Acquired Interviews: Charlie Munger [Summary + Transcript]

00:25
Track
Who got the truth? Is it you with a. You with a. You? Who got the truth now? Is it you with it? You with a. You? Sit me down. Say it straight. Another story on the way. Who got the truth?

00:42
Ben Gilbert
Welcome to this episode of Acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal and we are your hosts. This episode is a very unique one for David and I. Good friend of the show Andrew Marks, organized a little dinner for us with Charlie Munger and a few other folks at Charlie's home in Los Angeles. You can hear Andrew a few times in the background asking Charlie questions. We are pretty sure that this is the only podcast that Charlie has ever done. Charlie, aside from being one of the most prolific investors of all time alongside his partner Warren Buffett, is 99 years old. He will turn 100 on January 1.

01:21
Ben Gilbert
Of course, our conversation was interesting because he's freaking Charlie Munger, but also because it was interesting to get the perspective of someone who has seen the last 99 years of human history. We talked with Charlie, of course, about Costco, history investing in retailers over the last 50 years. We also got to hear his views on what it takes to build a great partnership, what's gone wrong in the global securities markets these days, the concept of investing versus gambling, and where investment opportunities remain in the world today.

01:53
David Rosenthal
Yeah, Ben, this was such a special life experience for you and me, and you and me together to do this and the fact that we got to record it and now share it with the world for posterity. Just icing on the cake. And the whole thing was unbelievable.

02:06
Ben Gilbert
Yeah, listeners, we knew were going to have dinner. We were not sure whether were going to be able to record it, and now we get to share it with all of you. With that join the slack there is awesome discussion of every episode and the news of the day at acquired FM Slash Slack. If you sign up for acquired emails, you will get episode corrections and follow up from previous episodes, plus hints at what the next episode will be. That's acquired FM email and we have only one sponsor for this interview.

02:34
David Rosenthal
Yes, a special conversation deserves a special sponsorship, and longtime listeners will know there's only one company in the acquired universe that is truly appropriate, because everything they do is modeled after Charlie and Warren. And that's tiny.

02:47
Ben Gilbert
Yep, Tiny is the Berkshire Hathaway of the Internet. Literally. They are such huge fans that they started a company that makes bronze busts of Buffett and Munger themselves. But more on that in a minute.

02:58
David Rosenthal
Yeah. So, Berkshire, as we know, started as a textile mill in Massachusetts nearly 200 years ago. And almost 20 years ago, Tiny founders Andrew Wilkinson and his partner Chris, took their version of an Internet textile mill, the premier design agency Metal lab, which designed the uis for Slack, Uber, Tinder, headspace, Coinbase and others. And they asked themselves, what would Charlie and Warren do if they were us? And that led to the realization that, just like Berkshire discovered in the physical world, the Internet also has wonderful niche businesses with great cash flows. In fact, they tend to be even better than the old days of Sea's candies and blue chip stamps because they require zero capital reinvestment, have software margins, and can build global brands much faster than the, what, 50 some OD years? It took seas to expand around the world.

03:47
Ben Gilbert
Yep. So Andrew and Chris took the extra cash flow from Metalab and their other businesses and created Tiny, the world's first and best permanent holding company for wonderful Internet businesses. And boy, did it work.

03:59
David Rosenthal
Yeah. Fast forward today. And thanks to Tiny's success, this opportunity is no longer a secret. Many people have caught on to the idea that this can really work. But just like Berkshire itself, no one else has the combination of experience, temperament, access to capital, and, frankly, reputation that Andrew and Chris have built over the past two decades. We're investors in Tiny ourselves, alongside Bill Ackman and Howard Marks. And just like the two of them, Tiny is really the long term buyer of choice in their niche. Anyone who's looking for a permanent home for their profitable Internet business, or who needs a capital partner for a cofounder or VC cap table buyout, would be lucky to work with Tiny.

04:37
Ben Gilbert
Yep.

04:37
Ben Gilbert
For instance, they just bought the premier social network for film buffs, Letterboxd, which has been the founder's baby for twelve years and will stay so within Tiny. And this really reflects Tiny's whole ethos. Work with only the best Internet businesses, commit to simple diligence, 30 day deals, and leave the business alone, either for you to operate or bring in new long term oriented management. Up to you.

04:58
David Rosenthal
So thanks to Tiny, this is the only sponsor as Ben said, that you'll hear on this episode, and just like Berkshire, it'll be here in perpetuity. Tiny just became a public company earlier this year, and they can now do deals ranging anywhere from 1 million all the way up to 250,000,000. So if you want to get in touch, just shoot them a note@hiatiny.com. And just tell them that Ben and David sent you.

05:20
Ben Gilbert
Oh, and one more thing. The bronze Charlie busts the perfect daily reminder in your workspace to ask, what would Charlie do? Just head on over to berkshirenerds store to buy your own. And they also have plenty of some guy named Warren, too. Okay, now, without further ado, this is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. And on to Charlie Munger.

05:46
Ben Gilbert
Charlie, I was watching the NFL games last weekend, and it seems like every advertisement now is a sports betting advertisement. Is this good for America?

05:55
Charlie Munger
No, of course not. Are the dog tracks and racetracks of America casinos good for America? Of course not. They're just very popular.

06:06
David Rosenthal
That's how Warren got his start, though, right, at the racetrack.

06:09
Charlie Munger
Well, but Warren never gambled heavily as a patron. Warren wanted the ods in his favor, not somebody else.

06:16
Ben Gilbert
Right?

06:17
Charlie Munger
It's just a symbol. If you're Warren, you want the house. You want to be the house, not the Ponter listeners.

06:24
Ben Gilbert
The next topic that came up was retail stock trading, and the idea that for many Americans, this is akin to gambling.

06:30
Charlie Munger
Well, that's the way it's organized. They don't really know anything about the companies or anything. They just gamble on going up and down in price. If I were running the world, I would have a tax on short term gains with no offset for losses on anything, and I would just drive this whole crowd of people out of business.

06:50
Ben Gilbert
What do you think about the algorithms, like Renaissance and stuff like that?

06:53
Charlie Munger
Well, of course, renaissance for the first algorithm was so simple, they sifted all this data for the past, and what did they decide? Up for two. Closing prices and down were more common than down up or up down. Once they realized that's the way it was, for various reasons, deep in the psychology of man is a natural trend follower. Keep thinking. Gambling short term. And he's programmed the computers to automatically buy in one thing, the first update and sell before the end of the second day. And they just did it day after day, every day. The machine would, you know, the central clearing agent would say, your check today is $8,500,000 it's crazy. Your check tomorrow is 9 million.

07:48
Charlie Munger
Well, what happens is that the easiest trade is to front run what, you know, what the average is, but the index funds have to buy, and you know what it is. Exactly. They all know that. And the way they get their returns year after year is taking the leverage, the midday leverage, up higher and higher and higher. So they're making smaller and smaller profits on more and more volume, which gives them this big peak leverage risk, which I would not run myself. And that's the only way they make these big returns, is to have this huge leverage that would make you crazy if you were already rich.

08:25
Ben Gilbert
I had the good fortune of speaking with someone you know well, Richard Galanti at Costco and spending a few hours.

08:31
Charlie Munger
He's been there all his life.

