you could speak to the hardest idea that you've ever destroyed. Well, I've done so many dumb things. I'm very busy destroying bad ideas because I keep having them. And so it's hard for me to just single out one from such a multitude. But I actually like it when I destroy a bad idea.

Starting point is 00:24:45 Because I think it's my duty to destroy the old idea. I know so many people. whose main problem of life is that the old ideas displace the entry of new ideas that are better. That is the absolute standard outcome in life. As an old German folk saying that describes that he says, we're too soon old and we're too late smart. That's everybody's problem. And the reason we're too late smart is the stupid ideas we always have, we already have, we can't get rid of.

Starting point is 00:25:14 Now it's a good thing that we have that problem. In marriage, that may be good for the stability of marriage. that we stick with our old ideas. But in most fields, you want to get rid of your old ideas. And it's a good habit. And it gives you a big advantage in the competitive game of life since other people are so very bad at it. What happens is, as you spout ideas out,

Starting point is 00:25:39 what you're doing is you're pounding them in. The person you're really convincing is that you will already have the ideas. You're just pounding them in harder and harder. One of the reasons I don't spend much, time telling the world where I think about how the Federal Reserve system should behave and so forth, as I know that I'm just pounding the ideas into my own head when I think I'm telling you other people how to run things. All right.

Starting point is 00:26:02 So I personally loved this exchange and it reminded me of a quote that I had seen and I apologize that I don't know the source of this quote and I'm doing a variation of the quote but it's basically like most people are dead at the age of 40 even though they're still living. And what the quote's getting at is how many people are. out there, do you know, that are 40 years old and from in their life when they're 40 until the day they die, they're doing the exact same thing, they're thinking the same exact way, they're not learning anything new. It's almost like they have a programmed response. They're almost like a computer going through an algorithm and going through the same routine

Starting point is 00:26:41 every single day. They're not challenging and destroying preconceived notions and ideas that they had had from those first 30 or 40 years of their life. And so in a way, you're almost dead at that point. You're not doing anything new. You're not living anymore. And I really find a lot of value between the correlation of that quote and what Charlie's talking about here where he's saying, you've got to destroy bad ideas. You've got to continue to challenge your thinking.

Starting point is 00:27:08 And watching the video and hearing him say this, Hari, it seemed like this was a very, very important point for him and something that he really wanted to, emphasized to the crowd. Did you get that feeling when you were there in person? Yes, I did. And in fact, he brought the same topic a couple of times, even though he was not asked about bad ideas, but he kept referring back to this idea of discarding bad ideas multiple times in different contexts. I think he values this very much. In fact, he has said many times that Berkshire is what it is today because of how Buffett has been a learning machine and has been constantly learning and growing as the business environments changed.

Starting point is 00:27:57 And as part of that, he believes discarding old ideas is very important. Yeah, it's a great point, Harry. And I remember whenever we did the episodes about the Berkshire Holloway, recent meaning And Warren Buffett and Chalemonga talks about the Apple acquisition. And Chalemonga actually took, he said he took that as a good sign that Warren Buffett was still learning. And I would just remember smiling whenever I was listening to that. Because one of the themes that we see again and again with these two are that they talk about how the ideas has really developed, like how they started out with these really basic ideas of

Starting point is 00:28:36 only looking at, you know, the hard assets and, you know, the lowest possible valuations. how they went on to other acquisitions like Seas Candy with more economic mode and where they didn't need to put in so much capital, then transitioning into utilities. Well, you actually need to put in a lot of capital. But they simply needed that because they had a portfolio that was just too large. But they still found a niche that was somewhat protected and had somewhat monopoly power. And now they're talking about going into what some people might call technology or in any case a different type of consumer good.

Starting point is 00:29:10 And they kind of need to reinvent themselves all the time because the times are changing, the size of the assets on the management, they're changing as well. In this situation, having money is a really nice indicator of growing, if you like, but I think it's applicable for everything and not just investing. And I think probably Charlie Munger, more than anyone, is really a learning machine into a number of different fields. And we'll talk more about that later on the show, but just something to leave out there for everyone. I mean, he is just, he's really modest in the way he's saying, I know a little about everything, but he's really a specialist and like almost everything you can think out out there. That's a very good point. In fact, Buffett has been quoted saying that Munger is one of the few people who can get

Starting point is 00:29:56 to the bottom of a topic within 30 seconds and deliver key insights. And he has valued Munger's insights and feedback many times in his investing career. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform.

Starting point is 00:30:30 So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, Vanta gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riter spend 82% less time on audits with Vanta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires. That's Vanta.com. Billionaires.

Starting point is 00:31:09 Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before, and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&B 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4x, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible

Starting point is 00:31:45 futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive

Starting point is 00:32:34 Income Strategy is available to investors of all sizes thanks to the Fundrise income fund, which has more than $600 million invested in a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other

Starting point is 00:33:22 information can be found in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. All right. So the next question we're going to play is a question where a member of the audience asked Munger how he can get superior returns, kind of like the way that Buffett and Munger had achieved. And this was Charlie's response. Well,

Starting point is 00:33:47 I hear somebody really wants to get rich at a rapid rate in specifics. That is not what we try and do here. We want to leave some mystery so that you can abuse yourself finding your own way. You know, the good ideas that I've had, quite few.

