You are hereWit and Wisdom of Charlie Munger in Wesco's annual meeting 2009
Wit and Wisdom of Charlie Munger in Wesco's annual meeting 2009
Here are my notes from WESCO's annual meeting in Pasadena, CA on May 6th 2009. (This website has express copyrights on this article, so please link to us instead of copying and pasting our material.)
As always it was a sight to behold. A huge ballroom in Pasadena filled with around 1000 people from around the world flocked to listen to this man of wisdom, a living legend with 85 years of experience, with rapt attention.
Charlie on Wall Street and future of finance and investments:
He called the abusive practices in mortgage credit and consumer credit as "Legalizing armed robbery for the people under 25". You can imagine what the consequences would be in that case and now we all know what happened. He also insisted that Investment Banks should stick to their boring business models like market making, capital raising, stock broking. Investment banks and Hedge funds should not be allowed to play with leverage in Repo markets and overnight financing. The regulatory apparatus should be nimble enough to contain this kind of 'Craziness'. And the country does not need this kind of Craziness to succeed. He recommened the credit practices to be sound like Engineering because they form the foundation of Finance industry. He also commented on derivatives accounting practices where both the parties reported profits for a transaction.
He asked people to get felicity by aiming low. We can't expect double digit returns on your investments. But at the same time he also lamented finance professors who advocate diversification with mediocre returns. Phd's in Finance don't seem to add any value unlike Phd's in Physics and other hard sciences. As usual, he refused to speak on any specific advice for the investing public but he remains optimistic of the business universe as a whole. One can invest in social security and save and invest their remaining funds.
He mentioned that all the businesses that Wesco holds are gaining market share and Wesco will be in a comfortable position to take advantage of this downturn and come out as a winner ultimately. He cotinued his assurance on KO, WFC, BYD and other wonderful businesses.
Charlie on Intelligence, Politics and Corporate Governance:
According to him, smart people are the ones who avoid dumb mistakes. They ultimately come out winners if they make rational decisions. People should not only be trustworthy but also be smart in their judegement. At one point he mentioned that America should be run like Singapore, focussing on the results and meritocracy. We should strive for Professional Golf kind of competition in the business landscape.
He asked rich people to look at the possibility of volunteering for politics taking a cue from Benjamin Franklin, who was the role model for Charlie Munger. Ben Franklin volunteered his time for congressional activiies. University of Michigan and Notredame currently follow this kind of model with their trustees. This model should also be applied to the board of directors of all the publicly traded companies. Board of directors should not be paid to avoid conflicts of interest.
We all know how Berskshire is managed. It is the TRUST that matters.
Charlie on Energy and Ethanol:
Ethanol was the dumbest mistake by the indsutry where people did not take into account the inputs and outputs and cost benefit analysis. It was a true lollapalooza of failures. Now that the industry has realized the mistakes, it should just go down into the history books. SOLAR should be the future because of enormous reservoir of sunlight, almost infinite. But the world should be cognizant of Hydrocarbons and we should all try to save them. US should build a massive solar power grid and leavethe distribution logistics to the utilities players. It should be a level playing market. There is a possibility of bringing down the manufacturing costs for the SOLAR panels by 50% if the industry competes in innovation. And China stands in a very comfortable position to win the game in SOLAR. He also lamented the policy makers on CAP n Trade because it is not going to work in this interconnected global marketplace.
Charlie was full of praises for BYD CEO Chuan-fu Wang. Chuan-fu Wang was invited to the meeting and he was introduced by Charlie to the crowd. Charlie said China has what it takes to be the world leader this time around unlike their mistakes in the past. He predicted great future for BYD and Lithium batteries industry taking into account the inexpensive acquisition of Lithium which is available under the sea bed.
A Book Recommendation by Charlie:
He recommended 'Outliers' by Malcom Gladwell. He said that the author's thinking was impressive and examples bring lot of insight to the reader.