08:33
Ben Gilbert
It's crazy. I mean, it seems like that's everyone on the executive.

08:36
David Rosenthal
They've all been there.

08:38
Ben Gilbert
I'm curious. How did you first come across Costco or a price club at the time?

08:44
Charlie Munger
Rod Hills somehow knew Saul Price and knew what he was doing. He said, you have to go down and meet him. He said. So I drove down, went through his store, and talked with Saul, and, of course, Saul was a very intelligent man. Saul was an ordinary lawyer until he was 39 years of age. He went out, informed government employees, discount company or whatever was this. In the Fedco days? He was no longer with Fed go. He sold fed goat to the Germans.

09:14
Ben Gilbert
Fed Mart to the Hugo man. And did you get to invest in price club before it merged with Costco?

09:24
Charlie Munger
Yes, I did, but I just bought my stock in the market. I wasn't.

09:30
Ben Gilbert
And so how did you eventually meet Jim Senegal?

09:34
Charlie Munger
Well, Senegal asked Warren to become a director of Costco. He was looking for somebody with a financial reputation as an independent. Yes. And Warren wouldn't do it. He said, get Charlie to do it. I want shorter plane rides to directors meetings and so on. So that's how that happened.

09:55
Ben Gilbert
And did Berkshire ever try to become a shareholder or acquire customers?

09:59
Charlie Munger
I tried to get Warren to buy out the fringe when they left care for. And Warren wouldn't do it. Warren doesn't like retailing.

10:08
David Rosenthal
Was it just that he doesn't like retail, or what was the big objection?

10:11
Charlie Munger
He's afraid retail. Practically everything that was Mont's mighty in retail is gone. Syzrobo is gone. The big departments are know. It's just too damn difficult as far as he's concerned.

10:23
Ben Gilbert
And he had a bad experience with diversified retail, right?

10:26
Charlie Munger
No. We made nothing but money at diversified, we didn't exactly make it in retailing, but we made a lot of money. Wow.

10:34
Ben Gilbert
And with diversified, most of the money was not on the retailing operation. You made a lot of that money through.

10:39
Charlie Munger
What happened was very simple. We bought this little pissant department store chain in Baltimore. Big mistake. Too competitive. As the ink dried on the closing papers, we realized we'd made a terrible mistake. So we decided just to reverse it and take the hits to look foolish rather than go broke. We just told how to get us out of this. By that time, we'd already financed half of it on covenant free debt and so forth. And they had all this extra cash, and our own stocks got down to selling an enormous. In the middle of one of those recessions, we bought and bought and bought, and all that money went right into those stocks. And, of course, we tripled and just was sitting on our ass.

11:29
Ben Gilbert
And that led to blue chip.

11:32
Charlie Munger
Yeah, it was part of the early success of blue chip. Wow.

11:36
Ben Gilbert
And so you mentioned Warren doesn't like.

11:39
Charlie Munger
Something else that people don't know about. Yeah, we bought a little piss ant savings and loan company, maybe $20 million. And when we left that thing, we had taken out of our little $20 million investment over $2 billion in marketable securities, which went into Nebraska insurance companies as part of their bedrock capital. So we had some wonderful early years, and that's what everybody needs, is wonderful early years. Wow.

12:10
David Rosenthal
So in our Costco episode, we started with the joke at one of the Brickshire meetings, probably ten years ago, Warren told the joke about you were on a plane being hijacked and the hijackers gave you one final request and you said you'd like to give your speech on the virtues.

12:28
Charlie Munger
Yeah.

12:29
David Rosenthal
And he said, shoot me. First, were hoping. Could you give us your speech on the virtues of Costco?

12:37
Charlie Munger
No. Warren was kidding me for being so repetitive on the subject. But there aren't many times in a lifetime when you know you're right and you know you have one that's really going to work wonderfully. Maybe five, six times in a lifetime, you get a chance to do it and people do it two or three times early, all go broke because they think it's easy. In fact, it's very hard and rare.

13:04
Ben Gilbert
What was it about Costco that made you realize this is one of those few moments in a lifetime?

13:09
Charlie Munger
Well, they really did sell cheaper than anybody else in America, and they did it in big, efficient stores and all the parking spaces were 10ft wide instead of 8ft nine or whatever. They normally are. They did a lot of. Right.

13:28
Ben Gilbert
Yeah.

13:29
Charlie Munger
And they had a lot of parking spaces they kept out of their stores. All these people didn't do big volumes, you see, and they gave special benefits to the people who did come to the stores in the way of reward.

13:42
Ben Gilbert
Points, the executive membership.

13:44
Charlie Munger
Yeah, it all worked.

13:48
David Rosenthal
And the capital light business model. I mean, when were studying it.

13:52
Charlie Munger
The difference price, no investment in them. They make the suppliers wait until they've been paid, and then they're scheduled to pay only after they're scheduled to sell.

14:05
Ben Gilbert
They've got 900 warehouses around the world full of high quality merchandise, none of which they have sitting on their books.

14:13
Charlie Munger
That's correct. Yeah.

14:15
David Rosenthal
Our understanding is that price club went public initially before the merger. They just listed. They didn't raise any capital. They didn't need any capital.

14:25
Charlie Munger
Who knows? Saul kind of like, kind offense here. He liked deals. He liked this. Miscellaneous real estate. Yeah, but it doesn't make sense. You got an enterprise as big as Costco. You don't want to screw around with your parking lot, get other people clog up your parking lot permanently and stuff that's not going to pay you very much.

14:49
Ben Gilbert
Right.

14:49
Charlie Munger
You don't want them is the answer.

14:52
Ben Gilbert
Have you ever seen another business that takes advantage of the virtue of the low sku count the way that Costco does?

15:00
Charlie Munger
Well, there are lots of them. That little grocery store chain here in Los Angeles, Gelson brothers, they wanted the high turnovers and low capital costs, and they never made the least effort to earn any money. Or they wanted to share their pricing out with anybody.

15:21
Ben Gilbert
As you reflect back, know one of these few great companies in a lifetime that you should bet big on. What advice would you have for David and I as young partners looking for a few of these in our lifetime things to look out?

15:37
Charlie Munger
Well, you may find it five years after you bought. Know these things may work into it or your own understanding may get better. But when you know you have an edge, you should bet heavily. You know you're right. And most people don't teach that in business school. It's insane. Of course, you got to bet heavily on your best bets.

16:07
Ben Gilbert
And how do you develop that level of conviction to know you work at it?

16:12
Charlie Munger
You redo a lot of reading and thinking and visiting.

16:16
David Rosenthal
I'm curious. We wanted to ask you. You've had this beautiful partnership with Warren for half a century. We're a decade into our partnership.

16:25
Charlie Munger
There was a lot of low hanging fruit in the early days of our operation. You don't have any low hanging fruit. That is easy to recognize.

16:35
Ben Gilbert
You mean an investment opportunity.

16:37
Charlie Munger
Yeah, that's right.

16:38
David Rosenthal
But your relationship with Warren.

16:41
Charlie Munger
We were both kind of similar, and we both wanted to keep our families safe and take a good job for our investors and so on. We had similar attitudes.

16:53
Ben Gilbert
Yeah.

16:53
David Rosenthal
Did it change over the decades?

