雷德兰兹论坛问答（2020年2月）——社区文字记录

Charlie Munger @ Redlands Forum 2/7/2020 - Sponsored by ESRI Speakers: Charlie Munger, Jack Dangermond, Larry Burgess All transcription errors are my own, please enjoy.

Questioner Welcome everybody and Charlie welcome to our Redlands family well I'm glad to be here I always like these awkward moments you're supposed to step oh I'm supposed to start well listen ladies and gentlemen this is an amazing evening I've had the pleasure to spend I think three times with Charlie four times once at his house in Hancock Park and and then from time to time he comes to Redlands us it's not amazing and so I'll simply start with an interesting question I think it's an interesting question Charlie you have investments in a lot of places like mill Valley and Santa Barbara and you live in Hancock Park and sometimes you say that Pasadena is your second home and then you have various investments around Claremont and now investing here in Redlands. Why are you investing at Redlands what do you what do you think about Redlands I mean what is it that attracts you here I mean I can see a kind of pattern there Santa Barbara Mill Valley Pasadena Claremont and Redlands what is it?

Charlie Munger well I have a natural prejudice for this area because when I was at Caltech in I used to hang around here my first wife went to Scripps College and my sister went to Scripps College and so I'm very familiar with this area and of course I've interfaced a lot of the people who love these universities out here and so I I started with a very always like the orange trees against the mountains whatever I started with a deep prejudice yes and but my investments here happened by accident what happened was I live in a neighborhood which the ascetic Jews came into a few decades ago a very successful group of people and one day in the my house a very young seventeen year old as that he Joe came by and gave me the Hebrew Bible in Hebrew and you know Munger sounds like it could be a German Jewish surname and it means peddler in both German and English so it wasn't totally crazy first setting Joe to think that Munger could read the Hebrew Bible in Hebrew but of course I couldn't and I got to talking with him and one thing led to another and I saw there befriended avi and watched him grow up and and avi never went to college he has a mild attention deficit disorder but Ferociously high IQ and he was worried about it and I said avi I said don't worry about you don't need any college you're going to succeed vitalism well Avi now it has four children hugely successful business and I was right he didn't need college

Questioner and Avi is standing rather there stand up avi is

Munger Wave to the crowd Avi had a client his main client in his apartment management business and he was unhappy and and I think rightly so and so I said to him one day cuz I've gotten the like and trust AVI I said why don't you just get rid of that client you've gotten by a bunch of apartments for me and the first ones we saw were the ones I bought out here and that's how it happened and by the way there at the end of Alabama you know those beautiful apartments they're really amazing park you park you park you dare write

Questioner I think half of the occupants of those apartments work at Elstree

Charlie Munger so so one day I'm sitting there and he calls me he says could I come out and talk to you of course I didn't know exactly know who Charlie was so sure yeah okay and that's what began this friendship passionate amazing but we've had a fair amount of fun Avi and his partner Reuben and I and it's kind of creative to buy old apartments and fix them up and of course we have a philosophy that that properly cared for and the apartment management field is full of people who just milk the properties and do the very minimal and that's a stupid mistake if you're a long-term investor and avi and I share a belief that all these things should be immediately improved and I think in the first what year or something like that we spend $, on trees on just four projects

Questioner you've got my heart right there

Questioner was that a planted question? [bad dad joke haha]

Charlie Munger but Jack you're probably doing it out of love and I know how much better it's going to work for me so I don't deserve much credit because it's very much in my interest financially to plant all those trees now I would probably plant them anyway but I can't prove that that's how that's how we get came out here and of course I like I like the mountains like the trees and I like the people what I like these good colleges and I I didn't start out with the idea I picked Redlands out of the world it's just where this apartment project that caught my attention was and but once I was here I did not know there was an ESRI company I have made my way in life with a pencil and a pen calculating machine in the compound ever stable and I haven't looked at the calculus question since I was years old so I'm totally a creature of old-fashioned horse sense a little arithmetic and so I don't know about software companies like Ezra if I'd known I would have paid more for the project you know it's it's a huge blessing to go into communal is a big employer that keeps hiring and so forth then obvious so smart I didn't suggest that he started giving they're all kinds of rules of apartment-house operators about guarantees of leases and down payments and what-have-you and not every new employee of Eve Ezri qualifies and I'll be just one look at the situation and waves all those requirements for anybody that wants to work at ESRI Thank You avi I really appreciate that but there again he doesn't deserve any credit it's a smart business direct so he doesn't know whether he's being nicer being a greedy I do whatever I like these things were a confluence of two factors is working in the right direction yeah and but it I happen to think I share Jack's interest in the design and architecture which is an absolute accident my uncle was a graduate of the Harvard School of Architecture and I am a graduate of the Harvard Law School and I have done a fair amount of house building for myself and and building projects of various kinds in my long life and so it's kind of a hobby with me to do what Jack does professionally and so of course and I see this beautiful campus this very successful company and I'm also a total nut on the subject that the best way to get what you want life to deserve what you want and of course if you apply that the business that means you really take care of the customers and it's perfectly obvious that what's happened to ESRI would not have happened if it weren't terribly good taking care of the customers and of course that's again I don't deserve any credit for doing it and I know I make more money taking care of the customers I would if I were more short-term operator than operating em so yeah I don't on a masquerade as a better fellow I am because since it works so well I don't think it's it'd be nicer if I were mother Teresa do something I didn't like doing because lemon dough will sold but I can my life is organized a just time after time what works for my pocketbook works for every moral teaching I've I've been taught you know and I anybody was in such a possession it's very lucky and you people will work for a company like ESRI are hugely lucky too because there are a lot of employers that are defective one of the things

