August 20, 2024 • 1hr 40min

A Conversation with Charlie Munger & John Collison - [Invest Like the Best, REPLAY]

Invest Like the Best with Patrick O'Shaughnessy

In this episode of Invest Like the Best, host Patrick O'Shaughnessy interviews legendary investor Charlie Munger, Vice Chairman of Berkshire Hathaway and longtime business partner of Warren Buffett. The wide-ranging conversation covers Munger's investment philosophy, business principles, views on China and cryptocurrency, and reflections on his long career. At 98 years old at the time of the interview, Munger offers sharp insights and strong opinions shaped by decades of experience.

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Key Takeaways

Multidisciplinary thinking is crucial for success in business and investing. Charlie Munger advocates learning the big ideas across various disciplines to gain an advantage in common sense decision-making.
Focus on win-win business models that create value for all parties involved. Munger believes businesses that provide genuine value to customers in an ethical way are more sustainable long-term.
Avoid common mistakes and "asinenities" in business and investing. Munger's approach is to systematically eliminate obvious errors and pitfalls that many fall into.
Be very selective in choosing investments and business partners. Munger advocates working only with ethical, trustworthy people and avoiding questionable industries or practices.
Understand the underlying business fundamentals, not just financial metrics. Munger emphasizes looking at the quality and sustainability of a business, not just surface-level numbers.
Patience and occasional aggressive action are key to successful investing. Munger advises waiting for rare, obvious opportunities and then acting decisively when they appear.
Berkshire's success comes from its unique culture and approach. The company avoids bureaucracy, focuses on trustworthy managers, and takes a long-term view.

Introduction

In this episode of Invest Like the Best, host Patrick O'Shaughnessy interviews legendary investor Charlie Munger, Vice Chairman of Berkshire Hathaway and longtime business partner of Warren Buffett. The wide-ranging conversation covers Munger's investment philosophy, business principles, views on China and cryptocurrency, and reflections on his long career. At 98 years old at the time of the interview, Munger offers sharp insights and strong opinions shaped by decades of experience.

Topics Discussed

Multidisciplinary Thinking and Mental Models (5:58)

Munger emphasizes the importance of learning the big ideas from multiple disciplines:

He advocates mastering key concepts from fields like mathematics, physics, psychology, etc.
This provides an advantage in what he calls "uncommon sense" - the ability to think clearly about complex issues
Example: Munger immediately saw the practical importance of probability theory when introduced to it, while others missed its relevance

"I early got the idea I would learn the big ideas in pretty much all the disciplines because you were curious or because you thought big ideas to fluency by constantly using them. And that would give me an advantage in what might be called... common sense."

Business Ethics and Win-Win Models (10:03)

Munger stresses the importance of ethical business practices:

Avoid industries and practices that harm customers or society (e.g. gambling, addictive products)
Focus on win-win business models that create value for all parties
Be selective in choosing clients and business partners

"My idea is so simple is that if you make your living selling things to other people that are good for them, that is safer and more profitable, averaged out and selling them stuff that's bad for them, like gambling, drugs, crazy religions, all kinds of things that are terrible for people."

Evaluating Business Quality (17:34)

Munger discusses his approach to assessing businesses:

Look beyond financial metrics to understand the underlying business fundamentals
Consider the long-term sustainability and competitive advantages
Example: Costco's membership model and focus on efficiency

"Costco, it's an amazing culture. The whole d**n culture of the place is so sound and it just marches from triumph to triumph."

Investment Philosophy (29:08)

Key points on Munger's investment approach:

Investing has gotten much harder due to increased competition
Focus on a small number of high-conviction investments rather than diversification
Be patient and wait for rare, obvious opportunities
Avoid trying to time the market or make short-term trades

"It's gotten so hard that most of the people who are in wealth management have an almost zero chance of outperforming an unmanaged index like the S&P."

Views on Cryptocurrency (33:18)

Munger is highly critical of cryptocurrency:

Believes it has no intrinsic value and should be illegal
Sees it as primarily useful for criminal activity
Prefers gold as a store of value if needed

"I think cryptocurrency is a scumball activity. And I think by and large, the people who promote it are scumballs, or delusionary."

Thoughts on American Society (38:56)

Munger shares his perspective on societal trends:

Concerned about political polarization and primary system
Mixed views on declining birth rates and delayed family formation
Worried about institutional sclerosis making it harder to build and develop

"I do not like the way politics has morphed in my lifetime in the United States."

Architecture and Design (45:20)

Munger discusses his interest in architecture:

Believes many architects focus too much on novelty rather than functionality
Advocates a multidisciplinary approach to design
Example: His design for student housing at University of Michigan

"I think architecture is the queen of the arts. In other words, I like it better than painting or sculpture or so on."

Berkshire Hathaway's Approach (1:32:14)

Munger explains key aspects of Berkshire's culture and success:

Avoiding bureaucracy by having minimal corporate staff
Focusing on trustworthy managers and earned trust
Taking a long-term view rather than chasing short-term profits
Allowing cash to flow back to headquarters for reallocation

"We like a business system that operates as much as possible, like a Mayo operating room, and that regards having very good people who are experienced enough with one another to trust one another."

Conclusion

Charlie Munger's wide-ranging discussion offers invaluable insights from his decades of experience in business and investing. His emphasis on multidisciplinary thinking, ethical business practices, and focusing on high-quality investments has been key to his success with Berkshire Hathaway. While some of his views may be controversial, such as his stance on cryptocurrency, Munger's overall philosophy of continuous learning, avoiding common mistakes, and taking a long-term view provides a compelling framework for investors and business leaders. His reflections on societal trends and the challenges facing American institutions also offer thought-provoking perspectives on broader issues beyond just finance and investing.

Ultimately, Munger's approach can be summed up in his admiration for Singapore's Lee Kuan Yew: "Figure out what works and then do it." This relentless focus on identifying effective practices and systematically implementing them, while avoiding pitfalls and ineffective approaches, encapsulates the essence of Munger's success and the lessons he seeks to impart.