16:56
Charlie Munger
No. Warren still cares more about the safety of his Berkshire shelters than he cares about anything else. If we used a little bit more leverage throughout, we'd have three times as much now, and it wouldn't have been that much more risk either. And we just knew we never wanted to give them at least chance of screwing up our basic shelter position.

17:20
Ben Gilbert
If you had used more leverage, do you think there's some chance that we.

17:23
Charlie Munger
Would have done a little better? Sure.

17:25
Ben Gilbert
Do you think there's some chance that it wouldn't exist at all, that it would have cost you the franchise?

17:30
Charlie Munger
No, I think it would work fine. Does Warren think that easy the situation lend itself to if you were intelligent just milking it out when you leverage.

17:42
David Rosenthal
I'm so curious on after we did our automatically leverage.

17:46
Charlie Munger
If you open a new store with no capital, of course it's leverage. Who wouldn't want a business with no inventories? Right?

17:56
Ben Gilbert
That's a good point. By the virtue of you owe a whole bunch of people money on day.

18:00
Charlie Munger
One for these goods, which is which turnover so rapidly. Right.

18:05
David Rosenthal
It's interesting. I mean, that's leverage. It's not debt leverage. How do you think about debt? Like, after we did our Berkshire series.

18:13
Charlie Munger
A lot of people do it now. A lot of people now do it who manufacture something. They're just terribly strong, and they're just forcing the suppliers to carry all the inventory isn't like we're the only ones that did it.

18:29
Ben Gilbert
Back to the point on partnership, David and I are coming up on ten years as partners in this podcast we do together, different than the investing business, but a compounding one nonetheless. After a 50 year partnership with Warren, what advice would you have for us, interpersonally, to make for an enduring partnership?

18:47
Charlie Munger
Well, it helps if you like one another and enjoy working together.

18:54
David Rosenthal
We do, yeah.

18:56
Charlie Munger
But I don't use any one formula. A lot of partnerships that work well for a long time happen because one's good at one thing and one's good at another. They just naturally divide it, and each one likes what he's doing. Now, in Costco's case, they had Jeff Brotman, who's very smart but not a retailer, and Jim Senegal, and they divided it up, and they had originally agreed that Broughtman would be the chairman and CEO, because he was his idea. He founded the whole thing. But Senegal decided, no, I have to be the CEO. So it was a big, unfortunate board meeting, internal struggle, and Brockman moved aside.

19:41
David Rosenthal
Was that after you joined the board?

19:43
Charlie Munger
No, before.

19:46
David Rosenthal
Do you think you and Warren not living in the same city helped your partnership last so long?

19:51
Charlie Munger
Well, it may have helped, but Warren has very close relations with all those people that have lunch every Saturday at Berkshire headquarters. It isn't like he doesn't have a little quarter of people there who are kind of pals from the ground up.

20:11
Ben Gilbert
Do you think it helps that when you do spend the time together, it's special rather than being common?

20:19
Charlie Munger
Well, of course, we used to spend a lot of time together when were young because we didn't have that much to do. Now we've got more to do. It's just the other minutiae of life, so it's different.

20:33
David Rosenthal
Yeah, it's funny, I feel like we have a lot to do now.

20:39
Charlie Munger
Of course, it's very difficult to invest money well, and I think it's almost impossible to do time after time of time in venture capital.

20:49
David Rosenthal
Yeah. We really wanted to ask your thoughts on venture capital.

20:52
Charlie Munger
Some of the deals get so hot and you have to decide so quickly. You're all just sort of gambling.

20:59
Ben Gilbert
Do you think the role of venture capital is being properly accomplished in society?

21:05
Charlie Munger
No, I think it's very poorly done.

21:07
David Rosenthal
Charlie elaborated on this point with a few things that we can't air, but the topic did turn to bitcoin.

21:13
Ben Gilbert
I've heard many comments you've made on bitcoin. I'm curious if you have a thought on this particular angle. An easy way to transfer money in between countries, especially when those countries don't have a stable store of value within that country. Is it good to have an independent store of value that is not good.

21:32
Charlie Munger
For the world as a whole to have a way of having some currency? The way that was solved is for a long time, the british pound was the national currency of the investment world. Then it shifted to the dollar, and it's still a dollar. And people like China have these enormous reserves at dollars. The money we make by think of the money people give us, where we always just print up these pieces of paper.

22:04
Ben Gilbert
Yep. And what about the common person in some of these less fortunate countries who don't have access to us dollars?

22:13
Charlie Munger
They do. If they ever get any money. The dollar is very fungible. You can always buy one anywhere.

22:20
Ben Gilbert
I'm curious back to this point of the role of venture capital in a society. If you could design a perfect system.

22:27
Charlie Munger
To fund innovation, very legitimate business, if you do it right, if you want to give the right people the power and nurture them, help them, and you know a lot about the tricks of the game, so you can help them run their business, yet not interfere with them so much they hate you. By and large, having bumped into a lot of people in the businesses with venture capital financing, I would say the ordinary rule is the people in the business doing the work, they more often than not, they hate the venture capitalists. They don't feel their partner trying to help them become. They're only taking care of themselves, and so on, and they don't like them.

23:09
Ben Gilbert
How could it work differently?

23:11
Charlie Munger
Yeah, well, that's not true. In Berkshire, you see RBO, they know we're not trying to discard them to the highest bid. See, if some asshole investment banker offers us 20 times earnings, or some lousy business we don't sell. If it's a problem business we've never been able to fix, we'll sell it. But if it's a halfway decent business, we never sell anything. And that gives us this reputation of staying with things, which helps us.

23:40
Ben Gilbert
And do you think that buy and hold not only mentality, but demonstration is the key thing that aligns investors with managers?

23:52
Charlie Munger
Well, it's rare. You see, everybody else has a standard way of doing things. The lawyers have their standard forms, and everybody just has the same standard form, and they get the same standard results, subject to the vicissitudes of investment liability. You don't want to make money by screwing your investors, and that's what a lot of venture capitalists do. The world is full of XG, Goldman Sachs partners that formed a private fund. Imagine a billion dollars or something like that, and they charge two points off the top, plus the spib, and that enables them to make very handsome living to themselves. But the endowments are not getting great return.

24:36
David Rosenthal
And do you think it's specifically the fee aspect of fund structures?

24:40
Charlie Munger
Nature of the wedges is the way it works. And of course, you really shouldn't be in the business of charging extra pointness. You really are going to achieve very unusual results. And of course, it's more easy to pretend that you can get good results than it is to actually get them. And so it attracts the wrong people with an investment capital term of mind. And the people who made the most money out of venture capital are a lot like investment bankers deciding which hot new area they're going to get in. They're not great at investors or great at anything.

25:19
David Rosenthal
What do you think endowments and large pools of capital should do then?

25:24
Charlie Munger
Well, they're starting to do it. The endowments have started to say to all these people that judge three and 30 or whatever they charge, they said, we'll pay your three and 30. We're going to put in twice as much money, and then the next half, you'll get nothing on it. We're just going to ride Perry Pasu and some of your investments. So the fees go down by 50%. That'll take a lot of the fun out of it. Fees down 50%. And that's happening all over America, they feel, had misled, irritated. They've looked foolish to their own trustees.