Questioner I have as a question as you have acquired many companies you and Warren together in your career you've looked at probably thousands what's the kind of philosophy that you have determining what's a good company and what's not a good company right I'm not suggesting that you had perfect success in all of your acquisitions because I know you have you told me that but what is it that what is your sort of philosophical rule base for when you're looking at organizations to invest in or acquire

Charlie Munger well we have a very peculiar way of looking at things we want to buy something that's intrinsically a very good business meaning there's an idiot cos Runner and it would do all right and then we want that business which an idiot could run successfully to have a wonderful person and running it and that we have a wonderful business with a wonderful person running it that really turns us on and it works very well and now we do make exceptions but not many and and it's a pretty simple philosophy Warren sometimes says you have to choose good person or good business you know what he says this is not politically correct he says good business he wants something that has such a such tremendous strength I had a friend why we practice law and he said if it won't stand a little mismanagement it's not much of a business and we like businesses that stand a lot of mismanagement but don't get it so that's our formula and it and we can't make it work perfectly but it certainly worked better than most people's things have been and then and we reject some wonderful businesses and some wonderful people where it's just too tough yeah you know I took on once I've been so lucky in life that I took on wants a job of a chairman of a non-profit Hospital because it was a losing hand too many competitors to weak position yeah a lot of terrible defects and I said you know this is good for me you know I am exposed myself to the disappointments of the real world and I want to say it was years mixed agony and pleasure and the agony never went away it was if the business is tough enough it hasn't way of staying tough as a warrants that says that when a business with a reputation for being tough and a manager with an opportunity for being brilliant get together he says it's the reputation of the business that remains and if they start tough they stay tough it's really hard to judge a whole business or a person well lot's of luck if you're coming with disappointed one of your children [Laughter]

Questioner yeah one time you mentioned that you have a particular way of making deals with people your friends business deals could you sort of express that to this crowd you know your sort of philosophy about do you try to win it all cause or what is

Munger well no no no again what really works in life is win-win and that requires some sensitivity to the other roles way of thinking and his needs to end but win-win is the only formula that that really will work on and on and on and when it really starts working when two people trust each other imagine take a operating theatre the Mayo Clinic the whole damn group trust one another there's not a lot of lawyers are cut you know they just know what to do and want to do it and who to call um for what helping everybody does what they're supposed to and so on so we're trying to get these win-win relations and of course I see it all the time Costco has this reputation I'm a director of Costco and Costco has this reputation of being a fairly tough buyer I don't regard them as that tough they there are a lot of people who are richest small compliers of Costco and but but Costco's into into win-win and and that that's what really works

Questioner yeah it's win-win with their customers but it's also win-win with their suppliers and it's also win-win with their employees absolutely everybody has to win land and Peter Kauffman you know else just it was here a few weeks ago didn't anybody see Peter he's the close friend of Peters the element win-win operator and the

Charlie Munger last person I want to compete with in life is Peter he just takes such good care of the customers I've never heard any complaint from Peters customers except his prices everything else about the business is perfect yeah

Jack (Questioner ) Larry do you have any questions? Larry Burgess (Questioner ) yeah I totally but I'm going to change it from the subjects you've been asking Jack and for warning spoiler alert we talked about this back backstage I think you have a surprising take on a question that I was asking about philanthropy in this country and you gave an analysis that to me was quite unexpected that wasn't really thinking about so can I have you yeah all the gang we had to repeat it

Charlie Munger what I have noticed in my life is that in Europe they do not have American philanthropy it's just during the only country in Europe where the people give heavily in routinely what we do here is how long then they were fighting the North Sea together percent of Holland is under sea level and they really had to help one another were the dikes and so forth and America we had the Pioneers taking away the country from hostilities and danger and bad climate and so forth and everybody had to help everybody else so I think that both Holland and the United States were helped with a big tradition of philanthropy but I think common hardship and I think it's a great strength that we have in America and if any of us were transplanted to Italy or France or Germany we'd feel hurt was selfish people they just don't have much of a tradition of giving yeah and I don't know about you but my involvement with charitable activities has been a big part of my life and I think I'm better for it I've had a better life so I think they they're missing out

