Charlie Munger, a 95-year-old investor, still maintained his usual straightforward and wise conversation style at the recent Daily Journal annual meeting. Munger laughed constantly at the meeting, and he kept saying golden sentences, conveying some ideas and philosophical thoughts about investment in a simple and easy-to-understand way. This article is Charlie Munger's speech at the Daily Journal annual meeting. Author: Charlie Munger
Q: You have a golden sentence that I particularly like. You said that when you are recruiting, if one person has an IQ of 130 but thinks his IQ is 120, and another person has an IQ of 150 but thinks his IQ is 170, you will choose the former because the latter can kill you.
Munger: Isn't this about Elon Musk? Of course I have to choose people who know their own weight, not those who overestimate their own abilities. I would choose this way myself, but I also learned a very important truth in life. This truth was learned from Howard Amanson. He once said, "Never underestimate people who overestimate themselves."
It is a very unpleasant part of modern life that arrogant people who overestimate themselves can occasionally achieve great things. I have learned to adapt. Arrogant people can occasionally become big winners, but I don't want a group of arrogant people to dangle in front of me. I choose cautious people.
Q: You said that although good opportunities are good, if you do it, you will suffer a lot. How can you not miss it completely and not overdo it? How can you avoid entering the market too late? How to judge whether a good opportunity has been overdone?
Munger: If you think about the problem thoroughly, the problem is half solved. You have already said that this is a contradiction: a good opportunity, when you first enter the market, has great potential; a good opportunity, if you overdo it, is full of dangers. You have this string clearly in your mind, what kind of opportunity, what type, you can classify it yourself. You have solved half of this problem, you don't need my help. You already know what to do. You must see both potential and crisis.
Q: In Berkshire's letter to shareholders, you also wrote about Berkshire's past and future, and you talked about several principles that made Berkshire successful. My question is, Berkshire, as a holding company, has followed some principles and achieved great success and excellent records. Why don't other companies learn from Berkshire?
Munger: I think the main reason is that it can't be learned. For example, a large company like Procter & Gamble has a long-standing culture and bureaucracy. How can you make Procter & Gamble like Berkshire Hathaway? This question can be directly classified as "too difficult". It's too difficult and it's hopeless.
People still don't realize how harmful bureaucracy is. One of the reasons why Berkshire can achieve today's achievements is that there are very few people at the headquarters. Berkshire does not have the problem of bureaucracy. Berkshire has several internal auditors, and the headquarters sometimes sends them out for inspections. In general, we don't have the problem of bureaucracy.
There is no bureaucracy, and the upper-level managers are clear-headed, which is our great advantage.
Q: My question is about long-term interest rates and compound interest. In the past few years, interest rates have been very low, and it is difficult to find a strategy to achieve long-term compound interest. In addition to investing in Berkshire, value investing, and index investing, where are the opportunities for long-term investment with high compound interest?
Munger: You asked me how to achieve the ideal high compound interest. My suggestion is to lower your expectations. I think it should be difficult for a period of time. It is good for you to make your expectations consistent with reality, so that you will not go crazy. We often hear people say that from the worst depression in hundreds of years to the present, the annual return on investment in stock indexes is 10%, not counting inflation. Excluding inflation, it is about 7%.
Over such a long period of time, 7% and 10% can open up a huge gap. Let's assume that the actual return is 7% per year. The timing of achieving this return is very perfect, just after the Great Depression and experiencing the most prosperous period in human history. Investing from now on, the actual return may only be 3% or 2%. In the future, people's annual return on investment is 5%, and inflation is 3%. Such a situation is entirely possible.
If this situation really happens, the correct attitude is to tell yourself: "Even if this situation happens, I can live well." In the era when we old people lived, how could you have better living conditions in the future? What do you have to be depressed about?
In addition to the correct attitude, if investing becomes more difficult in the future, what practical actions should you take? The answer is simple, because the difficulty has increased, you should work harder. Maybe you have worked hard all your life, and finally exceeded 5%, and got 6%, you should be happy.
Q: When analyzing a company, do you pay more attention to quantitative indicators such as investment returns, or qualitative factors such as brand advantages and management quality?
Munger: We pay attention to qualitative factors, and we also pay attention to other factors. In general, we pay attention to what factors are important in specific situations. What factors are important requires specific issues and specific analysis. We always follow common sense-common sense that ordinary people don't have. I just said that throwing a lot of things into the "too difficult" pile is one of the common sense that ordinary people don't have.
Q: I am still at a stage in my life where I don't know where my circle of competence is. I would like to ask you, how did you find your circle of competence?
Munger: It is very important to know the boundaries of your circle of competence. How can you be considered a circle of competence if you don't even know where the boundaries are? If you don't have the ability but think you have it, you will definitely make a big mistake. I think you have to always compare what you can do with what others can do. You need to always remain rational, especially don't deceive yourself.
From my life experience, the trait of rationally recognizing your own abilities is mainly determined by genes. I think people like Warren and me are born with it. Acquired education is important, but I think we are born with the personality required for investment success. I can't let you go back to the womb and be reborn.
Q: Many questions today are asking what is your secret to longevity and happiness.
Munger: This is easy to answer because the reason is very simple: don't be jealous, don't complain, don't overspend; in the face of any difficulties, always maintain an optimistic attitude, make friends with reliable people, do your duty... These are all simple principles, and they are all old-fashioned principles. If you do it, you will benefit from it for the rest of your life.