26:05
David Rosenthal
One of the issues, I think, investing right now, you mentioned it about venture capital, but I think it's true everywhere. It's like there's just so much capital and so much competition. We're so far removed from the cigar butt era. We're in the opposite of the cigar butt era these days.

26:21
Charlie Munger
Are there opportunities? Somebody will find a few things, but it gets harder and harder. I would argue one of the easiest ones was when they decided a little group around home depot. They would copy the Costco medal and home improvements. That was basically a good idea. And think of the money they made doing it. Yeah.

26:46
David Rosenthal
Bernie Marcus.

26:48
Charlie Munger
Yeah, that was a direct copy of Costco.

26:53
Ben Gilbert
Do you think there are more opportunities to copy Costco?

26:55
Charlie Munger
Well, there was another one at Costco. Floor and decor is the current imitator, and it's just in wood imitating vinyl flooring. They're running a Costco model, and they keep adding miscellaneous stuff to it, too.

27:15
Ben Gilbert
It's the miscellaneous stuff that'll eventually kill you, though.

27:19
Charlie Munger
Well, it would be simpler if it was all.

27:24
David Rosenthal
Like the vertical. Home Depot worked so well, but I don't know that it was totally obvious. Like, part of the appeal of Costco was it was horizontal. It was everything. Consumers could come. They could make a trip, bring their big wagon, bring their big truck.

27:40
Charlie Munger
Nobody was the same. They copied everything famously.

27:45
David Rosenthal
Bernie Marcus came out to visit Saul before it.

27:48
Charlie Munger
No, they came out. They copied everything.

27:50
David Rosenthal
Saul was, like, happy to share the playbook with everybody. Right.

27:54
Charlie Munger
How did Jim and you feel about that? Saul was not a crazy. He was domineering and so on, but he was also very intelligent. But there aren't many opportunities like Home Depot and Costco. There aren't very many.

28:15
Ben Gilbert
Why do you think Walmart hasn't been successful once they saw Costco in competing.

28:22
Charlie Munger
They were too wetted by the ideas they already had. That's everybody's trouble. You just can't accept a new idea because the place space is occupied by an old idea. They got in the habit of getting the real estate, practically nothing, because they went in little towns where nothing was valuable. So their occupancy costs were, like, zero. And they knew how to make big fishing stores. That was their formula. So it offended them to go against the rich suburbs and have to pay out for the good locations. And Costco just specialized in the good locations where the rich people lived, and Walmart just let them do it year after year. Was a terrible mistake.

29:00
David Rosenthal
Did you know Sam Walton?

29:04
Charlie Munger
No, never met him. I knew the son, one of the sons, and they divided it, know, in about six parts, very early.

29:13
David Rosenthal
Yeah, Walton Enterprises.

29:15
Charlie Munger
So they never paid much gift, taxes or anything.

29:18
Ben Gilbert
The topic then turned to the automakers and the future of the car industry.

29:23
Charlie Munger
Look how hard it would be to go into the auto business and have some big killing. Who's going to win? Who knows? The whole thing has been thrown way up in the air by all these electric cars, all those big new capital requirements, different ways of selling cars. And plus they got these tough unions. See, I just don't even look at the auto industry.

29:48
Ben Gilbert
Do you think it's more investable today than it was 50 years ago because of the disruptive innovation of electric.

29:55
Charlie Munger
Well, for maybe for one or two electric cars that are really good at it, maybe, but certainly nobody else.

30:05
Ben Gilbert
So you think BYD too tough?

30:07
Charlie Munger
Byd was a miracle. But that guy works 70 hours a week and has a very high iq. He can do things you can't do. He can look at somebody else's auto part and you can figure out how to make the goddamn thing. You can't do that. You see, Charlie, you invested a Hyundai. Yes, but they're clever, too.

30:27
Ben Gilbert
How was that investment for you?

30:29
Charlie Munger
I lost money. Not much, because I was stubborn. I held out until it got back to almost what I paid for it, and I sold it.

30:37
Ben Gilbert
There's been a lot of discussion about Berkshire's investments in the japanese trading houses.

30:42
Charlie Munger
Well, but that is a no brainer. Something like that. If you're as smart as Warren Buffett, maybe two, three times a century, you get an idea like that. The interest rates in Japan were half a percent per year for ten years, and these trading companies were really entrenched old companies, and they had all these cheap copper mines and rubber foundations, and so you could borrow for ten years ahead all the money, and you could buy the stock and the stocks. We had 5% dividends, so there's a huge flow of cash with no investment, no thought, no anything. How often do you do that? You'll be lucky if you get one or two a century. We could do that. Nobody else could. It looked attractive at half or something, but you couldn't get it. But Berkshire, with his credit, could.

31:43
Charlie Munger
But the only way you could get it was be very patient and just pick away at little pieces at a time. It took him forever to get $10 billion invested, but it was like having God just opening a chest and just pouring money into it. It was awfully easy money.

32:02
Ben Gilbert
It's interesting that it's paradoxial. You need Berkshire's credit, but at Berkshire's scale, it's actually hard to put enough money to work.

32:09
Charlie Munger
That's true. But why shouldn't it be hard to make money? Why should it be easy?

32:15
David Rosenthal
Japanese trading companies. Reminds me, we studied another company recently. Nike.

32:22
Charlie Munger
Company. Yeah.

32:22
David Rosenthal
Did you ever look at it?

32:23
Charlie Munger
Style company. Of course I've looked at it, but I don't like style companies.

32:30
Ben Gilbert
Too fad driven.

32:32
Charlie Munger
Well, I suppose if RB Hermaids is achieving a price, I'd buy it. But short of that, I'm going to buy a new style company.

32:38
Ben Gilbert
Ooh. That's a good pick to the style points.

32:41
Ben Gilbert
Another one that they covered was LVMH. What Arno has done has been amazing. So what do you make of that company?

32:49
Charlie Munger
Well, if you're as good as they are, what they've done, you have a lifetime to do it in, or now. A lifetime, really. Three or four lifetimes to do it in. You can create another, but it's not easy.

33:00
David Rosenthal
Hermes is on the 8th generation, I think, now the family running it's.

33:06
Charlie Munger
Not a bit easy. They have meetings every day where they make policy decisions and they choose the locations one at a time. And it's work.

33:15
Ben Gilbert
It's definitely work. What do you think the durable value is in these, as you say, style companies of the very best one in the world, the Hermes or the LVMH. What makes them enduring?

33:27
Charlie Munger
Well, they just got a brand people trust so much, it took them centuries to do it.

33:35
Ben Gilbert
Our conversation then turned to comparing Kirkland's signature as a brand to Hermes.

33:41
Charlie Munger
Kirkland is a brand the way tide is a brand, and Hermes is a different kind of a brand. Yeah.

33:50
Ben Gilbert
Ferrari doesn't make detergent.

33:53
Charlie Munger
No.

33:54
David Rosenthal
We've spent a lot of time studying these brands. How do you look at the value of a brand.

