Charlie Munger's Daily Journal February 2017 Annual Meeting

I don't really agree with many of Charlie Munger's political, and some business and economic, views, but the thing I love about him is that he is outspoken and doesn't care what people think of him. Munger hosted the 2017 Daily Journal annual meetings and here is a video someone shot, along with a transcript.

The last part of the transcript file contains 2 articles written by Charlie Munger (possibly never published anywhere?) starting on PDF page 11. I haven't read them yet but if I find it interesting, I'll blog about it. I wish someone close to Charlie Munger or with access to his files publishes similar stuff that he wrote (especially when he was more active and at his prime in the 70's/80's) and is probably lost to time. It's going to be hard to get access or permissions to his writings once he isn't around (it'll be hard for his family or estate to tell what is confidential and sensitive and what's not). Some of Munger's thoughts are very insightful and his article/speech(?), Art of Stockpicking, is one of the best investment/business articles I have ever read (it changed my perspective of the stock market and I came to understand it as a pari-mutuel betting system). If you have never read the Art of Stockpicking, I suggest you go and download that -- read that instead of my blog!

Other than the 2 articles, I don't think there was anything radically insightful from Munger's comments, but if you haven't heard him in a while, like I am who was away from investing for a few years, it is a good listen/read. As usual, he didn't comment much on specific stocks and most of it was broad comments. Here are some things I noticed:

• He mentioned the Daily Journal is transforming into a software business which is a tough battle with long sales cycles--may not see profit for as long as 5 years--but he is ok with investing for the long run
• He did suggest that Berkshire Hathaway invested in airlines because the structure of the industry has improved (he likened it to railroads which were terrible for decades but then economics improved in the last decade).
• He is bullish on China and not India--I share the same view but am medium-term bearish on China due to credit bubble--and mentioned that some established, strong, Chinese companies are trading with low valuations. I suspect he is talking about the Chinese SOEs (state-owned enterprises) which are some of the largest companies in the world and typically trade at somewhat low P/Es. For example, Sinopec trades at a P/E of 8 vs Valero at 14; China Mobile P/E is 14 vs AT&T at 18; etc (these are my quick semi-random and companies are not necessarily comparable but the Chinese companies have far higher growth rates). Obviously market is discounting China due to its capital controls, dubious accounting--one joke is that there are 3 accounting books: one for the tax authorities, one for the shareholders/public, one that is the truth--weak shareholder rights, and less efficient companies. But in the long run, I would agree that Chinese companies provide greater investment potential. Chinese companies that are run like American companies are good candidates. Maybe something like BYD is like that--I don't know.
• Munger had some comments on the rising popularity of index funds. He said it made it tough for the investment industry but didn't think it was an issue in general. However, he seemed to suggest that index funds could cause bubbles in certain narrow areas: as index funds buy more, they drive up the price and as more people pile into the funds, price will rise, and so on (he didn't seem to think this is an issue with broad large-cap index like S&P 500). He gave the Nifty-Fifty bubble example saying how everyone wanted to be in a select few top/best stocks and kept driving up the price to something like P/E of 50.
• Munger reiterated his preference for extremely concentrated portfolios. I think he was saying the vast majority of his net worth (over $1 billion) is tied up in just 3 positions: Berkshire Hathaway, Costco, and Li Lu's fund. He doesn't think any of them will go to zero and thinks it's almost impossible for all three to go to zero. He did suggest one needs to be able to tolerate temporary declines of 50% (as mentioned by one of the attendees, his portfolio was down around 50% during the brutal 1974 bear market). His view is that it only takes a few good choices to be successful and make it in life. Munger pointed out that if you had a rich uncle who offered you a job/ownership in his business, you would go and work for him, and be basically betting 100% on your uncle's business. He also speculated that Berkshire Hathaway only made around 100 good decisions over 50 years, or around 2 good decisions per year. His point is that you don't need to make many good decisions (especially with an even smaller portfolio) and when you see a great opportunity, you invest heavily. This is very hard to do and if you don't know what you are doing--maybe for people like me--you could lose a lot. Yet, Munger's view is consistent with the pari-mutuel betting system approach where you only bet when odds are in your favour and to do so heavily if the odds are really good.

Source/Files:
I. 2017 Daily Journal Annul Meeting transcript by Adam Blum (DropBox PDF)
II. Charlie Munger Daily Journal 2017 Video by Laixin Wei (YouTube link)

Thanks to Adam Blum for providing the transcript of the event, and Laixin Wei for the YouTube video. (h/t @MohnishPabrai on Twitter for mentioning them https://twitter.com/MohnishPabrai)

This could be one of the last times we hear much from Charlie Munger so check it out while he remarks about current events...