Charlie Munger

In a special episode of Acquired, hosts Ben Gilbert and David Rosenthal share their exclusive dinner conversation with the legendary investor Charlie Munger at his Los Angeles home, organized by Andrew Marks. At 99 years old, Munger's insights span nearly a century, covering his experiences with Costco, his views on building great partnerships, the current state of global securities markets, and the distinction between investing and gambling. The hosts reflect on the rarity of this recording, given Munger's prolific investment career alongside Warren Buffett and his limited podcast appearances. Munger candidly discusses the challenges of retail stock trading, the dynamics of venture capital, and his perspectives on investment opportunities, including his involvement in BYD and Apple. The conversation also touches on the future of the auto industry, the value of enduring brands, and Munger's advice on recognizing and seizing rare investment opportunities.

• The hosts, Ben and David, received various guesses from their audience about the guest for their latest episode.
• Some of the guesses included Charlie Munger, Warren Buffett, and Taylor Swift.
• The hosts jokingly invited Taylor Swift to reach out to them for publicity.

"People were like, it's Charlie, it's Warren, or it's Taylor Swift. And a lot of people were right."

The quote shows the audience's anticipation and the hosts' playful engagement with their listeners regarding the identity of the guest on their podcast episode.

• Charlie Munger is described as one of the most prolific investors of all time, partnering with Warren Buffett.
• At the time of the recording, Munger was 99 years old and close to his 100th birthday.
• The conversation covered a range of topics, including Munger's views on partnerships, global securities markets, investing versus gambling, and investment opportunities.

"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."

This quote emphasizes Charlie Munger's age and his significance as an investor, setting the stage for the breadth of experience and wisdom he brings to the conversation.

• Ben and David express that the experience of recording the podcast with Munger was special and memorable.
• They were uncertain if they would be able to record the dinner with Munger but were pleased to share the recording with their audience.

"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."

The quote reflects the hosts' appreciation for the rare opportunity to record their conversation with Charlie Munger and share it with their audience.

• The episode is specially sponsored by Tiny, a company modeled after the investment philosophy of Charlie Munger and Warren Buffett.
• Tiny is described as the Berkshire Hathaway of the Internet, acquiring niche businesses with great cash flows.
• The founders of Tiny, Andrew Wilkinson and Chris, took inspiration from Munger and Buffett's approach to investing.

"And that's tiny. Yep, Tiny is the Berkshire Hathaway of the Internet."

This quote introduces the episode's sponsor, Tiny, and aligns it with the investment principles of Charlie Munger and Warren Buffett, which is relevant given Munger's guest appearance.

• Munger does not believe that sports betting and similar gambling institutions are good for America.
• He compares sports betting to dog tracks and casinos, which are popular but not beneficial to society.
• Munger points out that Warren Buffett never gambled heavily and always sought favorable odds.

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

The quote captures Munger's disapproval of gambling as an industry, indicating his belief in its negative impact on society despite its popularity.

• Munger criticizes retail stock trading, likening it to gambling due to the lack of knowledge among traders.
• He suggests imposing a tax on short-term gains without offsets for losses to discourage such behavior.
• Munger discusses the use of algorithms in trading, specifically mentioning Renaissance Technologies' early strategy.

"Gambling, 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."

The quote highlights Munger's view that many retail traders are uninformed and treat stock trading like gambling, which he sees as a negative trend.

• Munger talks about his history with Costco and other retailers, describing his investment approach and observations.
• He explains how he met Jim Senegal and his attempt to get Warren Buffett to invest in Costco.
• Munger's anecdotes include stories about diversified retail and early successes in investing.

"We talked with Charlie, of course, about Costco, his history investing in retailers over the last 50 years."

The quote summarizes the podcast's discussion on Munger's experiences with investing in Costco and the retail sector over several decades.

• Munger shares insights on business models, specifically praising Costco's approach to retail.
• He emphasizes the importance of low prices, efficient store operations, and customer rewards.
• Munger also touches on capital-light business models and the strategic management of inventory and payments.

"Well, they really did sell cheaper than anybody else in America, and they did it in big, efficient stores."