Larry Burgess how do you do how you're how do you do it I mean you you what I've watched is you have a very specific set of things you do and I'm totally charmed by it but also interested in having you Sharon

Charlie Munger well not everybody is charmed by it because I get begging letters every day and I just always basket particularly when they come for individuals I don't know because I have a feeling you I started responding to those I'd have nothing but letters but I'm like everybody else I have things that interest me more than other things and I have done a lot of philanthropy where I mixed my own ideas with my money and my attitude there is a lot like what McNamara told the Chinese when he lived over there when they were still mired in communism without Chinese characteristics and McNamara says we're giving you all this money from my World Bank he says well I want you to know Something he says the ideas I'm promoting are going to help you a lot more than this enormous amount of money and so it worked out, what a little free enterprise did when added Chinese communism was take million people up to a billion something people and % of them were living in stoop labor and subsistence agriculture they were living like the people of central Africa live and and it wasn't that many years well if the Chinese have a big middle class and an average GDP of , dollars a person instead of three hundred dollars a person transform them and the ideas were worth more you have to give the Chinese credit for you know one of those old communist says I don't care if the cat is black or white as long as it catches Mice They watch the Chinese man in Singapore and take a malarial swamp and turn it into almost a paradise with a % Chinese population and they're sitting there in this poverty and obscurity in no toilets and and really who very tough lives and here's Singapore flourishing with his Chinese population that old communist says I want to be like Singapore and he made it happen now that I think he deserves some credit in my life I think what happened in Singapore was one of the interesting bits of political science that ever happened in the history of the world I would argue the Lee Kuan Yu was probably the greatest nation builders has ever built now occasionally he would use a pretty tough method he took over he was a very young man and he was surrounded by a bunch of Muslims have hated him and like they'd spit him out and he asked all the other nations of the world to please help him get an army cuz they got him he's just left and said handle their own problem and every nation in the world refused to help him but one and that was Israel and he said how am I gonna take military aid surrounded by Muslims who hate me from Israel he finally figured it out he accepted the Aidan told everybody they were Mexicans [Laughter] well here you can see why he was so successful he had a mantra which doesn't have any literary quality but it has a lot of good sense and he'd say or over again figure out what works and do it that's what Lee Kuan Yu said. That is very practical, very practical can I hear out what works and do it do

Larry Burgess a follow-up on this did you do you feel that philanthropically are people I know there's not a gene but born with an instinctive sense that to help or is it a learned trait as one gets on I just

Charlie Munger I think there's a million different reasons for philanthropy and one thing that is very interesting that I've observed in my life, I've known a lot of roguish people that made it fair amount of money and they start giving a little money to show off and 20 years later they're actually real for other us you you you become what you pretend to be to some considerable extent andhaving observed this so much I think there's something to be said for hypocrisy but that's not a common it's not a common observation but I've seen it there's so much good in life it I don't think it's all bad hypocrisy I always try to pretend to be a little better than I am not too much of a

Questioner 1 by the way don't you read a book a day something like that thank you

Charlie Munger well maybe I read I skim oh yeah I do the accidents of life you'll give me books I haven't torn the books and perfect strangers give me books yeah lots of them and and I almost never buy a book anymore well I was young I used to order them from the book review columns of the New York Times and now it's Tartabull comes in I just saw like what I want and I'm amazed at how well some of these people are reading me and yes and what has that done to your life I think well it's it was perfect for me I don't think you can take every bookish little boy and turn him into a billionaire by patting him on the head and say read all you want Johnny but if it were that easy there'd be more billionaires but but it it enormously helped me and I've been reading what you've learned at reading and arithmetic you can take in so much and you can take it in on your own time schedule if somebody's talking to you hear me telling you something you don't want to know you already know it's too hard or he's going too fast or too slow but you're reading you can just they can take it and you wallet so it's just it's just it's just God's gift if you if you're the self education there's nothing like reading and of course people do a lot of it have an enormous advantage and

Jack what does that say to education

Larry yeah or you might have yeah we back to this issue about sort of today you have such a and depth of diverse interests and ways in which you acquire knowledge and observation and all the rest but where do you think we're headed in terms of specialization versus a broad-based

Charlie Munger at least well our specialization is the safest way up for most people and for that reason they surgeons know more and more about less and less and that's it that's what's gets rewarded didn't know if you have a nasty fistula in your colon you do not want two surgeons go to Proust or political science it's understandable how the world rewards this specialization I never liked it and I loved picking up new ideas being great a passion of reader and so I decided I'd make whatever living and I could make doing what I like to do which is wrapping over a whole field I do not recommend it to other people because the safe way up is no I have a lot about something and under our system they find you out you know as very wouldn't work very well if you also rake lawns you know you never know I've done I've done my share of it yeah well I mean but have you had everybody out here when working by the hour raking wands on the spare time it wouldn't work very well and

Jack I think what Larry is trying to get at is the role of a liberal arts education what is your thoughts about that

