This article first appeared on WeChat public account value watcher (ID: Value-chaser), translation: Lee.
On February 13, US time, Munger, 96, participated in the 2020 Daily Journal shareholder meeting. Munger answered more than 30 questions in the audience, with the core of which was around China, the United States, and Sino-US relations.
When faced with the need for the United States to maintain a trade surplus, Munger clearly stated: The answer is no. On the changes in China and everything that happened, he bluntly said: I think the world’s most powerful company is not in the United States. Chinese companies are stronger and grow faster. At the same time, he also expressed optimism about the Japanese economy-although the economy has stagnated for 25 years, it will not fall into the abyss.
The following is an excerpt from a Q & A:
1: 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) is approaching the return on investment of investors. Considering some of the best companies in the United States, should we spend our time fishing in the United States? How do you weigh the strength of horse racing (ROIC) and horse racing odds (estimate Value) ?
Munger: Both are important. If you work hard to get a better company outlook than the price you pay, then all investments in this sense are value investments. Regarding investment locations, you can’t hit them one at a time, so you have to establish a system of choosing fishing locations, but remember that all investments you seek are corporate value .
I find it interesting 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 shouldKnowing which hunting ground to go hunting is very important. I have a fishing friend. His rules are simple: Go fishing where there are fish, go fishing where there are bargains .
2: 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?
Munger: The reason why index funds are growing fast 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.
3: What do you think of cryptocurrencies?
Munger: I don’t know much about cryptography, but I know I want 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.
4: Do you have any book recommendations?
Munger: Reading is extremely important to my 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.
5: What do you think of China’s economic downturn and increasing geopolitical risks?
Munger: I remain optimistic about China, because no one can lift a country out of poverty as fast as they do. I admire everything that happened in China .
They used to fall into the Malthus demographic 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.
Also letI 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 their difficulties .
Japan is a strong exporter, 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.
6: Can you talk about using negative evidence to change your opinion?
Munger: It’s a godsend to be able to find yourself wrong. A large part of the wealth comes from selling things that you 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.
7: Tesla has a market value of US $ 140 billion. Last week’s stock turnover was US $ 200 billion, options transaction value was US $ 500 billion, and the stock rose by 20% in a single day.
Munge: 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.
8: What will happen to value investment in the next 50 or 100 years?
Munge: 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 of 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 dead, living standards are rising all the way, air conditioning is also available, and a million beautiful things have greatly improved our liveslive. Medical conditions have improved. I don’t think there will be such a big improvement in the future because we have improved so much .
9: Do you have any suggestions for educating your children to make them successful?
Munger: It does n’t make sense to talk about the truth. The best thing parents should do is to lead by example.
10: Do you agree or disagree with negative interest rates?
Munger: The negative interest rate makes 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.
11: We had the “beautiful 50” in the 1970s. Are the technology stocks in the same situation now?
Munger: “Pretty 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.
12: Are there tools that can help you think more rationally?
Munger: 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 ’ll say: What can I do to hurt India, then think of ways to avoid these practices. Reverse thinking is more effective. Every great algebraist always thinks about the conclusions of problems, don’t think about what you want, think about what you want to avoid
13: Any suggestions for young people preparing to enter the financial industry?
Manger : 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.