This quote reflects Munger's appreciation for Costco's business strategy, which focuses on low prices and efficient operations, contributing to the company's success.

• Munger advises listeners to recognize when they have an edge and to bet heavily when they are certain they are right.
• He indicates that understanding and recognizing great opportunities may take time to develop.

"But when you know you have an edge, you should bet heavily. You know you're right."

The quote offers Munger's advice on investment decision-making, emphasizing the importance of confidence and the willingness to commit when one has identified a clear advantage.

• Business schools often neglect to teach the importance of heavily betting on one's best bets.
• Conviction in business decisions comes from extensive reading, thinking, and visiting.

"And most people don't teach that in business school. It's insane. Of course, you got to bet heavily on your best bets." "And how do you develop that level of conviction to know you work at it?" "You redo a lot of reading and thinking and visiting."

These quotes emphasize the gap in business school education regarding the necessity of focusing on one's strongest opportunities and the process of developing conviction through diligent research and analysis.

• Charlie Munger reflects on his long-standing partnership with Warren Buffett, highlighting similarities and shared goals.
• The stability of their relationship is attributed to similar attitudes and priorities, such as family safety and investor satisfaction.
• Munger notes that their partnership did not fundamentally change over the decades, with a continued focus on the safety of their investments.
• Leveraging more in their investments could have increased their wealth without significantly raising risk, but they chose not to compromise their secure position.

"We were both kind of similar, and we both wanted keep our families safe and do a good job for our investors and so on. We had similar attitudes." "No. Warren still cares more about the safety of his Berkshire shelters than he cares about anything else."

The discussion reveals the key to a successful partnership lies in shared values and objectives, as well as a mutual understanding of risk and safety in investment decisions.

• Munger acknowledges that the early days of his operation with Buffett had more easily recognizable investment opportunities, which he refers to as "low hanging fruit."
• He discusses the concept of leverage in business, using the example of opening a new store with no capital.
• The conversation shifts to venture capital, where Munger criticizes the current state of the industry, suggesting it often involves gambling on hot deals that require quick decisions.

"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." "If you open a new store with no capital, of course it's leverage. Who wouldn't want a business with no inventories?"

These quotes highlight the evolving landscape of investment opportunities over time and the inherent risks and strategies associated with starting new ventures and leveraging in business.

• Munger believes that venture capital plays an important role in society but criticizes its execution.
• He suggests that the relationship between venture capitalists and business operators is often strained, with many operators disliking their venture capital partners.
• Munger contrasts this with Berkshire Hathaway's approach, which involves long-term investment and a reputation for stability.

"No, I think it's very poorly done." "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."

Munger's perspective on venture capital is critical, pointing out the frequent disconnect between financiers and the entrepreneurs they are meant to support, and advocating for a more harmonious and stable investment approach.

• Munger advises on maintaining a successful partnership, emphasizing compatibility and complementary skills.
• He comments on the fee structures in fund management, critiquing the high fees charged by some venture capital firms and suggesting that endowments are pushing back against these practices.
• Munger discusses the challenges of investing in today's saturated market, contrasting it with past opportunities such as Home Depot's successful business model, which was inspired by Costco.

"Well, it helps if you like one another and enjoy working together." "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."

Munger's advice underscores the importance of mutual respect and shared visions in partnerships, while also critiquing excessive fee structures in investment funds and acknowledging the difficulty of finding lucrative opportunities in the current market.

• Munger discusses the auto industry's challenges and the improbability of making significant gains, especially with the advent of electric vehicles and new business models.
• He reflects on Berkshire Hathaway's strategic investment in Japanese trading houses, which capitalized on low-interest rates and entrenched companies with valuable resources.
• Munger expresses skepticism about fashion and style companies as investment opportunities, with the exception of highly successful brands like Hermès.

"Look how hard it would be to go into the auto business and have some big killing. Who's going to win? Who knows?" "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."

These quotes illustrate Munger's cautious approach to industries with significant challenges and his recognition of rare but straightforward investment opportunities that align with Berkshire Hathaway's strengths.

• Luxury brands like Hermes and LVMH have enduring trust built over centuries.
• They represent a unique category of "style companies" with long-term brand value.

Well, they just got a brand people trust so much, it took them centuries to do it.