34:01
Charlie Munger
Well, it's hard for us not to love brands since were lucky enough to buy the seas candy for $20 million as our first acquisition. And we found out fairly quickly that we could raise the price every year by 10% and nobody cared. We didn't make the volumes go up or anything like that, just made the profits go up. So we've been raising the price by 10% a year for all these 40 years or so. Wow. It's been a very satisfactory company. We didn't require any new capital. That was what was so good about it, very little new capital. We had two big kitchens and a bunch of rental stores when we bought it, and now it's got two big kitchens, a bunch of rental stores. Well, Charles, he was a playboy and his brother ran the company, his older brother, and dominated it completely.

35:02
Charlie Munger
But when he died, Charlie made his brother his executor, and now he needs a lot of money to pay death taxes. He doesn't have it and it's know, eight months or something later. And so they really wanted to sell so they could pay the death taxes. And Steve was only making 4 million free tax when we bought it.

35:25
Ben Gilbert
And so that buying opportunity only came about because the family needed liquidity to.

35:29
Charlie Munger
Pay that death tax. Right. We only found out about it because Charlie C. Was on his cruise to Hawaii or something with this guy was a client of investment counselor that also worked for blue chip stamps, who was the company that bought it. And anyway, that's how we found out about it. We paid that guy a finder's fee even. We've never paid one since. It was worth it, of course, but you don't want a bit of reputation for paying finders fees. Everywhere in the world will be bothering you all day long.

36:05
Ben Gilbert
So what do you think? So there are categories like Steve's or like Hermes where brands lead to pricing power.

36:14
Charlie Munger
I think your chances of buying one of them is so low, I wouldn't even look. I only believe in looking at things that I might find you're not going to get a chance to buy.

36:25
Ben Gilbert
No curiosity.

36:28
Ben Gilbert
But why do you think there are extremely well known brands in other categories, maybe packaged food or something.

36:34
Charlie Munger
Where there are a lot of professional investors that buy nothing but branded goods. And the one they usually start with is nestle and they've done two or three points better than average, but it's not a bonanza.

36:52
David Rosenthal
After that, our conversation turned to Kraft Heinz and why Heinz is able to have pricing power while Kraft is not.

36:59
Charlie Munger
It was very interesting. There's something about the flavor of ketchup on a goddamn fried potato. People are really willing to change brands over. They want Heinz, and so we could raise the price of Heinz pretty much. But you try and raise the craft cheese, and everything goes in rebellion, including the final customer of the housewife. They don't care that much about whether the cheese is craft or not.

37:28
Ben Gilbert
Why do you think that? Is that some.

37:31
Charlie Munger
The sauce flavor. It's happened elsewhere in Korea. One guy, chinese guy, controls all the sauces, every single major sauce. He controls at least 95% of.

37:43
Ben Gilbert
And it's because sauces have such a particular flavor that no one can imitate. The trade secret.

37:48
Charlie Munger
Yeah.

37:49
Ben Gilbert
And that gives pricing.

37:50
Charlie Munger
We'll get used to it. You like it?

37:52
Ben Gilbert
Is that Coca Cola as well?

37:54
Charlie Munger
Yeah, sure.

37:55
Ben Gilbert
Charlie, I'm curious. At age 99, what is something that you believe today that 70 year old Charlie would have disagreed with?

38:06
Charlie Munger
I think I knew when I was 70 that was plenty hard, but it's just so hard. I know how hard it is now. And all these people who are getting this two and 20 or three and 30 or whatever, they all talk, as always, easy, and they get to believe in their own bullshit. And, of course, it's not a bit easy. It's very hard.

38:32
David Rosenthal
If you were back 30 or 40 years old again today, would you decide to go into the investment business again?

38:38
Charlie Munger
Oh, probably because it suits my nature, but I didn't really enjoy the three and 30 business once I had enough money on my own. I'd rather just operate with my own money. That is a much better way of doing it than because of the freedom. Be forced to deal with investment bankers, be forced to deal with investment consultants, be forced to deal with venture capital. You don't want to need other people. The point of getting rich is you don't have to need other. You don't have to get one.

39:13
Ben Gilbert
Charlie, if you started with Warren today, and you're both 30 years old, do you think you guys would build anything close to what Berkshire is today?

39:24
Charlie Munger
The answer is no. We would. We had everybody. That has an unusually good result. Almost everything has three things. They're very intelligent. They've worked very hard. They were very lucky. It takes all three to get them on. This list is uber successful. How can you arrange to have two of the answers of good luck? The answer is you can start early and keep trying a long time, and maybe you'll get one or two.

39:52
Ben Gilbert
If you were starting again today, do you think insurance would still be the vehicle?

39:56
Charlie Munger
It depends on your temperament. Insurance would be ideal. For a certain kind of a temperament. And it takes a very patient person to get rid of insurance. Takes forever to get anything. And it takes forever to push anybody aside. It's very hard to make money.

40:15
Ben Gilbert
I've heard you say as soon as you're wealthy enough to self insure, you should. Is there any insurance?

40:21
Charlie Munger
That's practically everything. Think of all the crumbs of the world that drink too much and then file big claims with the insurance company when the place gets on fire or something. Why would you want to pay your share of their stupidity?

40:38
Ben Gilbert
Not to mention the overhead. Of course the insurance company needs to pay all the people that work.

40:42
Charlie Munger
No. No. It's crazy.

40:45
Ben Gilbert
Is there any insurance that you carry today?

40:48
Charlie Munger
I carry no fire insurance anywhere.

40:51
Ben Gilbert
Do you carry auto insurance?

40:53
Charlie Munger
Yeah, I have.

40:55
David Rosenthal
Yeah.

40:56
Ben Gilbert
I don't know. Charlie could.

40:58
Charlie Munger
No, I have to and I do.

41:00
Ben Gilbert
I'm curious, being that since these guys are very tech focused, I'm curious, not being a tech person. How did you think about the Apple investment and what gave you the conviction to be so big?

41:12
Charlie Munger
What everybody has learned is that everybody needs some significant participation in the twelve companies that do better than everybody else. And you need two or three of them, at least. And if you have that mindset, Apple was a logical candidate to be on the list for which you're going to select your companies. And it's not very hard to come up with the idea that it may be okay.

41:44
Ben Gilbert
Making the list doesn't sound too hard. In fact, there are these acronyms. Fang or know, Microsoft, Apple, Google, Facebook. But selecting the one and putting hundreds of billions of dollars into it to create hundreds of billions of value, that, to me, sounds hard to pick the one. How did you guys pick the one?

42:06
Charlie Munger
We couldn't find anything else.

42:10
David Rosenthal
Was it valuation?

42:11
Charlie Munger
Yeah, it got cheap. It got about ten times earnings, went more, and bought it.

42:16
Ben Gilbert
2015, I believe, was the first. It's fascinating to me, this concept of, if you look at distressed debt or you look at, I think Warren in the last Berkshire letter pointed out, it's been a handful of really good decisions. Or you look at venture capital, that's classically power law distributed, any of these asset classes comes down to a few really good decisions with high conviction over an entire career.

42:38
Charlie Munger
Yeah, that's exactly what. Exactly the way it works.

42:42
Ben Gilbert
It's not smooth. There's no asset class where you can.

42:45
Charlie Munger
Repeatedly just do low hanging for the idiot. It's not gone, but it's very small.

