Charlie Munger’s shocking speech in 2019: Take the right path, and the road will get wider and wider.

95-year-old investor Charlie Munger still maintained his usual straightforward and wise speaking style in his recent speech at the DailyJournal company’s annual meeting. At the meeting, Munger kept laughing and making famous quotes, conveying some concepts and philosophical thoughts about investment in simple and easy-to-understand terms. Munger is very optimistic about the Chinese market: "China's water is good. Some smart people have already entered. When the time comes, more people will enter. Good companies in China are cheaper than good companies in the United States."

1. Common sense: common sense that ordinary people don’t have

Berkshire Hathaway can achieve great success, and Daily Journal can achieve small achievements. There is no secret, just pursue basic ethics. and sound common sense.

As we all know, the so-called common sense is common sense that ordinary people do not have. When we say that someone has common sense, we actually mean that he has common sense that ordinary people do not have. People think that it is easy to have common sense, but it is actually very difficult.

Let me give you an example. A large number of highly intelligent people have entered the investment field and are trying their best to do better than ordinary people. Many people with high IQs swarmed in, creating a scene in the investment field that was rare elsewhere, and strange things happened. There used to be a very large investment consulting company in California. In order to surpass its peers, it came up with an idea.

This is what they think: We have so many young talents, all of whom are top students who graduated from prestigious schools such as Wharton and Harvard. They all want to understand the company, understand market trends, and do business. Understand everything and work hard without sparing any effort. As long as each of these young talents comes up with what he thinks is the best investment opportunity, and we gather all the best opportunities together to form a combination, we will definitely be far ahead of the index.

The people at this investment company thought this idea would work because they were poorly educated. They took action with full confidence, only to fail miserably. They tried again and failed miserably. They tried a third time and still failed.

Hundreds of years ago, alchemists dreamed of turning lead into gold. The alchemists had a wonderful idea. They thought they could make a fortune by buying a large amount of lead and using magic to turn the lead into gold. The investment company I just mentioned is no better than the alchemists of hundreds of years ago. It is just a modern replica of the attempt to turn lead into gold, and it will never succeed. I could have told them this truth, but they never asked me.

What is worth pondering is that this investment company has gathered elites from all over the world, including many high-IQ elites from China. The average IQ of Chinese people is slightly higher than that of people in other countries. Actually, this question is very simple. This idea seems to work, but why doesn’t it work in practice? You might as well think for yourself why this is the case.

You have all received education from higher education institutions. I dare say that few of you here can really explain this matter clearly. I want to use this to teach you a lesson. How could you not know? The investment field is an important industry in the United States. In such an important industry, there has been such a disastrous failure, we should be able to give an explanation!

Anyone who can answer this question must have listened attentively in the first-year college class. Regrettably, even if you take this question to the finance department of an institution of higher learning and ask the professors there to answer it, they will not be able to answer it correctly. I leave this question for you to think about because I want to confuse you.

Let me move on to the next topic. In fact, you should be able to answer this question. From this question, we can see that even for some very simple things, it is not easy to stay rational. People have too many wrong ideas, none of which will work. You can’t explain why people’s wrong ideas don’t work.

If you have received a good education, you should be able to see through it at a glance.

What I understand by "receiving a good education" is knowing when the professor is wrong and knowing what is right. Whatever the professor says, anyone can do it. The key is that you have to distinguish what is right and what is wrong in what the professor teaches. This is a person who has received a good education.

2. Seize a few opportunities in your life, that’s enough!

Back to the investment field, at least for a long time to come, if you actively select stocks and pretend to know everything, you will still not be able to beat the index.

At Berkshire Hathaway, at DailyJournal, we consistently do better than average. The question is, how do we do it? How did we do it? The answer is simple. We seek to do less.

We have never been so naive as to think that by recruiting a group of young talents, we can know everything. Whether it is soup cans, aerospace, or public utilities, we can know more than others.

We have never been so delusional. We never thought that we could do it. No matter what field we were in, we could obtain truly useful information. We don’t pretend to know everything. We always know that if we work especially hard, we can pinpoint those few opportunities. These few opportunities are enough. By seeking only a few opportunities, our expectations are more reasonable.

If you are like the investment consulting agency I mentioned earlier, you ask Warren Buffett the same question: "Tell me your most optimistic investment opportunity this year." Then, you buy You will definitely make a lot of money from the best investment opportunity that Warren found. Warren cannot pretend to know everything. He will only tell you about one or two stocks. The investment consulting firm is ambitious, but Warren knows how to restrain himself.

