Notable Quotables: Buffett-Munger Edition

Well, we had the investing Woodstock in Omaha Nebraska. When Warren Buffett speaks, you don't need to hear what anyone else is saying! Make a note, remember it, and file it away for posterity.

These are quotes by both Buffett and Charlie Munger from the Berkshire Hathaway (BRK.A) (BRK.B) shareholder meeting and the Wesco Financial Corp. (WSC) shareholder meeting. While this event was heavily covered, I still wanted to put together what I think are truly 'words of wisdom' or interesting observations.

• Book recomendation: Read The Intelligent Investor, chapters 8 and 20 specifically.
• On hiring managers: I would look for a person with a passion for the job, doing more than their share, good communicators.
• On what you should learn from business school: The two most important things one can learn are: 1. How to value a business and 2. How to overcome being influenced from market fluctuations.
• Go to work for organization you admire or an individual you admire. Which also means most MBAs I meet would be self employed.
• I went to work for Ben Graham. I never asked my salary.
• You'll do better if you have a passion for something in which you have an aptitude. If Warren had gone into ballet, no one would have heard of him.
• I avoided all classes that had public speaking, I got physically ill if I had to speak. I signed up for Dale Carnegie course. Gave them a check for $100, then I went home and stopped payment on the check. I was in Omaha, took $100 cash to Wally Kean, I took that Carnegie course, and then I went to University of Omaha to start teaching – knowing I had to get in front of people. Ability to communicate in writing and speaking – it is under-taught – and enormously important. If you can communicate well, you have an enormous advantage. Force yourself into situations where you have to develop those abilities. At Dale Carnegie they made us stand on tables. I may have gone too far. You are doing something very worthwhile if you are helping introverted people get outside of themselves.
• It's the nature of things that most small businesses will never be big businesses. It is the nature of things that most big businesses fall into mediocrity or worse. Most players have to die.
• Advice to 12 year old: I'd read a daily newspaper. You want to learn about the world around you. Bill Gates quit at letter P in World Book Encyclopedia. Just sop it up, and find what is most interesting to you. The more you learn, the more you want to learn. It is fun.
• I wouldn't be in currencies with a small amount of money.
• I think it is stupid to use up the hydrocarbons of the world so quickly. Stupid when there are few and limited alternatives. What should we have done? We should have brought all the oil over from Middle East and put it in our ground. Are we doing it now? No. Government policy is behind in rationality. If we are to have a prosperous civilization, we must use the sun.
• Accounting people really failed us. Accounting standards ought to be dealt with like engineering standards.
• The great problem of mankind is that the genie is out of the bottle on nuclear weapons.
• We live in a dangerous world. Getting more dangerous as we go along. In the Cuba Missile Crisis it was probably 50/50 odds, we were lucky. It won't go away. You would hope we have an administration which will try to figure out how to minimize the risk. It should be paramount to eliminate deaths on a large scale.
• When I speak to classes in universities I ask them to buy one classmate to own for rest of their life. They pick the person not with the highest IQ, but who is the most effective, the ones you want to be around. These people are easy to work with, generous, on time, not claiming credit, helping others. There are things that turn other people on, and that turn other people off. Those are good habits to develop.
• Your children will live in a better country than you, even if a few idiots run it in the meantime.
• I think you have to start with the idea that a lot of the current troubles are richly deserved.
• We may not save very much because we don't need to. We are a very rich country, and we may not need to save as much as other countries trying to reach their potential.
• If we had banned the phrase, "this is a financial innovation which will diversify risk", we would have been far better off.
• Most important job you have is to be the teacher to your children. You are the big great thing to them, you don't get the rewind button, you don't get to do it twice, teach by what you do not what you say. By the time they get formal schooling, they would have learned more from you than school.
• Look at effective individuals – why do people want to be around them? You should copy those qualities… I would look for what I admire and emulated, and try not to let distasteful things be copied.
• Capitalism without failure is like Christianity without hell.
• Inflation is bad for civilization but great for capitalists.

Note: These are Charlie Munger quotes from Wesco's shareholder meeting.

• People are used to laying money aside and investing in standard fashion, and becoming quite comfortable. It is easy to forget that this isn't guaranteed.
• The reason my generation did so well was kind of a fluke, and won't necessarily continue. There will be lots of chicanery in the future. Many claim alpha, but really they are just taking an earthquake risk.
• Envy effects corporate compensation. People want to be paid like movie stars rather than archbishops.
• On Berkshire: There is a lot to be said that the people in power make money with the shareholders, not off them.
• We do not need the smartest people in science and math in computer driven strategies. This is not a plus for the wider civilization.
• We normally avoid [discussing the general investment climate] like the plague. Most assets are priced to a level where it is hard to get excited. It is hard to get a 4% yield on a nice apartment where it doesn't include replacing the carpets. Bonds of strong corporations are at a 4% yield. Corporate equities are paying 2% per annum, growing 4% a year. Such a world isn't the one that made all of you be able to come to the meeting. Last generation has been in hog heaven – some bumps, but it had the easiest time getting ahead. In the eighteen years that preceded hog heaven, the purchasing power of Yale's endowment went down 60%. They were getting real investment return of 0%, negative. It is not at all impossible that brilliant investors like Yale get bad results in the future.
• The only duty of corporate executive is to widen the moat.
• On Credit Default Swaps: There is no reason in America to have vast bets on $100 mil. bond issues to which no one is party. It creates needless complexity and very perverse incentives. They say "it's a free market." The correct adjective is insane.
• On the war on terror: Terror is a hell of a problem. People are vastly overconfident in the solution. They are probably making an error.
• I would avoid funds that have 100% turnover per year. It is a ridiculous way for an ordinary index fund to behave.
• Berkshire would have been a mess if it had ever stopped learning. The only reason we've been able to keep a shred of decency in our record is that we have been hell bent to keep learning.
• We tend not to sell operating businesses. That is a lifestyle choice.

Full Disclosure: No positions.

Comments

[slider:]

Simplicity is refreshing. How often i forget.

2008 May 15 12:34 AM

[Bud Labitan:]

The Four Filters Invention of Warren Buffett and Charlie Munger, a new book, is at frips.com

2008 May 16 03:58 PM