42:55
Ben Gilbert
You mentioned this idea that when were talking about Apple, there's a few companies that it's just really important to be in. Do you think these big tech companies being the winners, where all of the pensions and Berkshire and university endowments and everyone's 401 ks being concentrated in these companies, do you think that was the natural outcome? Did we have to end up this way?

43:18
Charlie Munger
Yeah, it was natural. That's why it happened. It was natural.

43:23
Ben Gilbert
What causes that?

43:25
Charlie Munger
Well, that's what human nature and competition, that's what it causes.

43:31
Ben Gilbert
Will we eventually have one?

43:34
Charlie Munger
Eventually? This craziness in venture capital when they're all gone stupid, that's a natural outcome.

43:42
Ben Gilbert
Will we have 120 trillion dollars companies and then the next biggest company is going to.

43:49
Charlie Munger
I didn't know we're going to have as much as we did, he said they just happened.

43:55
Ben Gilbert
Would you continue investing in China? What's your position with that?

43:59
Charlie Munger
Well, my position in China has been that the chinese economy has better future prospects over the next 20 years than almost any other big economy. That's number one. Number two, the leading companies of China are stronger and better than practically any other leading companies anywhere. And they're available at a much cheaper price. So naturally I'm willing to have some China risk in the Munger portfolio. How much China risk? Well, that's not a scientific subject, but I don't mind whatever it is, 18% or something, whatever's worked out in the Munger family, it's okay with me.

44:42
Ben Gilbert
What about other geopolitical considerations? Like would you hold TSMC at this point?

44:48
Charlie Munger
Well, I don't like that as well as I like something with a real consensus owner brand of its own, like Apple.

44:54
Ben Gilbert
I'm curious, what major companies that haven't been mentioned. Do you think people would do well to study the virtues of. Like studying the virtues of Costco?

45:02
Charlie Munger
Well, I only study two kinds of companies. One, I'm enough of a Ben Graham follower. If something is really cheap, even though it's a crappy company, I'm willing to consider buying it for a while anyway. And I do that occasionally and I've done it with great success a time or two, but I'm like hard marks. I've done it once or twice in my lifetime for big gains and that's it. It's not like I have what I did, I've done 100 times, so it isn't a bit easy. 100 times easy money is almost nonexistent.

45:39
David Rosenthal
One type of company is the cigar butt. What's the other type of company?

45:45
Ben Gilbert
The companies that people would do well to study.

45:48
Charlie Munger
The virtual brand companies of course are good get them at the right price. The whole trick is to get them on the few rare occasions when they're really cheap. But buying Costco at its present price, it may work out all right. But again, it's getting hard.

46:06
Ben Gilbert
Yeah, forgetting the prospects, the stock.

46:08
Charlie Munger
How do you think about the next ten years for the business? I think I'll do pretty well.

46:13
Ben Gilbert
One more question for you in this area. What is your favorite advice to give to young people?

46:21
Charlie Munger
Well, I don't give advice to just any young people. I give some. I pick my spots. I don't want to be more of a guru to the young people than I already am. It's getting hard out there and there's all this bullshit and craziness. Of course it's going to be hard.

46:40
Ben Gilbert
Where do the attractive opportunities hang out anymore? It sounds like everything in the whole world is overpriced. Could that be possible?

46:46
Charlie Munger
Damn near. Of course it could be possible. It's not only possible, it's likely and it's actually happened.

46:51
Ben Gilbert
How did the world get so rich if we have all this capital for so few opportunities?

46:55
Charlie Munger
It's the nature of things. Look at biology. Produces a very advanced creature like us. You can sit around and talk intelligently in all these subjects, but it does it by killing everybody off in brutal competition, one with the other, for hundreds of thousands of years. In other words, the system that nature uses to get smart is kind of unpleasant to the people who are losing.

47:19
Ben Gilbert
So over the last hundred years we've brutally shifted all this value from labor to capital. And now capital is all competing to get into a very small set of opportunities.

47:29
Charlie Munger
Well, capital never. It wasn't that it was all that easy. You go back a long time, it just was a lot easier.

47:39
Ben Gilbert
And if it continues to get harder, the natural end is that you have.

47:43
Charlie Munger
Yes, an unpleasant blow up of some kind. And God knows what happens after an unpleasant blow up. With our modern democracies you can get to your like Europe, which is quite dysfunctional.

47:55
Ben Gilbert
Is it too pessimistic of a view to say that the world seems to be out of good ideas to match the amount of capital out there looking for good ideas?

48:05
Charlie Munger
It was never easy. It's thoroughly understood. It was never easy. And it's harder now. Those are the two. And you pay attention that you're handling the people you deal with. You want a good reputation when you're old and not a bad one.

48:20
Ben Gilbert
And I don't think you're saying there are no opportunities whatsoever. I think you're low expectations, fewer bonanzas.

48:29
Charlie Munger
Now, the beauty of it is, you only have to get rich once. You do not have to climb this mountain four times. You just have to do it once.

48:38
Ben Gilbert
Well, that's sort of your philosophy on.

48:39
David Rosenthal
Both sides, is you got to be.

48:40
Ben Gilbert
Patient for the great opportunities, but you got to recognize them when they come and pounce.

48:46
David Rosenthal
We turned off the mics to have dinner and then recorded a little bit more later in the evening about Costco and some life advice from Charlie.

48:53
Ben Gilbert
So, one Costco question that I've been wanting to ask you is all the puzzle pieces of the low sKU count and the high inventory turnover, and there's just so many things that fit together so beautifully.

49:04
Charlie Munger
They're pretty obvious, though.

49:06
Ben Gilbert
But how come no one else can pull it off if they're so obvious?

49:09
Charlie Munger
Well, it takes a lot of good execution to do it. You really have to set out to do it and then do it with an addicism every day, every week, every year for 40 years. It's not so damned easy.

49:23
Ben Gilbert
So you think the success is the magic of the business model and culture?

49:27
Charlie Munger
Yes. Culture plus model. Yes, absolutely. And very reliable, hardworking, determined execution for 40 years.

49:38
David Rosenthal
I mean, they talk about the story of the catch up, that you could increase the price of catch up by 3% and nobody would notice. But that would destroy everything if you did that right.

49:50
Charlie Munger
I would say that the central norm was, don't raise the market, get it low, and keep it there forever.

50:00
David Rosenthal
Which brings us to the hot dogs. Is it true the story that when Craig took over as CEO, he did try to raise the price of the hot dogs?

50:12
Charlie Munger
I don't know. I had no conversations with him on that subject.

50:17
David Rosenthal
And Jim forbade him.

50:19
Charlie Munger
Well, I'm sure Jim would have forbade it, absolutely.

50:23
David Rosenthal
There was no board level discussion of the hot dog.

50:26
Charlie Munger
No. Those two would not have thought it was a board matter to discuss the price of hot dogs.

50:32
Ben Gilbert
The one thing that fascinates me about Costco is they seem to only be able to grow 10% per year because they're not capital constrained. No amount of money. If they were to access it for free.

50:43
Charlie Munger
Could I tell you what is it is hard to open too many stores a year. New store, new manager, new this, new politics. It's hard. Plus, a lot of stuff has to be learned and taught and put in place. And so they didn't want to do more than they could comfortably handle store openings.

51:05
David Rosenthal
You mentioned China earlier. Was it 20 years that Costco had the license to operate in China?