My great-great-grandfather, my mother’s grandfather, helped me a lot. My great-grandfather was a pioneer. He came to Iowa penniless, but young and in good health. He participated in the Black Hawk War with the Indians and became a captain during the war. Later he settled in Iowa, and whenever an opportunity arose for land at a very cheap price, he was wise enough to make a large purchase.

In the end, he became the richest man in the town and owned a bank. He was well respected, had a large family, and lived a very happy life. When he first settled in Iowa, an acre of land was less than a dollar. He has lived in Iowa and witnessed the rise of affluent modern civilization in this fertile land. My great-grandfather said that he has caught up with the good times and will live to be 90 years old. God will give him several great opportunities.

The main reason why he lived a long and happy life was that he seized the few opportunities God gave him when they came. My great-great-grandfather would tell this story over and over again every summer as his grandchildren gathered around him. My mother was not interested in money, but she remembered the stories my great-grandfather told me and told them to me. Unlike my mother, I know that my great-grandfather did the right thing.

So, when I was very young, I knew that there are only a few major opportunities and opportunities that belong to me. The key is to prepare yourself when the few opportunities come. time to catch them. Those people in the big investment consulting firms, that’s not what they think. They think they can understand a million things by studying a million things.

The key to playing the investment game well lies in a few opportunities. You can really see that one opportunity is better than other ordinary opportunities, and you know very well that you know more than others. Like I said, just seize a few opportunities and that's enough.

Warren often said: "A person lives in a prosperous small town. He owns the shares of the three best companies in this small town. Isn't it enough to be so dispersed?" As long as these three companies are all It's top-notch, and it's definitely dispersed enough. The widely circulated Kelly formula can tell us how much chips we should bet on each transaction when we have a chance of winning.

The greater your odds and the higher your probability of success, the larger your bet should be.

3. Fish where there are fish! Remember!

The first rule of fishing is, fish where the fish are. The second rule of fishing is, remember the first rule. Many of us went to places where the cod had been fished out and still wanted to catch cod. In an extremely competitive environment, no matter how hard you try, it will be useless. In the investment world, even small opportunities are being followed.

I once attended an investment committee meeting at the University of Michigan where one of the successful investors was from London. How did this investor invest in London? He has his sights set on sub-Saharan Africa. There were very few listed companies in sub-Saharan Africa, and he could only find a few bank stocks listed on the Pink Sheets, so he bought these bank stocks, and the amount he could buy was very small.

The poor in Africa are gradually changing the habit of keeping money at home. More and more people are starting to deposit money in banks, and this investor is making more and more money. In the end, he made a lot of money. No one else invests in small African banks but himself. Unfortunately, this small niche was quickly filled.

As a fund manager, I have invested in small banks in sub-Saharan Africa and made money for my clients. Where can I find the next investment opportunity? Niche filling is quick. A fund manager in London can buy the stocks of a small African bank. How many profitable niches do you think are left? It's too difficult.

4. Take the right path, and the road will get wider and wider

In the modern world we live in, there are people who specialize in pulling others into trouble and teaching others to frequently trade stocks. To me, this is no different than teaching young people to use heroin. So stupid. How can a person who has already made money make a living by instigating others to speculate in the stock market?

TV is also a magical place. We often see on TV that someone says, "This book in my hand can teach you to make three times your income every year. You only need to pay the postage to get this book." How could a person who suddenly discovered the secret to making three times his annual income still sell books online? How ridiculous. The scene I'm talking about is a portrayal of modern business. People do this every day and think they are citizens who are beneficial to society.

Let me tell you a little story, also about modern life. I hope you can get inspiration from it. This story happened once upon a time. There was a man who had a wonderful horse. This is a horse with light steps and shiny hair. Everything about this horse is good, except for one problem. Sometimes, it would suddenly become ill-tempered and mischievous, and anyone who rode it at that time would be thrown with broken arms and legs.

The man found the veterinarian, and he asked the veterinarian: "How should I treat this horse?" The veterinarian said: "It's very simple, I have a way." The man said: "Tell me quickly. "The veterinarian said: "You sell your horse when it does well."

Generally speaking, Warren (referring to Warren Buffett) and I, the two of us. We have never tricked fools into taking goods from us just to make money. We make money by making money when we buy. If we were selling dog poop, we wouldn't claim that dog poop cures arthritis.

I think it is better not to lie to others, but to live like us. In reality, there are always scammers. Let’s just talk about those charlatans. They have many tricks to deceive people. There are always scammers taking advantage of human weaknesses to make money. We must increase our wisdom to stay away from all kinds of fraud.

Peter Kaufman (author of "Poor Charlie's Book of Wisdom: Munger's Book of Wisdom") has said to me many times: "If liars knew how much money they could make by being honest, they would definitely not do it." You’re a liar.” Warren also said a very classic saying: “The road gets wider as you go the right way.” This is true.

