Charlie Munger Quotations

Gold is a great thing to sew into your garments if you're a Jewish family in Vienna in 1939, but I think civilized people don't buy gold, they invest in productive businesses.

A banker who is allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it if the civilization doesn't have rules that prevent it.

When someone takes their existing business and tries to transform it into something else - they fail. In technology that is often the case. Look at Kodak: it was the dominant imaging company in the world. They did fabulously during the great depression, but then wiped out the shareholders because of technological change.

There's more honor in investment management than in investment banking.

Wall Street has too much wealth and political power.

Everyone has the idea of owning good companies. The problem is that they have high prices in relations to assets and earnings, and that takes all of the fun out of the game.

People are trying to be smart - all I am trying to do is not to be idiotic, but it's harder than most people think.

The perfect example of Darwinism is what technology has done to businesses.

There's danger in just shoveling out money to people who say, 'My life is a little harder than it used to be.' At a certain place you've got to say to the people, 'Suck it in and cope, buddy. Suck it in and cope.'

I'm proud to be associated with the value system at Berkshire Hathaway; I think you'll make more money in the end with good ethics than bad.

I believe Costco does more for civilization than the Rockefeller Foundation. I think it's a better place. You get a bunch of very intelligent people sitting around trying to do good, I immediately get kind of suspicious and squirm in my seat.

I'm used to people with very high IQs knowing how to recognize reality, but there's a huge human tendency where it may be instructive to think that whatever you're doing to succeed is all right.

If all you needed to do is to figure out what company is better than others, everyone would make a lot of money. But that is not the case. They keep raising the prices to the point when the odds change.

I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting.

Accounting is a big subject and there are huge forces in play. The entire momentum of existing thinking and existing custom is in a direction that allows terrible follies to happen, and the terrible follies have terrible consequences.

Derivative trading with mark-to-market accounting degenerates into mark-to-model. Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade.

The Berkshire-style investors tend to be less diversified than other people. The academics have done a terrible disservice to intelligent investors by glorifying the idea of diversification. Because I just think the whole concept is literally almost insane. It emphasizes feeling good about not having your investment results depart very much from average investment results. But why would you get on the bandwagon like that if somebody didn't make you with a whip and a gun?

The total amount paid out in dividends is roughly equal to the amount lost in trading and investment advice, so net dividends to shareholders are zero. This is a very peculiar way to run a republic.

I think it would be a great improvement if there were no D&O insurance . The counter-argument is that no-one with any money would serve on a board. But I think net net you'd be better off.

It is an unfortunate fact that great and foolish excess can come into prices of common stocks in the aggregate. They are valued partly like bonds, based on roughly rational projections of use value in producing future cash. But they are also valued partly like Rembrandt paintings, purchased mostly because their prices have gone up, so far.

Economists get very uncomfortable when you talk about virtue and vice. It doesn't lend itself to a lot of columns with numbers. But I would argue that there are big virtue effects in economics. I would say that the spreading of double-entry bookkeeping by the Monk, Fra Luce de Pacioli, was a big virtue effect in economics. It made business more controllable, and it made it more honest.

I think the main figure that matters to all of us, including people in the media, is: How does GDP per capita grow? And those figures have been very good. There is a huge flux both up and down, so it isn't like we're all static in status. What's important is that pie grows.

I get flack for saying [when I visit a college and give a speech], "This is a nice college, but the really great educator is McDonald's." They hate me for saying this and think I'm a slimy creature. But McDonald's hires people with bad work habits, trains them, and teaches them to come to work on time and have good work habits. I think a lot of what goes on there is better than at Harvard.

You could argue that [the decline of public schools] is one of the major disasters in our lifetimes. We took one of the greatest successes in the history of the earth and turned it into one of the greatest disasters in the history of the earth.

If you, like me, lived through 1973-74 or even the early 1990s... There was a waiting list to get OUT of the country club - that's when you know things are tough. If you live long enough, you'll see it.

