The quotes were originally posted on 25iq. This article covers Munger's quotes on topics that begin with T or W.
TALENT:
“I think we have some special talents. That being said, I think it's dangerous to rely on special talents — it's better to own lots of monopolistic businesses with unregulated prices. But that's not the world today. We have made money exercising our talents and will continue to do so.”
TAXES:
“The tax code gives you an enormous advantage if you can find some things you can just sit with.”
“We don't have any miraculous way of avoiding taxes at Wesco and Berkshire.”
“My attitude toward taxes is that if I were running the world, we'd have a very substantial consumption tax, and the tax on earned income would be 40% at the top and taxes on long-term capital gains would be 20%. And by the accident of history, we're not that far away from where we ought to be. I love consumption taxes – they're so effective. That that's why conservatives hate them – they work and the government gets a lot of money to spend. In New Zealand, there's a national 10% consumption tax. Is it so bad to have to pay 10% extra if you go out for a nice meal or charter a plane? I don't worry about the miser who accumulates money and dies with it. What harm is he doing? A 50% corporate tax rate would be too high. …I'm not in favor of doing away with the 50% estate tax on people like me, but there should be a big exemption. Someone who builds a small business shouldn't be whacked, but there's nothing wrong with saying give 50% to society when you die if you've done really well.”
“Even if you assume that the whole economy would work better had we never had double taxation, having the envy and resentment of the richest paying low or no taxes screams of injustice. You have to have a fair system.”
“If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15%—or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening….”
“…in terms of business mistakes that I've seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations. Warren and I personally don't drill oil wells. We pay our taxes. And we've done pretty well, so far. Anytime somebody offers you a tax shelter from here on in life, my advice would be don't buy it.”
TEACHING:
“To atone, I teach and try to set an example…I love spreading this stuff around. Just because it's trite doesn't mean it isn't right. In fact, I like to say, ‘If it's trite, it's right.'”
“I don't have too much interest in teaching other people how to get rich. And that isn't because I fear the competition or anything like that — Warren has always been very open about what he's learned, and I share that ethos. My personal behavior model is Lord Keynes: I wanted to get rich so I could be independent, and so I could do other things like give talks on the intersection of psychology and economics. I didn't want to turn it into a total obsession.”
“We only want what success we can get despite encouraging others to share our general views about reality.”
TECHNOLOGY:
“For society, the Internet is wonderful, but for capitalists, it will be a net negative. It will increase efficiency, but lots of things increase efficiency without increasing profits. It is way more likely to make American businesses less profitable than more profitable. This is perfectly obvious, but very little understood.”
“Soros couldn't bear to see others make money in the technology sector without him, and he got killed. It doesn't bother us at all.”
“In Gillette's case, they keep surfing along new technology which is fairly simple by the standards of microchips. But it's hard for competitors to do. So they've been able to stay constantly near the edge of improvements in shaving.”
“If the technology hadn't changed, [newspapers would] still be great businesses. Network TV [in its heyday,] anyone could run and do well. If Tom Murphy as running it, you'd do very well, but even your idiot nephew could do well. Fortunately, carbide cutting tools [such as those made by Iscar] don't have these types of substitutes.”
The great lesson in microeconomics is to discriminate between when technology is going to help you and when it's going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does. For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles—which are a real commodity product. And one day, the people came to Warren and said, “They've invented a new loom that we think will do twice as much work as our old ones.” And Warren said, “Gee, I hope this doesn't work because if it does, I'm going to close the mill.” And he meant it. What was he thinking? He was thinking, “It's a lousy business. We're earning substandard returns and keeping it open just to be nice to the elderly workers. But we're not going to put huge amounts of new capital into a lousy business.”
And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners. That's such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers. Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when you got rid of the old technology and got new fancy computers and so forth, all of the savings would come right through to the bottom line. In all cases, the people who sell the machinery—and, by and large, even the internal bureaucrats urging you to buy the equipment—show you projections with the amount you'll save at current prices with the new technology. However, they don't do the second step of the analysis which is to determine how much is going stay home and how much is just going to flow through to the customer. I've never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: “This capital outlay will save you so much money that it will pay for itself in three years.” So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you've earned a return of only about 4% per annum. That's the textile business. And it isn't that the machines weren't better. It's just that the savings didn't go to you. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment. It's such a simple idea. It's so basic. And yet it's so often forgotten. Then there's another model from microeconomics which I find very interesting. When technology moves as fast as it does in a civilization like ours, you get a phenomenon which I call competitive destruction. You know, you have the finest buggy whip factory and all of a sudden in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead. You either get into a different business or you're dead—you're destroyed. It happens again and again and again. And when these new businesses come in, there are huge advantages for the early birds. And when you're an early bird, there's a model that I call “surfing”—when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows….
“There are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.”
Charlie Munger (Trades, Portfolio): Apple (AAPL, Financial) Is One of the Strongest Companies in the World
THINKING:
“Any year that passes in which you don't destroy one of your best loved ideas is a wasted year.”
“The ethos of not fooling yourself is one of the best you could possibly have. It's powerful because it's so rare.”