Starting point is 00:34:10 But the lesson I can give you is a few is all you need, and don't be disappointed. And when you find the few, of course, you've got to act aggressively. That's the one of the sit. And I learned that indirectly from a man I never met, which was my mother's maternal grandfather. He was a pioneer. And he came out to Iowa and fought in the Black Hawk Wars and so on. And eventually, after enormous hardship, well, he was the richest man in town and he owned the bank and so on. And he sat there and he's an old age one up.

Starting point is 00:34:46 My mother knew him because you go to Elgonah, Iowa where he lived and had the big house in the middle of the town. What Grandpa Engel used to tell her is there's just a few opportunities you get in the whole life. This guy took over Iowa when the land was, the black topsoil of the aisle was cheap. but he didn't get that many opportunities. It was just a few that enabled him to become prosperous. He bought a few farms every time that was a panic, you know, and you lease them to thrifty Germans. He couldn't use money of leasing a farm to a German in Iowa.

Starting point is 00:35:19 But he only did a few things. I'm afraid that's the get, you're not going to find a million wonderful ideas. These people, the computer algorithms do it, but they have a computer sifting the whole world. It's like placer mining. And of course, every niche they're in if somebody else comes in, the niche starts leaching away. I don't think it's that honorable way to make a living, by the way. I would rather make my money in some other way than outsmarting the trading system.

Starting point is 00:35:46 So I have a little computer algorithm that just leeches a little bit of everybody's trade. I always say that those people have all the social utility of a bunch of rats in a granary. It's not that great a way to make money. I would say that if you make your money that way, you should be very charitable with it, and you've got a lot to atone for. And so I don't think it's an ambition we should encourage. And the rest of us who aren't just leaching a little off the top, because we're great at computer science.

Starting point is 00:36:18 And that's what this room is full of. And if you're not finding it harder now, you don't understand it. That's my lesson. So this was an interesting interaction, because the person who asked the question was asking for specific advice and specific picks or tips and you know how Munger reacts to such questions because he feels that you're not entitled to receive specific tips

Starting point is 00:36:49 and you have to do your own homework. And so obviously there was that aspect to his answer but he also said something else in terms of achieving superior returns. And that was about temperament, temperament in terms of being patient, as well as concept of having a concentrated portfolio, and that's where he was giving his grandfather's example. And he also went on to talk about his own experience later in the event

Starting point is 00:37:20 where he said that he read Barron's for 50 years, and he found just one investment opportunity. that turned his one or two million into 80 million. And then he gave that 80 million to Lilo, who turned it into 400 or 500 million. And he also said, by the way, I've been reading Fortune for more than 60 years, and I haven't found an investment opportunity yet.

Starting point is 00:37:47 I mean, nothing against Fortune, but he might later. I like that. That is good. So I think what he's trying to tell the audience is, If you want to achieve superior returns, you've got to wait. And also he's also talking about how hard it is to achieve superior returns. It's not easy.

Starting point is 00:38:07 Yeah, I like it. Okay. So the last question that we're going to play here is a really interesting exchange around the corporate structure of Berkshire Hathaway itself as a holding company. And the person gets into an exchange with Charlie about whether it's smarter to have a partnership or to do a holding company like the way Berkshire Hathaway. set up. And so you're going to be surprised by his answer here. I want to imagine you have the opportunity to invest with a couple money managers that you really like. And they offer you a couple different ways to invest in their strategy. So one way is to a partnership that would flow through the taxes and the other way is to the corporation that would pay tax on the gains and

Starting point is 00:38:48 the dividends. The corporation would serve no other function though other than paying taxes. So I think you'd be crazy to say that those two ways of investing are equally desirable. I'm certainly right about that. It's plum crazy. That's exactly the way people who buy Merkshire are investing. Yeah. So, well, so my close are correct. It's plumb crazy to have a big common stock portfolio in a corporation and pay taxes compared to investing in a partnership that doesn't. And that's just the way the Berkshire Charlevers have invested and they have made whatever it is 25% of the years since we were there. But you're right. It's not logical way to do it.

Starting point is 00:39:23 So my question is if you had to decide to invest in Pool A or pool B, how would you decide on what method would you use to figure out what discount would make you indifferent to whether you invest through the corporate tax paying structure? I think it is totally assinine to invest in a portfolio of common stocks through it, corporation taxed under the internal revenue and code under order or subjapter C or something. Totally assonine. And at Berkshire, public securities keep going down and down as a percentage of the total value. So it doesn't matter. We're getting to be sort of a normal corporation. But I don't think anybody's right mind should invest through a corporation in a puddle of securities.