The theory of modern education is that you need a general education before you specialize. And I think to some extent, before you're going to be a great stock picker, you need some general education.

The laws of thermodynamic s are such that if the water is getting warmer - and I believe it is - the energy of the weather is going to go up.

People always underestimate the ability of earth to increase its carrying capacity.

The secret to happiness is to lower your expectations. ...that is what you compare your experience with. If your expectations and standards are very high and only allow yourself to be happy when things are exquisite, you'll never be happy and grateful. There will always be some flaw. But compare your experience with lower expectations, especially something not as good, and you'll find much in your experience of the world to love, cherish and enjoy, every single moment.

I know just enough about thermodynamics to understand that if it takes too much fossil-fuel energy to create ethanol, that's a very stupid way to solve an energy problem.

The possibility that stock value in aggregate can become irrationally high is contrary to the hard-form "efficient market" theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by "rational man" models of human behavior from economics and too little by "foolish man" models from psychology and real-world experience.

I have a name for people who went to the extreme efficient market theory-which is "bonkers". It was an intellectually consistent theory that enabled them to do pretty mathematics. So I understand its seductiveness to people with large mathematical gifts. It just had a difficulty in that the fundamental assumption did not tie properly to reality.

If it is wisdom you're after, you're going to spend a lot of time on your ass reading.

To finish first you have to first finish. Don't get in a position where you go back to go. What's interesting is that some guy whose grandfather was a lawyer and a judge-hurriedly going to Harvard Law with a wave of veterans-I was willing to go into so many different businesses. I was constantly going right into the other fellow's business and doing better than the other fellow did. The reason it was possible? Self-education- developing mental discipline, big ideas that really work.

A director who gets $150,000 per year from a company and needs the money is not independent.

If mutual fund directors are independent, then I'm the lead character in the Bolshoi Ballet.

And maybe the cereal makers by and large have learned to be less crazy about fighting for market share-because if you get even one person who's hell-bent on gaining market share.... For example, if I were Kellogg and I decided that I had to have 60% of the market, I think I could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do it.

Even bright people are going to have limited, really valuable insights in a very competitive world when they're fighting against other very bright, hardworking people. And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times.

A rough rule in life is that an organization foolish in one way in dealing with a complex system is all too likely to be foolish in another.

I have a black belt in chutzpah. I was born with it. Some people, like some of the women I know, have a black belt in spending. They were born with that. But what they gave me was a black belt in chutzpah.

Most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact. They become people of whom Philip Wylie observed: "You couldn't 't squeeze a dime between what they already know and what they will never learn."

We have a history when things are really horrible of wading in when no one else will.

We don't have an isolated group [of senior managers] surrounded by servants. Berkshire's headquarters is a tiny little suite. We just came back from Berkshire's board meeting; it had moved up to the board room of the Kiewit company and [it was so large and luxurious that] I felt uncomfortable.

Obviously, consideration of costs is key, including opportunity costs. Of course capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a 100% return on capital, then you shouldn't invest in something that generates an 80% return on capital. It's crazy.

'Crowd folly', the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior - like investment management practices of many foundations represented here today. It is sad that today each institutional investor apparently fears most of all that its investment practices will be different from practices of the rest of the crowd.

For many of our shareholders, our stock is all they own, and we're acutely aware of that. Our culture [of conservatism] runs pretty deep.

I think the foundation at Berkshire [Buffett's stake in Berkshirewill pass to the Buffett Foundation upon his death] will be a plus because there will be a continuation of the culture. We'd still take in fine businesses run by people who love them.

If people tell you what you really don't want to hear what's unpleasant-there's an almost automatic reaction of antipathy. You have to train yourself out of it.

If you turn on the television, you'll find the mothers of the most obvious criminals that man could ever diagnose, and they all think their sons are innocent. That's simple psychological denial. The reality is too painful to bear, so you just distort it until it's bearable. We all do that to some extent, and it's a common psychological misjudgment that causes terrible problems.