Charlie Munger well it's in a it's a it's an enormous advantage of course if you learn your own language that's a very useful gift and of course learning the basic math of life is another tremendous gift and if you're really good at picking up language and doing just basic arithmetic you can take enormous territory you don't need much else I have never looked at the calculus problem since I left Caltech never left it never looked once never used it and I was a whiz by the way I went away totally some years yeah I don’t know about your calculus but mine is mindless its gone and so but this other stuff never goes away and if you keep honing it and if you get good at it then you learn something that's more important than what they teach you in college is you learn the method of learning when I want to know something I just learned it and take for instance I got to the Harvard Law School I couldn't figure out how reverend moon was inviting people out to one weekend then they came back brainwashed zombies for the rest of their lives and I just nobody in the Harvard Law School could explain it to me so I saw I'll figure it out for myself you know my mother had a little nursery rhyme a little heady read Hamlet said I'll do it myself the little radiant soul I said I'll figure this out what I'd be a long time but I finally figured out to my satisfaction exactly what was being done they were just and they just stumbled into this through practice evolution it wasn't calculated for thought they just assembled a bunch of psychological tricks impounded the one these people all at once under conditions involving stress and at a certain point the brain would just snap and they had these people transformed into slaves boom why that was a very interesting thing but of course nobody wants to talk about it because it has implications people fear but but I think that the that habit of oh if they won't explain if you figure it out for yourself has helped me enormously in life it's also hurt me because you give terrible offense when you go into somebody else's profession and act like you know more than he does and I've I much smoother now that I was when I was young I'm still pretty insufferable but

Questioner what are you thinking about today is the economy in reference to ten years ago in reference to 20, 30, 40 years ago

Charlie Munger what's going on today well what's gone politics is the people hate each other more than they used to it wasn't that we didn't have political hatreds in the old days but now the hatred you can cut with a knife on both sides I think it's very ugly and I also think of this stupid allow yourself to hate that much there are two things I've noticed in a long life really do a enormous damage to the bearer and one of them is resentment and the other is hatred and it's just what good is it gonna do you to have this Fester's down under the way the world is and and of course I've watched people work on resentment to get power in politics Adolf Hitler “did you know we poor Germans of an abused blah-blah-blah-blah waving his arms” and I don't I think that we have drifted on both sides and a way too much hatred and way too much resentment and does this guy and I think it does terrible damage to the bearer cuz this you can be disappointed in your political opponent you don't have to hate him after all he's just you're probably as much about nutcases he is in some ways

Questioner doesn't scare you about our times or what he what do you think do you think it's gonna all work out

Charlie Munger well there's always been a fair amount of it in politics you know and Jefferson and Hamilton hated each other and Franklin didn't even, Franklin had a certain amount of resentment hatred and he was he worked hard at being sensible no I think that we have way too much too much they said it's blinding you hate that much it blinds your cognition and and there's some good and everybody you have an extreme example Adolf Hitler was terribly nice to his dog his mistress and the Jewish doctors that treated his mother's cancer I mean there is something how many I mean even Adolf Hitler had something really I mean you don't have to be totally mad at everybody you because you don't like their politics

Questioner what about economically are you afraid of the times today we'd compare it to ten years ago when the Great Recession happening maybe if you could well about the recession it happened in a sense you got

Charlie Munger I had the easiest time in the easiest place that any generation ever had imagine being born a white male burgeois household born in 1924 in Omaha Nebraska I've had a huge tailwind all my life there never was a better time when more things got fixed more diseases got cured there was more general prosperity and improvement and so on and so on and so on is the future gonna be as easy for the young male born in 2021 I don't think so I think it's gonna be harder i I think you could almost see that coming and you know and so it was accidental we got this terrible hydrogen bomb it's given us some years of peace I mean major piece we have little wars and my father was scarcely out of one war before someone's going off with another and so no I think it's I think it will be tougher in the future and I think be oh I've been like continuously invested in American Enterprise for seventy years and It was a pretty good 70 years I think the averages are up something like 40 times in my adult life that never was such a period before and load and in real inflation-adjusted on course it's not 40 times it's way less because maybe two or three percent per annum is inflation but what are the chances such as some of the real return was seven or eight percent what are the chances that the person who earned today is going to have seven or eight percent growth and no big Wars or troubles for seventy years I'd say they're almost zero now I don't got any reason to despair after all why should you the spare in a world I think if we have a game you can't win anyway we're all going to die and if you can stand that you can stand a little depression or something yeah Jack - Questioner but what about the in a shorter time horizon just a good time to invest in the stock market funny question is it yeah

Charlie Munger well I am continuously invested in American equities and but I've had my Berkshire stock declined by 50% percent three times and I don't doesn't bother me that much just the natural consequence of adult life probably lived so if you have my attitude it doesn't really matter I always like Kipling expressing expression in that poem called called If [Kipling Poem If] and he said “success and failure yes treat those two Impostors just the same” it's just roll with it sometimes it's going for you and so against it's all part of the same game so I think having if you get rid of the crazy hatreds and the crazy I don't mean you don't avoid bad people I mean you will seldom talk to anybody who's better avoiding bad people than I am I am but I think that's okay but I don't hate him