5. Slow down, we don’t care

Some principles are very simple, but they are really useful. DailyJournal is in a difficult business, and its job of serving government departments such as courts is difficult. Government departments such as courts need to be automated.

Others want to take advantage of the courts and other government departments, but we do not. We are just a small company, we have worked very hard, and we have gradually occupied many markets.

Although the speed is slow, the future is bright. The good thing about having money is that we don't care if we take it slow. So how did we get rich? We remember the words of my great-grandfather, there are only a few opportunities. When an opportunity comes, we pounce to seize it. Think about it, is your life like this?

Let me tell you another personal experience. In the 1970s, I made a mistake. I failed to make an investment that I should have made. Without this mistake, the Munger family's wealth would be twice what it is now. That was a stupid mistake I made. I missed that opportunity or I would be twice as rich as I am now. Life is like this, it is inevitable to miss one or two opportunities.

6. When looking for a partner, you must find someone better than yourself

There are always people around us who have found a partner who is better than themselves. They made a wise decision and a lucky one. No amount of money can buy you a partner who is better than yourself. Many people accidentally find a partner who is better than themselves when they are young.

In fact, you don’t have to try your luck, you can pursue it consciously. Many people had eye-catching labels on their bodies that read "Danger, danger, don't come near." Some people rushed forward to meet them. (Laughing on the spot) It shouldn’t be. You are laughing, this is definitely a mistake with serious consequences.

7. Why can I still be happy when I am so old?

It’s weird enough for us on the board of directors to do unique things together and survive the ups and downs of life. After all, we are all so old. Gary Wilcox is one of our young people here. We are a very unique board. This case is also worth thinking about.

Look at me, I am so old and mature, but I am still living happily. How? This is another topic.

If you are willing to listen, I will tell you two more short stories. The following story is made up, but it is very inspiring.

A young man went to visit Mozart. He said: "Mozart, I want to write a symphony." Mozart said: "How old are you?" The young man said: "I am 23." Mozart said: "You are too young to write a symphony." The young man said: "But , Mozart, you started writing symphonies when you were 10 years old."

Mozart said: "That's right, but I didn't go around asking others how to write it." There is also a story about Mozart. . Mozart is arguably the greatest musical genius in human history. How is his life? Mozart was angry and depressed, and died young.

How did Mozart live like this? He did two things, and whoever does them is enough to fall into misery. Mozart didn't know how to live within his means and was squandering money. This was the first thing. Secondly, he was filled with jealousy and complaints. Anyone who spends extravagantly and is full of jealousy and complaints will surely live a miserable life and die early. If you want to live hard and die early, please learn from Mozart.

You can also learn a lesson from the story of the young man who asked Mozart how to write a symphony. The truth is: some people can’t learn some things. Some people are born stronger than you. No matter how hard you work, there will always be someone stronger than you. My mentality is: "So what?" Do any of these people here have to be on top of the world? That's not necessary.

I always find it ridiculous that emperors and generals built so many large tombs. Are they doing it to make future generations envious of themselves? To make future generations wish they could live in their tombs when they walk by them? (Laughter at the scene)

In short, we went all the way, enjoyed the process, and did a good job in the end.

You can do your own research to see how many major decisions a company has made in the history of Daily Journal and Berkshire Hathaway. On average, there are only a few major decisions every year.

The gameplay of this game is: always stay in this game, keep an eye on it, and when a rare opportunity appears, don’t let it slip away. You must know that the opportunities available to every ordinary person are not many.

8. How to climb out of mistakes at low cost?

The secret to making money is to save money and live simply. Warren and I, when we were young and had no money, we were scrimping and saving money to invest. If you persist for a lifetime, you will be rich in the end. Everyone can understand this.

Another problem that needs to be solved in life is: How can we climb out of mistakes without paying too high a price? Climb back from your mistakes, we did. Berkshire Hathaway, what was its first business? The dead department store, the dead New England Textile Company, the dead stamp company.

Berkshire Hathaway crawled out of these bad businesses. Fortunately, we bought very cheaply, and even though we had a bad hand, we still played well. In the end, Berkshire was able to succeed because we changed our approach and switched to buying good businesses. We succeed not because we are good at solving problems, but because we are good at staying away from them. We just find simple things to do.

DailyJournal company, when we first bought it, its business was doing very well. The software business that DailyJournal is doing now is very difficult to do. All the old colleagues in the company are still alive, and due to various coincidences, the new software business is doing well. This business has potential, and we are willing to continue it. Newspapers are in decline. How many newspapers can be like the Daily Journal, with hundreds of millions of dollars in stock on their books and running promising new businesses? We are the last of the Mohicans.