Everyone caved, adopted loose [accounting] standards, and created exotic derivatives linked to theoretical models. As a result, all kinds of earnings, blessed by accountants, are not really being earned. When you reach for the money, it melts away. It was never there. It [accounting for derivatives] is just disgusting. It is a sewer, and if I'm right, there will be hell to pay in due course. All of you will have to prepare to deal with a blow-up of derivative books.

No CEO examining books today understands what the hell is going on.

The stupid and dishonest accountants allowed the genie of totally inappropriate accounting to descend on derivatives books. And once this has happened - people get status, etc. - it's impossible to get it back into the bottle.

To say accounting for derivatives is Americais a sewer is an insult to sewage.

We may well have a competitive advantage buying decent businesses at decent prices. But they won't be fabulous businesses and fabulous prices. There's too much competition and money out there, with many buyout specialists.

...Missing out on some opportunity never bothers us. What's wrong with someone getting a little richer than you? It's crazy to worry about this....

When you mix raisins and turds, you've still got turds.

There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.

I knew a guy who had $5 million and owned his house free and clear. But he wanted to make a bit more money to support his spending, so at the peak of the internet bubble he was selling puts on internet stocks. He lost all of his money and his house and now works in a restaurant. It's not a smart thing for the country to legalize gambling [in the stock market] and make it very accessible.

If you have the opportunities of Berkshire, an investment in gold is dumb.

Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.

Economic systems work better when there's an extreme reliability ethos. And the traditional way to get a reliability ethos, at least in past generations in America, was through religion. The religions instilled guilt. ... And this guilt, derived from religion, has been a huge driver of a reliability ethos, which has been very helpful to economic outcomes for man.

I think that if you have a single payer system and an opt-out for people who want to pay more [for better service, etc.], I think it would be better - and I think we'll eventually get there. It wouldn't be better at the top - [our current system] is the best in the world at the top. But the waste in the present system is awesome and we do get some very perverse incentives.

The quality of the medical care delivered, including the pharmaceutical industry, has improved a lot. I don't think it's crazy for a rich country like the USto spend 15% of GDP on healthcare, and if it rose to 16-17%, it's not a big worry.

This is a good life lesson: getting the right people into your system is the most important thing you can do.

Bernie Ebbers and Ken Lay were caricatures - they were easy to spot. They were almost psychopaths. But it's much harder to spot problems at companies like Royal Dutch [Shell].

Well in the history of the See's Candy Company they always say, "I never did it before, and I'm never going to do it again." And we cashier them. It would be evil not to, because terrible behavior spreads.

We're guessing at our future opportunity cost. Warrenis guessing that he'll have the opportunity to put capital out at high rates of return, so he's not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we'd change. Our hurdles reflect our estimate of future opportunity costs.

It's not the bad ideas that do you in, but the good ones.

...I'm very pleased when the smartest people come [to the U.S.] and almost never pleased when the very bottom of the mental barrel comes in....

We have never had the will to enforce the immigration laws. What you see is what you'll continue to get.

Expect hogs to eat a lot more in the presence of a lot of hog wash.

If you want good behavior, don't pay on a commission basis. Our judges aren't paid so much a case. We keep them pretty well isolated with a fixed salary. Judges in this whole thing have come out pretty well - there have been relatively few scandals.

If we mix only a moderate minority share of turds with the raisins each year, probably no one will recognize what will ultimately become a very large collection of turds.

You'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you 'd have to know the people involved to fully understand what was happening.

We have a higher percentage of the intelligentsia engaged in buying and selling pieces of paper and promoting trading activity than in any past era. A lot of what I see now reminds me of Sodomand Gomorrah. You get activity feeding on itself, envy and imitation. It has happened in the past that there came bad consequences.

I think you'll make more money in the end with good ethics than bad. Even though there are some people who do very well, like Marc Rich-who plainly has never had any decent ethics, or seldom anyway. But in the end, Warren Buffett has done better than Marc Rich-in money-not just in reputation.