Larry you know this causes me I'm gonna let

Charlie but they're always good I don't think that it's gonna be as easy for the next generation as it was for me

Questioner I understand

Charlie Jack Jack if you start all over again you might not do as well either I'm not anxious to go back and try you want to go back to go and try again no we none of us do

Jack I was very lucky just like you in a sense I was luckier and that's yes Larry

Larry no no I was gonna say yeah do do a little housekeeping were we reserving some time or have we had we talked with him about taking any questions ultimately from who you'd like to take some questions from the people would you like to ask any questions

Charlie Munger I do it at the annual meeting of Berkshire all time look sometimes I don't answer but I take the question yeah well you have the same pride my your mics your good Mike here are their mics and runners not sure if we have them or not okay you have to speak loudly any takers I'm I'm sorry there raise your hand we got ahead of the mic runners okay raise your hand introduce yourself Alan Q&A hi I'm in first Alan hey thank you so much for for doing this Jack this is an incredible opportunity to meet somebody it's just so amazing what what I'm struck by mr. Munger is your is or humor and I'm I'm also struck by your partner's humor and in your style of communication in front of a group especially in front of probably your shareholders my question is is was something that you developed over time or is it something that just sort of happened naturally through your sort of homespun storytelling ability or your ability to understand the world

Charlie Munger yeah I think Warren and I are very much the way we were born we were both a bit nerdish and not a huge successes as young boys and but we both had this love of humor and we both loved understanding how things worked and we both have been lucky enough to attract marvelous associates and partners and so if we weren't pretty good natured we'd be crazy and but no it I don't think if you don't have humor I don't think you can get it I think you're born with it that's right and the same with shyness oh you can conquer shyness a little but basically we all live with the nature's we were given and we just have to make do but Warren and I have fun in business and we like our business and we like the people we work with and we like the problem-solving that's a huge advantage in life if you really love problem-solving that's that is worth about 20 IQ points to another

Questioner question right here thank you introduce your phone to listen to thank you Audience Question #2 I wonder if I could ask you to go back to maybe your s or something of of what got you really excited when you begin seeing what you might do and what your future could be or what you seem to be especially enthusiastic about that led you this down this path what turned you on first young you know you could

Charlie Munger well I came from a conventional family happy marriage good siblings etc my parents friends were wonderful people so I had just fabulous people in fact I used to say I have a great trouble in Los Angeles finding people's like as as Fine as the people I used to know in Omaha I had a very unusual desirable situation as a young boy and so did Warren yeah well he was uh more unhappy when he was young than I was and it just it just happened and um I think a lot of it was what was born in a lot of it was was the proper training and proper background my grandfather Munger was uh had been born in extreme poverty his two parents were schoolteachers a little town in Nebraska and two schoolteachers income enabled him to buy the meat for dinner every night at the butcher shop in the little town he lived in Nebraska he went put yourself with a nickel when he bought the parts of the Animal nobody else would eat now if you start life that poor and make your own way which my grandmother did you're quite a fellow and he was self educated in not so much he came to run around early I mean he spoke Greek and Latin self-educated and so I have a very interesting people as my examples and my Grandfather Munger believed down to the soles of his feet and being rational and he worked at it and I watched it of course works well for him it made him district attorney and president of the Bar Association and finally a very young federal judge and he served as the only federal judge in his capital city for almost 40 years I mean he had a splendid life and he always lived way below his income and was able to help other people when they needed help it's a very good example and he was kind of firm about it he never took a drop of liquor and his whole life when somebody asked “why don't you drink” he says “why would I take money out of my pocket and put something in my mouth would make my head work less well” well you can see why I like my grandfather and he was politically incorrect when my parents got married he came he looked around the congregation and he came time for him to make a toast he said well he says I've always particularly optimistic at a wedding when I see the same kind of people on both sides of the aisle well that's not politically correct well it's a very understandable sentiment and so I had these good people around me and and a very interesting time of peace and so forth but what caused the financial success was not extreme ability you know I have a good mind but I I'm way short of prodigy and I've had results in life that are prodigiously and that came from tricks I just learned a few basic tricks from people like my grandfather