“We both insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think. So Warren and I do more reading and thinking and less doing than most people in business. We do that because we like that kind of a life. But we've turned that quirk into a positive outcome for ourselves.
“It is, of course, irritating that extra care in thinking is not all good but actually introduces extra error. But most good things have undesired “side effects,” and thinking is no exception. The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: “The first principle is that you must not fool yourself and you're the easiest person to fool.”
“Warren spends 70 hours a week thinking about investing
“Invert, always invert.”
“People calculate too much and think too little.”
“The ethical rule is from Samuel Johnson who believed that maintenance of easily removable ignorance by a responsible office holder was treacherous malfeasance in meeting moral obligation. The prudential rule is that underlying the old Warner & Swasey advertisement for machine tools: “The man who needs a new machine tool, and hasn't bought it, is already paying for it”. The Warner & Swasey rule also applies, I believe, to thinking tools. If you don't have the right thinking tools, you, and the people you seek to help, are already suffering from your easily removable ignorance.”
THRIFT:
“This room contains many people pretty well stricken by expired years — in my generation or the one following. We tend to believe in thrift and avoiding waste as good things, a process that has worked well for us. It is paradoxical and disturbing to us that economists have long praised foolish spending as a necessary ingredient of a successful economy.
TRUST:
“…Everybody likes being appreciated and treated fairly, and dominant personalities who are capable of running a business like being trusted. A kid trusted with the key to the computer room said, “It's wonderful to be trusted.” That's how we operate Berkshire – a seamless web of deserved trust. We get rid of the craziness, of people checking to make sure it's done right. When you get a seamless web of deserved trust, you get enormous efficiencies. … Every once in a while, it doesn't work, not because someone's evil but because somebody drifts to inappropriate behavior and then rationalizes it….”
UNITED STATES:
“…Over the long term, the eclipse rate of great civilizations being overtaken is 100%. So you know how it's going to end. (Laughter) I'm more optimistic about the staying power of what's good in this country. But just because you have a wonderful spouse doesn't mean you should treat her badly. You have the feeling that some of the old virtues [that made this country great] are lessening. But there's so much good and so much strength left…”
“I still prefer this country, and so does Warren. But we're both troubled deeply by the twin deficits [trade and budget]. [Bad] Things can go on for a long time, starting from our [wealthy] base and especially if other counties have things wrong with them, so it's a very complex subject.”
“I believe that we are at or near the apex of a great civilization….In 50-100 years, if we're a poor third to some countries in Asia, I wouldn't be surprised. If I had to bet, the part of the world that will do best will be Asia.”
“It's crazy to assume that what's happening in Argentina and Japan is inconceivable here. It's not.”
Charlie Munger (Trades, Portfolio) on U.S.-China Tensions: Both Sides Are Equally 'Guilty of Being Stupid'
VALUES:
“While no real money came down, my family gave me a good education and a marvelous example of how people should behave, and in the end that was more valuable than money. Being surrounded by the right values from the beginning is an immense treasure. Warren had that. It even has a financial advantage.”
VALUE INVESTING:
“The whole concept of dividing it up into ‘value' and ‘growth' strikes me as twaddle. It's convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing.”
“All intelligent investing is value investing.”
VENTURE CAPITAL
“Harvard and Yale concentrated with venture capitalists that got the best calls and brainpower. Very few firms made most of the money, and they made it in just a few periods. Everyone else returned between mediocre and lousy. When returns happened, envy rippled through institutional money management. The amount invested in venture capital went up 10 times post-1999. That later money was lost very quickly. It will happen again. I don't know anyone who successfully resists this stuff. It becomes a new orthodoxy.”
VICTIMIZATION:
“Whenever you think something or some person is ruining your life, it's you. A victimization mentality is so debilitating.”
WARREN BUFFETT:
“It is true that Warren had a touch of brain block from working under Ben Graham and making a ton of money – it's hard to switch from something that's worked so well. But if Charlie Munger (Trades, Portfolio) had never lived, the Buffett record would still be pretty much what it is.”
“I think the top guy won't be as smart as Warren. But it's silly to complain: ‘What kind of world is this that gives me Warren Buffett (Trades, Portfolio) for 40 years and then some bastard comes along who's worse?'”
“Speaking for the Munger heirs, I hope they continue to ring the last drop of good out of Warren.”
“I call myself the assistant cult leader…”
“I've been associated with Warren so long, I thought I'd be just a footnote.”
“I think there's some mythology in this idea that I've been this great enlightener of Warren. He hasn't needed much enlightenment. But we know more now than five years ago.”
“It's hard to believe that he's getting better with each passing year. It won't go on forever, but Warren is actually improving. It's remarkable: Most almost-72-year-old men are not improving, but Warren is.”
“The most common concern investors seem to have about Berkshire is, “What happens when Buffett dies?” Munger acknowledged that “if he were gone, we couldn't invest the money as well as Warren,” but noted that “the place is drowning in money — we have great business pounding out money. If the stock went down, Berkshire could buy it back. There's no reason to think it will go to hell in a bucket, and I think there's reason to believe it could go on quite well. I'd be horrified if it isn't bigger and better over time, even after Warren dies.”