51:12
Charlie Munger
What happened there? The first store they tried to open in China. The first store, somebody wanted a $30,000 to bribe chinese culture, and they just wouldn't pay it. And that made such a bad impression on Jim Senegal. He wouldn't even talk going into China for about 30 years thereafter.

51:33
David Rosenthal
So what changed? Why finally go in?

51:35
Charlie Munger
Well, finally the board started making enough noises.

51:39
David Rosenthal
You started agitating.

51:41
Ben Gilbert
Yeah. Who on the board could be excited about the chinese market?

51:45
Charlie Munger
Yeah, who knows? Oh, that's so great.

51:52
Ben Gilbert
One thing I found fascinating about Costco was the fact that even though they're the lowest possible prices, their audience skews wealthy. Was that an accident that they figured out over time, or did they know all the way back in the price club days?

52:10
Charlie Munger
Yes. He always wanted the rich man trying to save money.

52:15
David Rosenthal
Well, and it's not just that they're the wealthiest customers. They're smart wealthy. Yeah, they're picky, wealthy customers on some.

52:23
Ben Gilbert
Topics that are outside of Costco. You mentioned in the daily Journal annual meeting this year that a young man knows the rules and an old man knows the exceptions.

52:32
Charlie Munger
Yeah, that's an old saying of Peter's.

52:34
Ben Gilbert
Oh, is that a Peter Kaufman?

52:35
Charlie Munger
Yeah.

52:36
Ben Gilbert
What are some of the exceptions that you've found the most useful in life?

52:42
Charlie Munger
Well, take those goddamn Costco hot dogs. That's an exception. Anybody else would have raised the price of hot dogs a long time ago. They just don't do it. They just know that it's half famous, and people bring their kids in. They know they've got something going there that's worth extra money to, and they just don't destroy it.

53:04
Ben Gilbert
A thing that I've never fully understood. I know you're a big fan of the company Byd. That, of course, makes the chinese company that makes batteries and electric vehicles.

53:13
Charlie Munger
I may be a big fan, but I'm sort of hanging on by my hat while he lurches around the track, and they make me nervous. It's so aggressive.

53:25
Ben Gilbert
Is that dangerous in a company?

53:28
Charlie Munger
That's what makes me nervous. Of course it's dangerous.

53:31
Ben Gilbert
So do you think that companies should try to grow at a lower rate than they're capable of in order to be more durable?

53:41
Charlie Munger
Well, of course you do that if it's safer and easier and so forth. But I would argue Costco, where they've done some of these things that are extreme like that, it's been a plus, and they've been smart to not to change their ways one item or two.

53:59
Ben Gilbert
And it seems like there's a spectrum where on the one side there's Costco that is just not a fast growing company because it's very difficult to. And on BYD, like you're saying, they grew like crazy. I mean, you turn BYD.

54:14
Charlie Munger
This year I saw at least two and a half million cars, most of them electric. That's unheard of. They'll sell way more than Mercedes, for instance.

54:24
David Rosenthal
More than Tesla, right?

54:25
Charlie Munger
Yeah, more than. Lots of troubles and losses. They ran into terrible trouble. They created the wrong grant. They made lots of mistakes. They were lucky. They'd be on the cutting edge of this electric car business. It's way more acceleration than most people. She had a car with more oomph than most people. So the young macho male has a real lively car. There are a lot of things electric car really works in some ways that is better at making a 90 degree turn, go right opposite a parallel part of your place and just move this way, turn the wheels 90 degrees and go in. Yeah, well, nobody's ever done that. If your car goes flat, you could run 100 miles on three other wheels or something.

55:15
Ben Gilbert
And do they have better economics because they don't have nearly as many parts.

55:19
Charlie Munger
It's simpler.

55:21
Ben Gilbert
Have you ever had an investment like that before? I think you've invested something like 270,000,000 that's now worth something like 8 billion in BYD.

55:30
Charlie Munger
Well, very few people have an investment. That's a venture capital type investment. It happened to be a thinly traded public company when we bought it. Instead of a venture capital type company, there was a venture capital type play, and they just went. Put the foot right to the floorboard and played it hard. Had they manufactured, by the way, both BYD. And we tried to talk out of going into the car business. They're going to buy a bankrupt car business and go into the car business. I said, that's a graveyard for human oaths. Why would you want to do that? And he paid no attention to us and went right ahead.

56:11
Ben Gilbert
Had you invested already when he told you this plan?

56:14
Charlie Munger
Yes, and it worked fabulously well. After huge mistakes, they almost went broke with their early dealership building system. Almost went broke.

56:27
David Rosenthal
What captivated you about by guy was a genius.

56:31
Charlie Munger
He was at a phd in engineering, and he could look at somebody part. He could make that part. Look at the morning and look at it in the afternoon. He could make it. I'd never seen anybody like that. He could do anything. He is a natural engineer and a get it done type production executive. And that's a big thing. It's a big lot of talent to have in one place. It's very useful. They've solved all these problems on these electric cars and the motors and the acceleration, braking and so on.

57:07
David Rosenthal
How would you compare him and BYD to Elon and Tesla?

57:11
Charlie Munger
Well, he's a fanatic that knows how to actually make things with his hands, so he has to. He's closer to ground zero. In other words, the guy at BYD is better at actually making things than the Kennedy Elon is.

57:27
Ben Gilbert
Charlie, you turn 100, which is an unbelievable statement, on January 1 of next year. Do you have any plans?

57:36
Charlie Munger
I'm going to party.

57:40
David Rosenthal
Where's the party going to be?

57:41
Charlie Munger
The California club, but I've totally maxed out the room. I can't squeeze another person.

57:49
Ben Gilbert
What captivates you these days? What's fun?

57:52
Charlie Munger
Well, practically everything is, even politics, bad as it is kind of interesting.

57:59
David Rosenthal
When you look back at your and Warren's time together. When did you have the most fun?

58:04
Charlie Munger
We had about the same amount of fun all the way through. We're having fun now.

58:10
Ben Gilbert
Is there a particular era that you remember the most fondly? That feels like the good old days?

58:15
Charlie Munger
Well, were sweating blood in some of those good old days.

58:19
Ben Gilbert
Oh, I mean, Solomon brothers.

58:21
David Rosenthal
Solomon brothers.

58:22
Charlie Munger
Yeah. There were a lot of close misses. We got out with a big problem with Solomon. We could have had a big loss.

58:29
David Rosenthal
We could have had more problems than just a loss with Solomon. Right.

58:33
Ben Gilbert
Well, actually, when we examined Berkshire Hathaway on our podcast, our takeaway was that the whole franchise was at risk during Solomon Brothers, the entire Berkshire Hathaway name and future. Would you agree with that?

58:47
Charlie Munger
Not so much. You would have survived if you would.

58:51
Ben Gilbert
Let the whole investment in Solomon go to zero.

58:53
Charlie Munger
It would have. If it all blown up and went to zero, we would have written it off and gone and done pretty well.

59:02
David Rosenthal
What do you consider it to be your finest hour?

59:07
Charlie Munger
Well, we like to remember the close misses for getting real terrible problems. We had a terrible problem with the Buffalo News.

59:18
Ben Gilbert
The Buffalo Evening News brawl.