9. Questioning Session

Question: You have a golden saying that I particularly like. You said that when you were recruiting, one person had an IQ of 130 but thought his IQ was 120, and another person had an IQ of 150 but thought his IQ was 170. You would choose the former because the latter could kill you.

Munger: Isn’t this talking about Elon Musk? Of course I want to choose people who know how much they weigh, not those who don’t know what they are capable of. I would choose this myself, but I also learned a very important truth in life. I learned this from Howard Ahmanson. He once said this: "Never underestimate those who overestimate themselves."

Arrogant people who overestimate themselves can occasionally achieve great things. This is a very unpleasant part of modern life. I've learned to adapt. Arrogant people can occasionally become big winners, but I don't want a group of arrogant people dangling in front of me. I choose cautious people.

Question: You said that although a good opportunity is good, if you do it, you will suffer a lot. How to not completely miss it and not overdo it? How can you avoid entering the market too late? How to tell when a good opportunity has gone too far?

Munger: If you think about the problem thoroughly, the problem will be half solved. You have already said that this is a contradiction: a good opportunity, when you first enter the market, is full of potential; a good opportunity, if it is overdone, is full of dangers. With this string in your mind clearly, you have to decide what opportunity it is and what type it is. You have already solved half of this problem, you don't need my help. You already know what to do. We must see both the potential and the crisis.

Question: In Berkshire’s letter to shareholders, you also wrote about Berkshire’s past and future. You talked about several principles that have enabled Berkshire to succeed. My question is, Berkshire has followed certain principles as a holding company and has achieved great success and an excellent record. Why don't other companies follow Berkshire's lead?

Munger: I think the main reason is the inability to learn.

For example, a large company like Procter & Gamble has its inherent culture and bureaucracy that are already deeply ingrained. How do you think you can make P&G become like Berkshire Hathaway? This question can be directly classified into the "too difficult" category. It's too difficult, it's hopeless.

People still don’t realize how harmful bureaucracy is. One of the reasons why Berkshire has achieved what it does today is because there are just few people at the headquarters. Berkshire has nothing wrong with bureaucracy. Berkshire has several internal auditors, and the headquarters sometimes sends them out for inspections. Generally speaking, we have no bureaucratic problems.

There is no bureaucracy and the upper-level managers are clear-minded. This is our huge advantage. at

Q: My question is about long-term interest rates and compound interest. Interest rates have been very low over the past few years, making it difficult to find strategies that compound interest over the long term. 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 ideal high compound interest. My suggestion is to lower your expectations. I think, for a period of time, it should be difficult. It’s good for you to keep your expectations realistic so you don’t go crazy. We often hear people say that from the Great Depression, the worst in hundreds of years, to the present, the annual return on investing in the stock index, not counting inflation, is 10. After deducting inflation, it is about 7.

Over such a long period of time, 7 and 10 can create a huge gap. Let's assume that the actual rate of return is 7 per year. The timing of this rate of return was perfect, starting right after the Great Depression and going through the most prosperous period in human history. If you start investing now, the actual rate of return may only be 3 or 2. In the future, the annual return on investment will be 5 and inflation will be 3. This situation is entirely possible.

When this happens, the correct mentality is to tell yourself: "Even if this happens, I can live a good life." In the era when we old people lived, how could you have The living conditions in the future will be good, what should you be depressed about?

In addition to the right mentality, if investing becomes more difficult in the future, what practical actions should you take? The answer is simple, because the difficulty increases, you should try harder. Maybe you have worked hard all your life and finally exceeded 5 and got 6. You should be happy.

Question: When analyzing a company, do you pay more attention to quantitative indicators such as investment return rate, or qualitative factors such as brand advantage and management quality?

Question: 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, very important to know the boundaries of your circle of competence. If you don’t even know where the boundary is, how can it be considered a circle of competence? If you don't have that ability, but you 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 and resolute, especially don't lie to yourself.

From my life experience, the ability to understand oneself rationally is mainly determined by genes. I feel like people like Warren and I are made for each other. Education is important, but I think we are born with the character we need to be successful in investing. I can't let you go back to your mother's womb and be reborn.

Question: Many of today’s questions ask you what is your secret to longevity and happiness.

Munger: This is a good answer, because the reason is very simple: don’t be jealous, don’t complain, don’t over-consume; face any difficulties, maintain an optimistic attitude, surround yourself with reliable people, and do your duty. The things... are all simple truths, and they are also old-fashioned truths. If you do it, you will benefit for life.