Charlie Munger (Trades, Portfolio) on Warren Buffett (Trades, Portfolio): He Cares More About What Happens to Berkshire Than His Money
WEALTH:
“We've had the most massive creation of wealth for people a lot younger than those who formerly got wealth in the history of the world. The world is full of young people who really want to get rich, and [when I left school] nobody thought it was a reasonable possibility.”
“I have concluded that most PhD economists under appraise the power of the common-stock-based “wealth effect”, under current extreme conditions “wealth effects” involve mathematical puzzles that are not nearly so well worked out as physics theories and never can be. …what has happened in Japan … has shaken up academic economics, as it obviously should, creating strong worries about recession from “wealth effects” in reverse.”
Charlie Munger (Trades, Portfolio) Says Concerns Over Wealth Inequality 'Motivated by Envy':
WESCO:
“Wesco had a market capitalization of $40 million when we bought it [in the early 1970s]. It's $2 billion now. It's been a long slog to a perfectly respectable outcome — not as good as Berkshire Hathaway or Microsoft, but there's always someone in life who's done better.”
“Our approach has worked for us. Look at the fun we, our managers, and our shareholders are having. More people should copy us. It's not difficult, but it looks difficult because it's unconventional — it isn't the way things are normally done. We have low overhead, don't have quarterly goals and budgets or a standard personnel system, and our investing is much more concentrated than average. It's simple and common sense.”
“You shouldn't buy Wesco stock instead of Berkshire's.”
WISDOM:
“You don't have to have perfect wisdom to get very rich – just a bit better than average over a long period of time.”
“If you get into the mental habit of relating what you're reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom.”
“What is elementary, worldly wisdom? Well, the first rule is that you can't really know anything if you just remember isolated facts and try and bang ‘em back. If the facts don't hang together o-n a latticework of theory, you don't have them in a usable form. You've got to have models in your head. And you've got to array your experience both vicarious and direct o¬n this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You've got to hang experience o¬n a latticework of models in your head. What are the models? Well, the first rule is that you've got to have multiple models because if you just have o¬ne or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine. It's like the old saying, “To the man with o¬nly a hammer, every problem looks like a nail.” And of course, that's the way the chiropractor goes about practicing medicine. But that's a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you've got to have multiple models. And the models have to come from multiple disciplines because all the wisdom of the world is not to be found in o¬ne little academic department. That's why poetry professors, by and large, are so unwise in a worldly sense. They don't have enough models in their heads. So you've got to have models across a fair array of disciplines. You may say, ‘My God, this is already getting way too tough.' But, fortunately, it isn't that tough because 80 or 90 important models will carry about 90% of the freight in making you a worldly wise person. And, of those, o¬nly a mere handful really carry very heavy freight.”
“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group … then to hell with them.”
Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) on Transferring Their Investing Wisdom to Their Grandchildren:
WORK:
“The way to win is to work, work, work, work and hope to have a few insights…. And you're probably not going to be smart enough to find thousands in a lifetime. And when you get a few, you really load up. It's just that simple.”
“Why should it be easy to do something that, if done well, two or three times, will make your family rich for life?”
Charlie Munger (Trades, Portfolio): Some Workplace Changes 'Are Here Forever'
WORRY:
“I think there's something to be said for developing the disposition to own stocks without fretting.”
“We fret way earlier than other people. We left a lot of money on the table through early fretting. It's the way we are — you'll just have to live with it.”
P.S.
Munger: You say there is some vaguely established view in economics as to what is an optimal dividend policy or an optimal investment?
Professor William Bratton of the Rutgers-Newark School of Law: I think we all know what an optimal investment is.
Munger: No, I do not. At least not as these people use the term.
Bratton: I don't know it when I see it but in theory, if I knew it when I saw it this conference would be about me and not about Warren Buffett (Trades, Portfolio).
Munger: What is the break point where a business becomes sub-optimal or when an investment becomes sub-optimal?
Bratton: When the return on the investment is lower than the cost of capital.
Munger: And what is the cost of capital?
Bratton: Well, that's a nice one and I would…
Munger: Well, it's only fair, if you're going to use the cost of capital, to say what it is.
Bratton: I would be interested in knowing, we're talking theoretically.
Munger: No, I want to know what the cost of capital is in the model. Bratton: In the model? It will just be stated.
Munger: Where? Out of the forehead of Job or something?
Bratton: That is correct.
Munger: Well, some of us don't find this too satisfactory.
Bratton: I said, you'd be a fool to use it as a template for real world investment decision making. We're only trying to use a particular perspective on human behavior to try to explain things.
Munger: But if you explain things in terms of unexplainable sub-concepts, what kind of an explanation is that?
Bratton: It's a social science explanation. You take for what it's worth.
Munger: Do you consider it understandable for some people to regard this as gibberish?
Bratton: Perfectly understandable, although I do my best to teach it.
Munger: Why? Why do you do this?
Bratton: It's in my job description.
Munger: Because other people are teaching it, is what you're telling me.