Starting point is 00:40:07 The tax disadvantage is so horrible. So I wouldn't even consider it. In other words, and I regard as a minor miracle, we were able to get where we did. So, of course, you'd invest in the partnership. So anyone who invest in Berkshire has to decide what discount to put on a pool of securities that has a future tax lien on the gains. So just, do you have any mental model for... Yeah, my model was to avoid it.

Starting point is 00:40:38 You don't want them to invests. A polar security is in somebody else's corporation. You're totally right. But you already knew, by the way. So that exchange for me, if people could see our Skype call, Stigahari and myself, are just grinning ear to ear

Starting point is 00:40:55 because it's just crazy to listen to him, that because that's what Berkshire Hathaway is. You know, like, and I love to his little snide comment there at the very end, and you already knew the answer to this. But what a great question. And he obviously can't defend it through logic, but they've proven that it's the right way. This is what my personal opinion is the value that he's not discussing through this is this

Starting point is 00:41:25 idea of the disadvantages of a partnership versus a holding company. So the disadvantages with a partnership is that you get the money all at the wrong time. So when the market has a massive downturn and everyone's running for the hills because they're scared, they're pulling their money out of your fund right when you need the money to invest and buy the cheap assets. And whenever the market's booming, call it now and everything's doing really good. Everyone's throwing money at you and all the things that you can buy in the market are overpriced. And so that's a total handicap for a partnership. And whenever you have a holding company, you can actually do the exact opposite.

Starting point is 00:42:05 So Buffett and Munger, if they wanted to, they could issue more common stock. They could raise more cash, put it into the cash account. And then whenever the market has a downturn, they could take that liquidity in that cash and invest it when everyone's selling their stock at a very cheap price. Heck, they could buy back their own shares off the market. at a cheaper price and take advantage of the situation. So I really think that that's a very, very valuable part of this equation we're talking about that was never brought up.

Starting point is 00:42:35 Munger didn't defend it in that way at all. But I'm trying to do that now. And I'm curious what the audience might think. Hit us up on Twitter if you agree or disagree with my opinion. And I'm curious to hear what Hari and Stig think about this. So, Kristen, that's right. Like, I wasn't sure whether Munger was teasing the... a questioner?

Starting point is 00:42:54 Yeah. And you know, Munger is moody. And sometimes he doesn't have the patience to really explain everything and give him the context. So sometimes he just throws curveballs and people back. And if you see at the end, he says, I guess you knew the answer. And I think what you just described, Kristen, is like the second level thinking, what Harvard marks calls, the second level thinking.

Starting point is 00:43:16 On the surface, if you just look at all the superficial data, yes, partnership in this situation is better. But if you look at the second level of things that Workshare has what Munger calls the Lola Paloosa effects, including the permanent capital that you described, the holding structure definitely made sense. And we have to be cognizant of the fact that it was Munger and Buffett who formed this structure and they would have put a lot of thought into it.

Starting point is 00:43:49 And Buffett was actually operating as a partnership before. And there is a reason why he got out of that partnership model into this holding company. Stig, I'm curious to hear what you think. Do you think he was antagonizing the person asking the question because he was so smart that he was dumb in a way? Yeah, I think what really took him off was that he knew it was not really a question. It was actually because the person asking the question wanted to hear himself talk and really come with an insightful question. And there was something a lot of people really haven't thought about. He didn't give him a morsel.

Starting point is 00:44:21 He didn't give him anything. No. Yeah, I think that was actually why. Hara, you were there. What do you think? No, I think that's what a lot of us came off thinking is that it was definitely a curveball back at him. Wow. Very interesting exchange. So that's all we have for this episode. It was pretty fun to pick through some of this. Hari, any concluding remarks that you had from going to the meeting that we didn't have an opportunity to play that really kind of leaves a mark in your mind that was really important. One of the things that really stuck me was Munger's reflection on his life and also his thoughts about mortality. And many times he brought up the fact whether he will be there for the next annual meeting or even brought up the topic of mortality once when he said, we are glad we are still getting to do what we love to do when we should all be dead. So I think he's very aware of his mortality.

Starting point is 00:45:23 And that was also kind of sobbing to see him talk about it multiple times. It's very personal. So that was definitely something that I took away from that meeting. And I hope to see him next year. Well, I thought there wasn't going to be a meeting or something. Well, I'll tell you, Hari, it was just such a pleasure having you here this week. And we really appreciate you doing a lot of the research and giving us handoff to the various parts of the interview that we could talk about. It was just always such a pleasure to have you on.

Starting point is 00:45:56 If the audience wants to learn more about you, Hari, where can they find you? I'm always there on my blog, bitsbusiness.com and also at Twitter. My handle is at Ari Rama. All right. We'll have links to that in our show notes. So, Hari, thank you so much for joining us this week. It was such a pleasure to have you on the show. Thank you, guys.

Starting point is 00:46:14 It's always a pleasure. All right, guys, that was all that Preston and I had for this week's episode of The Investors podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only.

Starting point is 00:46:41 Before making investment decisions, consult a professional. is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP147: Billionaire Charlie Munger and the Daily Journal (Business Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.