Questioner Now everybody's leaning in

Charlie Munger no it's too late for you old guys yeah the ya know there are all kinds of tricks that I just got into by accident own life one I invert all the time I was a weather forecaster when I was in the Air Corps and how did I handle my new assignment being a weather forecaster in the Air Corps is a lot like being a doctor that reads x-rays it's a pretty solitary you're on the hangar in the middle of the night and growing weather maps and putting pilots but you're not interfacing with a bunch of year for old men very much and so I figured out the man I was actually making weather forecasts for real pilots I said how can I kill these pilots oh that's not the question that most field would ask but I want to know what's the easiest way to kill them would be so I could avoid it and so I thought it through and reverse that way and I find they figured out I said there are only two ways I'm ever gonna get was in the ferry command the right two ways I'm gonna kill pilot until I'm gonna get him into icing his plane can't handle and that will kill him or I'm gonna get him someplace we gonna run out of gas before he can land because all the airports are stuck again and I just was fanatic about avoiding those two hazards and if Kobe Bryant had somebody like me he'll be with us yeah it was so stupid kill kill yourself that way and but just that basic I may have learned that to my grandfather my grandmother would say to him when I'm swimming you'd say swim as long as you want but stay near the shore well but you can laugh but he was a very wise man

Jack but what I'm hearing you say is that you as a discipline look at what the risk is on the other side of the situation and you avoid that that's one of the rules

Charlie Munger Well it's it's just it's it's like a lot of practical problems in algebra if yu invert you can solve it easily if you don't it you can't solve it easily and so of course I had that trick very early and and most you always say how can you please tell us what you do to save India to help India and of course I would approach it differently I'd say what could I do who's the most easily hurt India and approaching it in Reverse that way I got better results you look at the vulnerabilities yeah yes and I have a whole bag of tricks like that I been to the ROTC both in high school in college and the RTC taught me to fire mortar shells or artillery shells one shot over one shot short and then Kapow well I never shot me down shells but I'd be using that metal trick all my life that's why how I determine what size to make something over and under and Kapow and so I just got a bag of tricks and I got the right bag of tricks early and of course it's filling of enormous help to me let me give an example I had a client once when I was a young lawyer and he owned a bunch of hilly ranch land on the edge of civilization not very far from here in Southern California and the Edison Company came through and they wanted a new easement through his land they already had some easements and he hired the leading appraiser an Orange County real estate appraiser and said and he had the idea that he should have $250,000, for this easement from the Edison Company and this leading Appraiser who was very pompous and very old and and very distinguished and he told no I'm sorry it's only $125,000, value and you're a damn ranch and so he came to me and said Charlie can you talk some sense into this elderly appraiser yeah so I looked at his problem when I call the Appraiser well I thought how he's doing is on an appraisal wrong I'm not a real estate appraiser he is and what he had done is what he was taught to do an appraisal school he thought the problem through in two dimensions and he figured out from comparable sales what the value for acre was they computed the acreage and he had something a little bit on the damage the easement would do to the remaining property and so but it's all done in two dimensions and I said to this appraiser you've got to do this in three dimensions you know God gave us three dimensions and I said if they put the utility towers big transmission line towers which is why the years ago it's gonna freeze the grade in the logical way to OB our little hand is still op off the top of the hills and put them in the valley that's the way Kelley land is developed and they're doing enormous damage to you by freezing the grade and he said you wouldn't change a damn thing so I said to my elderly client I think you have to fire this twit and I will hire you an appraiser who can think and so I got him $600,000, which wasn't at all hard because I was dealing with a bunch of almost engineers of the Edison who did think of three dimensions but you know that's so simple but you'd be surprised how many lawyers would screw that one up first him and of course people like that appraiser I didn't know his own business very well because he didn't pay attention of the metals those people are always with us if you just have the metal trick of constantly going back to the basics it's pretty basic in sightless are you conscious about the geometrical problem in a real world of the three-dimensional

Larry are you conscious of the rules or they're just there well it's so habitual with you understand that and I revolve possibilities and I rag problems hard if they don't yield I come back and and so this is just a bag of tricks and it enables a non-prodigious man to get prodigious results

Jack remember you last summer you bought Anadarko big oil company yes and you described I think you've just gotten back from being with Warren for the weekend yeah you were describing that you didn't do all the analytics and you didn't do all of the research but you used your bag of tricks and you flew out to Omaha you and Warren spent the weekend you called up the president the bank America got the money made the deal

Charlie Munger no I didn't go to Omaha

Jack where did you go?

Charlie Munger no no I stay we have a telephone

Jack okay you talk to Warren about it anyway yeah but you made it in about two days and it was like no okay what

Charlie Munger Warren didn't need why am i I've been together so long that just one grunt we can speak of volume and no it's perfectly obvious the Permian Basin is our number one oil reservoir and we don't have another like it and it's perfectly obvious you have a preferred stock that you have an advantage over everybody else and plus an upside and so we've done this kind of thing before too so of course we did it and him and it's not very difficult but you're right all kinds of analyst due diligence some but we knew enough to act they were in a hurry yes but but you don't need perfect if you're % sure that's all you're entitled to in many cases and I see these people doing this due diligence and the weaker they are as thinkers the more diligence they do and of course, it's just a way of a laying an enter in security and of course it doesn't work you've got to be able to do quickly understand the how much brains does it take to know the Permian Basin as America's best oil reserve its layer after layer after layer you know we there is nothing like comparable yes and if you have an eight percent dividend off the top if from a perfectly reputable place of very talented people the woman that runs that is a production engineer she's good and they get better results in that shale than other people and so it's a no brainer at least it's a no brainer if you don't make it hard but I see people if you in America now they do these leveraged buyouts and these firms do what they call due diligence and they will send armies of young lawyers out of high rates per hour riffle through all the purchasing orders in a place like ESRI