The quote emphasizes the time and trust investment required to build a luxury brand with durable value.

• Kirkland is compared to Tide as a functional brand, while Hermes is considered a distinct luxury brand.
• The distinction between everyday consumer brands and luxury brands is highlighted.

Kirkland is a brand the way tide is a brand, and Hermes is a different kind of a brand.

This quote distinguishes between the utilitarian nature of brands like Kirkland and the exclusive appeal of luxury brands like Hermes.

• Brands can lead to pricing power, as demonstrated by See's Candies' ability to raise prices without affecting volume.
• The acquisition of See's Candies by Blue Chip Stamps is discussed, including the circumstances that led to the purchase.

We found out fairly quickly that we could raise the price every year by 10% and nobody cared.

The quote indicates the pricing power of a strong brand, which allows for consistent price increases without losing customers.

• Opportunities to acquire strong brands at reasonable prices are rare.
• Brands in certain categories, like sauces and beverages, have significant pricing power due to unique flavors.

I think your chances of buying one of them is so low, I wouldn't even look.

The quote suggests that the likelihood of finding acquisition opportunities for powerful brands at an attractive price is minimal.

• Heinz ketchup has pricing power due to its distinct flavor, unlike Kraft cheese.
• The importance of unique flavors in creating brand loyalty and pricing power is discussed.

There's something about the flavor of ketchup on a goddamn fried potato. People are really willing to change brands over.

The quote illustrates the strong consumer preference for Heinz ketchup, which allows for price increases without significant resistance.

• Charlie Munger reflects on the difficulty of successful investing and the false narratives of ease perpetuated by some in the industry.
• Munger expresses a preference for investing his own money rather than managing others' funds.

I knew when I was 70 that was plenty hard, but it's just so hard.

The quote reveals Munger's understanding of the challenges in the investment business, which have become clearer with age.

• Munger doubts that replicating Berkshire Hathaway's success today would be possible due to the unique combination of intelligence, hard work, and luck.

We had everybody. That has an unusually good result.

The quote acknowledges the extraordinary circumstances that contributed to Berkshire Hathaway's success, which are difficult to replicate.

• Munger discusses the suitability of insurance as a vehicle for wealth accumulation based on temperament.
• The slow pace of success in the insurance industry is noted.

It takes a very patient person to get rich in insurance.

The quote suggests that patience is a critical trait for those looking to build wealth through the insurance industry.

• Munger advocates for self-insurance once financially capable and criticizes the inefficiency of paying for others' mistakes through insurance.

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.

The quote criticizes the concept of insurance, where responsible parties end up paying for the recklessness of others.

• The necessity of investing in top-performing companies is discussed, with Apple being a logical choice.
• Munger explains the decision to invest heavily in Apple due to its valuation and potential.

What everybody has learned is that everybody needs some significant participation in the twelve companies that do better than everybody else.

This quote highlights the importance of investing in a select few high-performing companies to achieve significant returns.

• The concentration of capital in a few dominant tech companies is seen as a natural outcome of competition and human nature.
• Munger comments on the venture capital industry's irrational behavior and its potential consequences.

Yeah, it was natural. That's why it happened.

The quote suggests that the concentration of capital in leading tech companies is a natural result of market forces.

• Munger is optimistic about China's economic prospects and the strength of its leading companies, which are available at attractive valuations.
• The percentage of risk associated with Chinese investments in Munger's portfolio is deemed acceptable.

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.

The quote expresses Munger's positive outlook on China's economic future and his willingness to invest there.

• Munger discusses his investment approach, which includes buying undervalued companies, even if they are not high quality, and investing in strong brands when they are cheap.
• The difficulty of finding "easy money" opportunities in the current market is acknowledged.

Well, I only study two kinds of companies.

This quote outlines the two main types of companies Munger focuses on for investment opportunities.

• Munger is selective in giving advice to young people, emphasizing the challenges in the current investment landscape.
• He comments on the scarcity of attractive opportunities and the potential for market corrections.

It's getting hard out there and there's all this bullshit and craziness.

The quote reflects Munger's view on the increasing difficulty of finding good investment opportunities and the prevalence of misleading information.