I think there's an awful lot of twaddle and bullshit on EVA. The whole game is to turn retained earnings into more earnings. EVA has ideas about cost of capital that make no sense. Of course, if a company generates high returns on capital and can maintain this over time, it will do well. But the mental system as a whole does not work.

...People need to ask, "How do I play the hand that has been dealt me?" The world is not going to give you extra return just because you want it. You have to be very shrewd and hard working to get a little extra. It's so much easier to reduce your wants. There are a lot of smart people and a lot of them cheat, so it's not easy to win.

One of the smartest things a person can do is dampen investment expectations, especially with Berkshire. That would be mature and responsible. I like our model and we should do nicely

I've heard that one-half of the students at elite schools want to go into private equity or hedge funds. They want to keep up with their age cohorts at Goldman. This can't possibly end well in terms of meeting these expectations.

If you're going to be an investor, you're going to make some investments where you don't have all the experience you need. But if you keep trying to get a little better over time, you'll start to make investments that are virtually certain to have a good outcome. The keys are discipline, hard work, and practice. It's like playing golf - you have to work on it.

... some important factor doesn't lose its "share of force" just because some "expert" can better measure other types of force.

If it happens every year like clockwork, what's so extraordinary about it?

Avoid evil, particularly if they're attractive members of the opposite sex.

Tthe 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 on a latticework of theory, you don't have them in a usable form.... You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life.

If you can get good at destroying your own wrong ideas, that is a great gift.

You don't want to be like the motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, "Won't anyone stand up and say anything nice for the deceased?" and finally someone said, "Well, his brother was worse."

My idea of a good place to shop is Costco - it has these heavily marbled fillet steaks. The idea of eating some wheat thing and washing it down with carrot juice has never appealed to me.

It's human nature to extrapolate the recent past into the future, but it's terrible that managements go along with this.

We have the same problem as everyone else: It's very hard to predict the future...

I agree with Peter Drucker that the culture and legal systems of the United Statesare especially favorable to shareholder interests, compared to other interests and compared to most other countries. Indeed, there are many other countries where any good going to public shareholders has a very low priority and almost every other constituency stands higher in line.

Our standard prescription for the know-nothing investor with a long-term time horizon is a no-load index fund. I think that works better than relying on your stock broker. The people who are telling you to do something else are all being paid by commissions or fees. The result is that while index fund investing is becoming more and more popular, by and large it's not the individual investors that are doing it. It's the institutions.

Some years ago one oil company bought a fertilizer company, and every other major oil company practically ran out and bought a fertilizer company. And there was no more damned reason for all these oil companies to buy fertilizer companies, but they didn't know exactly what to do, and if Exxon was doing it, it was good enough for Mobil and vice versa.

In my life there are not that many questions I can't properly deal with using my $40 adding machine and dog-eared compound interest table.

So you can get very remarkable investment results if you think more like a winning pari-mutuel player. Just think of it as a heavy odds against game full of craziness with an occasional mispriced something or other. 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.

There's a lot wrong [with American universities]. I'd remove 3/4 of the faculty - everything but the hard sciences. But nobody's going to do that, so we'll have to live with the defects. It's amazing how wrongheaded [the teaching is]. There is fatal disconnectedness. You have these squirrelly people in each department who don't see the big picture.

A different set of incentives from rising in an economic establishment where the rewards system, again, the reinforcement, comes from being a truffle hound. That's what Jacob Viner, the great economist called it: the truffle hound - an animal so bred and trained for one narrow purpose that he wasn't much good at anything else, and that is the reward system in a lot of academic departments.

I think liberal art faculties at major universities have views that are not very sound, at least on public policy issues - they may know a lot of French however.

Proper accounting is like engineering. You need a margin of safety. Thank God we don't design bridges and airplanes the way we do accounting.

'F.A.S.B' ... 'Financial Accounts Still Bogus'.