Jack don't even think about it

Charlie Munger no I'm not thinking about what they but they but my point is they don't ESRI would no you don't have to look through the purchasing orders right to know there's reason good business and yeah I don't think people are that insecure mentally ought to be in positions of decision-making power

Larry okay we got one more question what's it gonna be it better be a good one it's a good one okay introduce yourself Joshua Gillespie – Q&A #3 hello I'm Joshua Gillespie Thank You Larry Jack Charlie for all being here Charlie like you I am very excited about investing in undervalued assets however specifically what I'm interested in is low socio-economic young folks who are not college bound so what specific advice functional advice would you give to that demographic of folk who are looking to better their lives

Charlie Munger well I don't think you can just give it a good base to the young and just have it automatically sprout like Jacks being stalked a lot of people are just natural non-sprouters and so my technique is to find the people who have the sprouting of them fertilize them greatly and in other words and Warren puts it on more pithy way as you might imagine he says we make soap verses out of silk [Laughter] that's our system that's right we don't know how to turn now I can turn any purse any silk and oh pretty a better person so learn my tricks but what I found there is that they either get it quickly almost instantly or I never get through I don't know what Jack's experience is but I ever okay they're nice people and they're but that they got their foot their thoughts are already there the thoughts they already have this place they've been programmed in a different way than you and they can't accept the championship - yes even if they kind of suspect you're right and you're rich and they're not they still think they know

Jack well they're victimized by their rules or their tricks as you call them you happen to be brought up in an environment where the tricky and

Charlie Munger one of the great tricks in life is to destroy your own best loved ideas and and that I worked at I actually go through my best loved ideas the case let's see if I can weed one out you know

Jack what are you talking about give me an example

Charlie Munger *musing to himself for ~30 seconds* well that’s a good hello a good example, well that's a very good example but it's not an example of this the we all oh I gave you an example it's a hard one we had an executive in virtue it was a wonderful human being and terribly good at what he does he was an actuary and he was a member of our inner council he was with us we knew his wife and children we loved the guy and he got a nasty cancer and was dying slowly and we just left him there dying and failing and the reinsurance contracts he signed during those last two or three weeks were awful it was a mistake and I've never done it again yeah it's natural to love your friend so much and it's hard to come down on the close friend here and

Jack it's in your rules or can you break it's like getting up on the same side of the bed every morning when you believe in something like you obviously are expressing a couple things to me one is that you love this guy and he didn't want to just shut him down so you kept him in place and he screwed up is that the basic message

Charlie Munger yeah I have a higher duty and it was you know it I think it's a forgivable sin you know I'd rather have if I'm gonna have sins I'd rather have this one than a lot of others but it was mistake yes it was a mistake

Jack or maybe not

Charlie and you know what that happened to Lee Kuan Yew this guy admire so much, Singapore were so many decades and his best friend and committed some moral act an immoral act and had come to life in and he committed suicide and the wife came to close friends and said you know in Chinese culture it's a deep shame to commit suicide can't we cover up the suicide he said no we can't cover up again he was just tougher on maintaining certain standards I don't know whether that's right or not but I suspect he was right after all he built an empire, you've got a whole nation and all I've done is build one mall

Jack well I'd like to close with a couple more questions about your own philanthropy at UCSB and first how did you do

Charlie Munger So that is by the way that's a marvelous example exactly because there's an example say Here I am years old this time

Jack this is Chancellor Yang

Jack but I've got a friend who's the widow of the last surviving grandchild of Doheny major California oilman of a former era and but it's in Santa Barbara the ultimate NIMBYism and she's got an 1800, acre ranch with two miles of frontage on the ocean no wind perfect climate great views avocado trees it has a private lake it's like you can't believe it and she can't sell to anybody because nobody in Santa Barbara's gonna be fair enough to allow her to do any with her own property and she really needed the sell and so I said tough see I said I'll give the University seventy million dollars and and we'll have it we'll buy the ranch with my seventy million dollars well I knew that the university's not subject to the damn sound of our rezoning rules and so I suddenly transformed seventy million dollars into a billion dollars worth of property in about two seconds now I didn't get the billion, the University did but I like helping the university and particularly when I can get a billion dollars for the value for seventy million dollars was a little horse sense and so

Jack what's gonna happen

Charlie Munger Not everybody would have known that they weren't subject to

Jack the university needs housing Charlie saw that they needed housing he was interested in the university you saw this property and so now they suddenly have the ability to build housing for students

