Charlie Munger: Negative interest rates make me very nervous, I hate things like Bitcoin

Source: Tencent Finance

Translation: Lee, CFA, CPA, Shanghai English Advanced Interpreter

Q & A with Charlie Munger Daily Journal 2020

I don't like that group of investment bankers talk about what EBITDA (profit before interest, taxes, depreciation and amortization) is. I also don't like to discuss the J-curve, or a software company that backs up between VC and VC. This is a bit of a bottom line. In the past, people had a high return on investment in VC because they were Sequoia customers, but how can there be so many Sequoias and Sequoia's beautiful performance is also because of their small size. Now everyone wants to make the scale bigger, and then charge more management fees and recruit more employees. This model does not work.

I thought of a suggestion from a professor at Harvard Law School, "Speak your problem, I will try to make it more problematic." A thorough understanding of the problem is equivalent to solving half of the problem.

Not only that, the leadership of the Daily Journal Company looks like an old guy club! The CEO is 80 years old, I am 96 years old, and Rick Guerin is 90 years old. If you are not old enough, you will not be able to enter our club.

Buffett said he was always on the right track because it was less crowded.

The California Parliament has 10 rational Democrats and 10 rational Republicans. Every 10 years, crazy people will drive all rational people out of office. This is a crazy governance model, and I have no solution. Buffett told me one day that I want to live another 30 years so that I can always observe, which is very interesting. The ability to mislead people is clearly underestimated, and any good magician can show people what has not happened. We have been dealing with people who are very good at misleading us, and it's too difficult to be rational. This is not because we are smart, but because we are rational, and that is why we have succeeded.

question Time:

Q: In the past you compared value investors to a group of cod fishermen who fish in different ponds. You also said that in the long run, the company's return on capital (ROIC) approaches the investor's return on investment. Considering some of the best companies in the United States, should we spend our time fishing in the United States? How do you weigh horsepower (ROIC) against horseback odds (estimation)?

A: Both are important. If you strive to get a better company outlook than the price you pay, then all investments in this sense are value investments. Regarding investment locations, you cannot hit them one at a time, so you have to establish a system of choosing fishing locations, but keep in mind that all investments you seek are corporate value.

What makes me interesting is that I disagree with you that the most powerful company is not in the United States. Many Chinese companies are stronger and faster than American companies. I invested some and you didn't. I was right and you were wrong. You can just laugh it off, but I just told a simple truth.

Li Lu is the most successful investor in the whole house. Where does he invest? China! He is really a wit guy. You should know which hunting ground to go hunting, this is very important. I have a fishing friend. His rules are simple: go fishing where there are fish, and go fishing where there are bargains.

Question: In the past, you recommended index funds, and Buffett recommended selling funds to get dividends. What do you think of using index funds to accumulate wealth and selling funds to retire after retirement?

A: The reason for the rapid development of index funds is that for most people, index funds work better. On the other hand, people have great gambling preferences. In China, the short holding period of individual investors, who are keen to gamble on stocks, is really stupid.

It's hard to imagine something more stupid than Chinese individual investors. They excel at everything else. It also tells you how valuable it is to stay rational.

Q: What do you think of cryptocurrencies?

A: I don't know much about crypto technology, but I know to avoid cryptocurrencies.

I hate things like Bitcoin, and I hate things that are antisocial in nature. We certainly need real money. One interesting thing right now is that the United States accidentally created a reserve currency. The world needs this.

Q: Do you have any book recommendations?

Answer: Reading is extremely important for my whole life. I have read fewer books and read more thoroughly than before. My eyesight is not as good as before. You should talk to some younger people about books.

Q: What is your opinion on China's economic downturn and increasing geopolitical risks?

A: I am optimistic about China because no one can lift a country out of poverty as quickly as they do. I am a super admirer of everything that happened in China.

They used to fall into the Malthusian population trap. But I think they are doing good to the world and admirable.

The United States should live in harmony with China, and so should China.

I also admire a modern country with a 25-year economic stagnation. I think Japan responded to the 25 years of economic stagnation with superb wisdom. They didn't crash. They deal with them like men, instead of being crooked and complaining. I admire the way they deal with difficulties.

Japan is an export powerhouse, followed by China and South Korea. Of course, they all have some problems. We all have problems if we face more intense competition. Japan's stagnation is not their fault.

Q: Can you talk about using negative evidence to change your perspective?

A: It's a godsend to be able to find yourself wrong. A large part of Munger's wealth comes from selling what he later found to be wrong. You certainly have to change your mind. I try to abandon dogma, and most people try to embrace their mentally handicapped ideas.

Q: Tesla has a market value of US $ 140 billion. Last week's stock turnover was US $ 200 billion. Options trading volume was US $ 500 billion. The stock rose by 20% in a single day.

Answer: My two points. I will never buy Tesla, and I will never short Tesla. I still have a point. Roosevelt said: "Never underestimate those who overestimate yourself." I think Musk is special. He may have overestimated himself, but he will not always be wrong.

Q: What about value investment in the next 50 or 100 years?

A: I do feel that the world may have changed. Two kinds of changes are possible, the magic technology extends life expectancy, and may also reduce deaths due to cancer.

Think about everything that technology has changed. All the daily newspapers are dying, and the production process has changed dramatically. These changes have caused huge losses to those who own these companies.

I do feel that something really important has happened. Is there anything better you can do, do what you want to do? What is the use of more money for you?

I think my generation has changed the best. Our children are no longer dying, their living standards are rising all the way, air conditioning is also available, and one million beautiful things have greatly improved our lives. Medical conditions have improved. I don't think there will be such a big improvement in the future, because we have improved so much.

Q: What advice do you have for educating your children to make them successful?

A: It's useless to talk about the truth. The best thing parents should do is to lead by example.

Q: Do you agree or disagree with negative interest rates?

A: Negative interest rates make me very nervous. However, I don't think the government has much choice. Their only weapon in the crisis is to influence interest rates by printing money. It turned out to be right. Of course, negative interest rates make me nervous, because once the money printing practice is tried, people will overuse it. This is human nature, and I don't know what to do.

Q: We had the beautiful 50s in the 1970s. Are the technology stocks in the same situation now?

Answer: Beautiful 50 is an interesting question. At the apex of madness, a home sewing machine company is valued at 50 times PE, and we are not that crazy now. Today's technology companies are very valuable companies, maybe the price is a little too high, but the technology company will not collapse like the home sewing machine company. The beautiful 50 of that year was really crazy.

Q: Are there tools that can help you think more rationally?

A: One of my secrets is the reverse process. When I was a World War II meteorologist, they taught me how to draw weather maps to predict the weather. We were flight navigators. I reversed this scenario. Imagine what would make it easier for many pilots to die? That's when the plane ran out of fuel before landing, so I must prevent the plane from freezing or failing to land. This made me a better meteorologist. If someone hires me to solve India ’s problems, I would say: What do I do to hurt India, then I think of ways to avoid these practices. Reverse thinking is more effective. Every great algebraist always thinks about the conclusions of problems, not thinking about what he wants, but thinking about what he wants to avoid.

Q: Any suggestions for young people who are preparing to enter the financial industry today?

Answer: Probably, most people who enter the financial industry will not succeed . Easy money always leads to no bottom line, just like a large group of carnivorous animals in Africa. I don't think modern finance is so beautiful. In my time, many financial people were more like engineers. They still have memories of the Great Depression, so they did everything they could to make finances safer, and now they are completely different.