59:20
Charlie Munger
Yeah. There are two newspapers in that town, and we started a Sunday edition, and that started a holy war, and the other guy went broke. We could have a lot of bad publicity over that.

59:32
Ben Gilbert
And you were both pretty young and enterprising at that point. You weren't the Warren and Charlie of.

59:38
Charlie Munger
No, but I was very aggressive about wanting to have a good Sunday edition. I didn't want to own the paper for 50 years. There's no Sunday edition when the other guy had one.

59:48
Ben Gilbert
What made the newspaper business so attractive at that point in history?

59:52
Charlie Munger
It was a gold mine. That's attractive that time. Total gold mine.

59:56
David Rosenthal
Well, and the play in particular with the Buffalo Evening News and the Sunday edition was playing for the local monopoly, right. To be the game in town. And with newspapers, you could do that?

01:00:07
Charlie Munger
Sure.

01:00:09
David Rosenthal
I mean, newspapers for decades had EBItda margins in the 50, 60% range, right?

01:00:17
Charlie Munger
No, only the little ones.

01:00:18
David Rosenthal
Only the little ones?

01:00:19
Charlie Munger
Yeah. The big ones are less 30 or 40 or 25.

01:00:25
David Rosenthal
I said EBITDA in your presence.

01:00:26
Charlie Munger
I apologize.

01:00:27
David Rosenthal
Cash flow margins, actually.

01:00:28
Ben Gilbert
Do you still feel that EBITDA is a criminal, the way that you've demonized it in the past?

01:00:34
Charlie Munger
Yeah, I do. You have a big truck company and take the depreciation out of the trucks, out of the earnings. You've ever been lying about the earnings.

01:00:45
David Rosenthal
I mean, you witnessed its rise with Malone and TCI and Liberty when EBITDA was invented as a concept. Right. What were you thinking?

01:00:55
Charlie Munger
Well, I've never liked Malone's extreme manipulations. I don't want to be known as the great manipulator like John Malone is. He paid less income taxes than anybody. He just pushed everything to the dry launch.

01:01:11
Ben Gilbert
In many ways, EBITDA was the community adjusted earnings of its era. Are you familiar with the community adjustment from WeWork?

01:01:20
Ben Gilbert
Wework?

01:01:20
David Rosenthal
Oh, boy. Maybe. Final question to wrap up. What are the set of companies that you think are the greatest that you've ever seen, either that you've owned or that you've not owned?

01:01:34
Charlie Munger
Well, there are a lot of great companies. Santa Maze is a great company. In its heyday, General Motors was a great company. It just gradually went to hell, one contract at a time.

01:01:50
Ben Gilbert
What do you think about the predictability of. There were a number of companies back when you started where you could have said, this business will be the same in ten years. Do you think that number is the same today, or do you think it's much harder?

01:02:02
Charlie Munger
Most places have a lot of change in threat in their future.

01:02:06
Ben Gilbert
Do you think most places had a lot of change in threat in their future, even 50 years ago? And this story is over.

01:02:11
Charlie Munger
There's a difference, somewhat like always, specialized industrial companies, and Berkshire has a lot of them. We have a lot of companies that are quite insulated from really tough competition just because they've been so long and they're so good at what they do and has a good reputation and high value and so on. So what companies can you see today.

01:02:32
Ben Gilbert
Where you can confidently say, Berkshire aside, Costco aside, you can confidently say the business will be as good as it is today in ten years?

01:02:42
Charlie Munger
Well, I think a lot of companies are pretty good, but you can't confidently say what's going to happen because you may get some guy like Iger in that just wants to push everything and do the right public relations. So no matter how good the business is, it'll be kind of phony.

01:03:00
Ben Gilbert
Charlie, I have a personal question for you. David has a two year old, and I'm going to have my first child in a month. What advice do you have for us about building families?

01:03:14
Charlie Munger
Well, of course, you've got to get along with everybody. You got to help them through their tough times and they help you and so forth. But I think it's not as hard as it looks. I think half of the marriages in America work pretty damn well. And will it work just as well if both of us marry somebody else, by the way?

01:03:36
David Rosenthal
Well, you've said that the best way to have a great spouse is to deserve one.

01:03:40
Charlie Munger
Yeah.

01:03:41
David Rosenthal
As long as both parties feel that way, then it's a recipe for success.

01:03:46
Charlie Munger
Of course it is. And you've got to have trust with your spouse when it gets things like education of the children and so forth.

01:03:54
Ben Gilbert
Yeah, I love that. Well, Charlie, thank you.

01:03:58
David Rosenthal
Thank you, Charlie.

01:03:59
Charlie Munger
Good luck to has been.

01:04:02
Ben Gilbert
A lot of people are going to benefit a lot from hearing this and your wisdom, and they're going to learn.

01:04:06
Charlie Munger
So know, if you start to think about it's pretty hard. It doesn't look so damn easy just to go out. If you go to the ordinary person trying to promote himself as an investment advisor of some kind, he just thinks he knows everything about everything and how the Federal reserve should be run and so on. We don't feel that way.

01:04:26
David Rosenthal
I will say with the people we get to talk to who built great things, every single one of them says, it was so hard. It's so hard. You can't build something great without it being so hard.

01:04:38
Ben Gilbert
Charlie, thanks so much for doing this with us.

01:04:40
Charlie Munger
Glad to do it. It'll be an interesting life you're leading. You'll do pretty well at it, but it's not going to be that damn easy.

01:04:47
Ben Gilbert
David. Total life experience and complete boondoggle.

01:04:51
David Rosenthal
I can't believe we got to do this. I'm still pinching myself. It's now a couple of weeks after it actually happened.

01:04:56
Ben Gilbert
I know. With autographed copies of poor Charlie's almanac to prove it.

01:05:00
David Rosenthal
As if the podcast wasn't enough. And actually, for those of you who haven't listened back, what, in 2021? So two ish years ago, we did a whole three part series, just us, covering the whole history of Berkshire Hathaway. Part one is on Warren, part two is on Charlie, part three is on Berkshire and Ted and Tod all the way up through today. I assume many of you have listened to that, but there probably are a bunch of folks who haven't. So if you want another nine or 10 hours of acquired content on Berkshire, I really think it's some of, if not our best work. Go check those out with that.

01:05:35
Ben Gilbert
Listeners, our huge thank you to tiny for being the sole presenting sponsor of this episode. If you have or you know of a wonderful Internet business, you should reach out hi@tiny.com and just tell them that Ben, David and Charlie sent you. You can sign up for notifications of new emails every time an episode drops, and we'll be including little tidbits as we learn things after releasing episodes, corrections, updates, things like that, and teasing the next episode. Acquire FM Email listen to ACQ two this is typically where we talk about more up and coming companies who are earlier in their journeys, or ceos who are topic experts in important areas like AI search ACQ two in any podcast player. After you finish this, join the Slack acquired FM Slack and discuss with the whole acquired community.

01:06:25
Ben Gilbert
And if you want to get some of that sweet acquired merch that everyone's talking about, go to acquired FM store with that listeners. We'll see you next time.

01:06:34
David Rosenthal
We'll see you next time.

01:06:35
Track
Who got the truth? Is it you? Is it you? Who got the truth? Now close.