• The success of Costco is attributed to its business model, culture, and consistent execution over many years.
• Munger discusses the importance of maintaining low prices as a core principle of Costco's strategy.

You really have to set out to do it and then do it with an atheism every day, every week, every year for 40 years.

The quote emphasizes the dedication and consistency required to replicate Costco's successful business model.

• Costco's growth is limited to around 10% per year, not due to capital constraints but operational challenges.
• The process of opening new stores involves finding new managers, dealing with new politics, and ensuring proper training and systems are in place.
• Costco's cautious approach to expansion is to maintain comfortable handling of store openings.

"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."

This quote emphasizes the logistical and operational difficulties Costco faces when opening new stores, which is why they limit their expansion to a manageable growth rate.

• Costco faced bribery in their initial attempt to enter the Chinese market, which deterred them for about 30 years.
• Eventually, the board's pressure led to Costco's entry into China.

"What happened there? The first store they tried to open in China. The first store, somebody wanted a $30,000 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."

This quote explains Costco's initial reluctance to enter the Chinese market due to a negative experience with bribery demands.

• Costco intentionally targets wealthy customers who are interested in saving money.
• Their customer base is not only wealthy but also smart and discerning.

"Yes. He always wanted the rich man trying to save money."

The quote reveals Costco's strategy of appealing to affluent customers who value the opportunity to save money on their purchases.

• The idea that young people know the rules, while older individuals understand the exceptions, is highlighted.
• Charlie Munger cites Costco's decision not to raise the price of hot dogs as an example of a beneficial exception to typical business practices.

"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."

This quote illustrates the concept of exceptions in business decisions, where Costco's choice to keep hot dog prices low is an exception that has added value to their brand.

• BYD's aggressive growth, especially in electric vehicles, is seen as both a cause for nervousness and admiration.
• Munger discusses the balance between safe, manageable growth and the benefits of aggressive expansion in certain cases.

"This year I saw at least two and a half million cars, most of them electric. That's unheard of."

The quote highlights BYD's impressive growth in the electric vehicle market, indicating the scale of their success.

• Munger reflects on the durability of investments and the importance of recognizing when a company's growth strategy is beneficial or potentially dangerous.
• He discusses the historical performance of his investment in BYD and the company's bold moves.

"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."

This quote refers to the unique nature of Munger's investment in BYD, which, despite being a public company, had the characteristics of a venture capital investment.

• Charlie Munger jokingly discusses his plans for his 100th birthday party.
• He reflects on the interesting nature of politics and the consistent enjoyment he's had throughout his partnership with Warren Buffett.

"I'm going to party."

The quote conveys Munger's lighthearted approach to celebrating his centennial birthday.

• Munger and Buffett faced numerous challenging times, such as the Solomon Brothers crisis and the Buffalo Evening News competition.
• These experiences are remembered as close misses that could have resulted in significant losses or worse.

"We remember we were sweating blood in some of those good old days."

This quote reflects on the difficult times that Munger and Buffett endured, which are now looked back upon as formative experiences.

• Munger discusses the changing nature of businesses and the challenges of predicting long-term success.
• He notes that while many companies are good, it's difficult to confidently predict their future due to potential changes in leadership and strategy.

"Well, I think a lot of companies are pretty good, but you can't confidently say what's going to happen."

The quote captures the uncertainty in forecasting the long-term performance of companies in a constantly evolving market.

• Munger advises on the importance of trust, cooperation, and mutual support in family relationships and marriage.
• He believes that many marriages work well and that being a deserving partner is key to a successful relationship.

"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."

This quote offers Munger's perspective on the foundations of a strong family and marital relationship, emphasizing the importance of mutual support.

• Munger expresses his continued skepticism of EBITDA as a financial metric, criticizing its potential to mislead about a company's true earnings.
• He reflects on the historical rise of EBITDA and his disapproval of those who excessively manipulate financial figures.

"Yeah, I do. You got to have a big truck company and take the depreciation out of the trucks, out of the earnings. You've been lying about the mean."

The quote criticizes the use of EBITDA in financial reporting, particularly when it excludes significant expenses like depreciation, leading to a distorted view of a company's earnings.