Charlie Munger it's a well it'll be faculty and graduate students yeah and yeah but it's more extreme than that I'm also I just got approved last week by the subcommittee of the Regents to build a dormitory for undergraduates at UCSB in this case I'm gonna give them percent of the money and they're gonna borrow the rest the three percent or something like that and but this housing is going to put five thousand students on five acres and the housing will be the best of its kind in the world how in the hell can some ninety five year old guy doesn't know anything to speak of about housing suddenly be right when he says we'll put 5,000, people on five acres and it'll be the best housing in the world well but I've built other housing I'm not quite as ignorant as I look and and I realized that all I had to do was to make a big square building which is 10 stories high under both the top story to being a sort of an art town on the sky with great views looking out at the world with high ceilings and so forth and then adopt ship architecture for the rest of the thing and build it out of precast concrete for the first seven floors on poured concrete foundation and then build the top floor out of Butler steel components which is what Costco uses to build its stores its stores wherever it's allowed to do it and when i work that out it it works like gangbusters it can't Pawn every trick in this building I've already done somewhere else I just assembled a trick out of a bag of tools it sounds ridiculous

Jack It doesn't sound ridiculous to me it sounds like you're philanthropic put all the stuff together to actually make it real

Charlie Munger it's the mental trick that's interesting why can't a university with an IQ average of 160 and nothing to do but think about its future oh one thing else I did

Jack why can't they do that on your own is what's your saying

Charlie Munger why are the universities so stupid that's a very important question and they're not stupid about everything they just have a few blind spots and one of the blind spots is they run out of land now how can a great University and the most important state in the most important country in the world how the hell can you run out of land and think you're being a rational University? UCLA has run out of land Berkeley has run out of land How could places so massively brilliant they win Nobel Prizes and so forth he's stupid enough to run out of land the answer is they get these damn bureaucracies and somebody has to be the adult in the room who it's not a mild bit of craziness to run out of land if you’re UCLA well my grandfather would say that he basically thought it was sinful to be dumber than you had to be and I share some of that what you can't remove I think it's forgivable, to have an easily removable ignorance in your own head is really stupid that is really gonna happen you you people are all gonna live to see it and building ship architecture on land how hard the subject is that

Jack I've seen the plans they're really so clever for students to live in views for every student to the ocean

Charlie Munger well let me tell you here it's the final one what's these great 160 IQ people do it takes 20 extra square feet of space under the building code that binds a university in California the UC system, 20 extra square feet to give a student his own private sleeping area 20 extra square feet can you think of anything dumber than building housing that's gonna last 200 years when you force a whole bunch unrelated people to live together and throw up on one other and god knows what to save twenty extra square the incremental cost of 20 extra it's insane so I gave every student his own room when I went into the Regents committee there was this nice woman and she said you know she's I never had a single room my whole college career that didn’t have somebody else in it it's insane it's absolutely insane and I'm fixing it but why wasn't it already fixed where

Jack did you study architecture or how did you come to all of them

Charlie Munger well I hate to admit this to somebody like use of perfectionist but I pick easy problems it's easy to fix housing minutes other people are so dumb they put two unrelated people in the same room when it takes twenty extras square feet to eliminate that defect so I seek out easy problems I've tried hard Problems it's makes it a lot more difficult okay

Jack I got one final one yeah early didn't you buy See's candy

Charlie Munger yes I certainly do that why did I do it I mean yeah anybody got a guess something that was a I did it well here I want to confess something that will give you all encouragement because it will show how dumb we all were when they were young and how we barely bought it the price was thirty-five billion dollars and they had ten million in surplus cash and they're making four million dollars a year so hardly expensive and it was this iconic brand and that been created by a woman that was 70 years old when she founded the company very interesting story and at the very end we were above a hundred thousand dollars apart and Warren was used to saying goddammit you know I'll bid 20 and 1/8 I don't mean a quarter and we just almost didn't buy it and I would not we just squeaked through we made a wonderful decision because we were just barely smart enough to make a no-brainer and that teaches another lesson to: we all start out stupid and we all have a hard time staying sensible You have to keep working at it Berkshire would be a wreck today if it were run by what Warren and I knew when we started its just we kept learning and I don't think we'd have all the billions of stock of Coca-Cola we now have if we hadn't bought See's you know I mean there were huge consequences of getting over that less stupidity we through our typical yeah firm businesslike methods and what happened there neither Warren nor I deserve any real credit for my partner. I had wonderful partners all my life it was a petroleum engineer he just said to warn me you guys are all wrong on this he says this is a wonderful company and you're being way too chancy there aren't many companies like this and that he changed our minds so now you know how we were smart enough to buy See's barely okay the answer is barely

Jack You said to me in ok this is my last

Charlie Munger by the way we're smarter now I'm glad but I'm glad everybody appreciates

Jack yeah yeah you said to me something about the high road

Charlie Munger oh that's Warren's famous remark I love that I sure that Warren always says you should always take the high road cuz it's less crowded

Jack we'll close without ladies and gentlemen thank you for being [Applause] Thank you