Charlie Munger on Value Investing, Berkshire's Next Generation, and Hatred || Q&A Transcript (2019)
"There are various places to fish for value investments. And, of course, as the world gets tougher, you have to fish in places you didn’t fish before."
On February 14, 2019, Charlie Munger sat down with Yahoo Finance’s Andy Serwer for a short interview after the Daily Journal annual shareholders meeting. A fittingly cerebral “afterparty” of sorts for one of the money game’s sharpest minds.
And, while the conversation kept getting steered towards current events, Charlie — true to form — wove in timeless insights with his trademark wit and wisdom. Including his thoughts on the enduring principles of value investing, the irreplaceable upside of Berkshire Hathaway investment managers Todd Combs and Ted Weschler, as well as a warning about the corrosive effects of hatred. Enjoy!
Andy Serwer: I’m here with Charlie Munger, vice chairman of Berkshire Hathaway. Charlie, it’s great to see you.
Charlie Munger: Nice to be here.
I want to continue with some of the questions that people were asking you at the annual meeting. [Let’s] start, maybe, with China and trade and tariffs. You said that even Trump can be right on some of this stuff.
Yes. When people get mad enough at one politician, they get to thinking that everything he says and does is wrong — and that’s never the case. All I said was that you don’t want to be such an absolute purist for free trade. I’m almost a purist, but not quite. But I wouldn’t want the entire steel industry in the United States to move offshore. There’s some place where you could draw a line without ruining the world.
What should our trade policy be then? Yes, China can be unfair — is unfair — but how should we pursue this?
Well, I have an attitude that’s entirely different from our president’s. I am glad that we ran a big trade deficit with China, that enabled them to rapidly get out of poverty and obscurity. I welcome the Chinese to the group of advanced nations, which I think we enabled considerably by our willingness to trade with them as they moved ever upward in terms of complexity of enterprise. So I like what’s happened. I don’t regard it as unfair and bad.
I’m not saying that it would be unthinkable to have some tariffs somewhere, but basically I’m a free trader. And I’m particularly a free trader in dealing with China. I like the fact that free trade with China has enabled China to expand so much. They got out of poverty. They had hundreds of millions of people in rural poverty. In the whole history of the world, no big nation has ever advanced faster than China — and this free trade helped them do it. I like it.
But aren’t they unfair to us on intellectual property?
I’m sure there are places where somebody in China has some advantage over somebody in the United States that you and I might not like perfectly — but that will always happen.
The Chinese broke the Berkshire Hathaway shoe business in Maine.1 It disappeared, basically, because their shoes were very good and cheaper. I’m not mad at China over that — and Berkshire has prospered. It’s not so good for Maine, but we can’t help it. There’s no way to make an advanced civilization never hurt anybody as it evolves.
There’s a lot of talk about an elephant that Berkshire is on the hunt for — a big acquisition. Could that elephant be in China? And if it was, could you even buy it given the relationship between the two countries right now?
I don’t think it’s likely that we will be buying any great Chinese companies. The Chinese are very proud of their companies and they are proud of what they’ve accomplished. What I consider quite likely is that we will be invited to buy part of some great Chinese company — just because they like the good company. I think that is very likely to happen at some time and we would welcome it. We own minority positions in a lot of companies. We own a minority position in BYD.2
Let me ask you about BYD and Chinese cars. When will Chinese cars be allowed in the United States? What’s holding it up? Is it bureaucracy?
The auto market is very competitive and very fully occupied. And, of course, nobody in the United States wants to lose our last two big domestic manufacturers of autos. Well, three if you want to count Ferrari-Chrysler.3 It’s hard for somebody new to come into the American market big. China has such a big market of its own that my guess is they will stay busy in their own part of the world for a long time.
So that’s not a priority for BYD?
BYD’s biggest advantage is in electric cars — where they are so close to the cutting edge of battery technology. So they would be crazy not to emphasize the hybrid and electric cars over the gasoline cars. Not that they’ll go out of the gasoline market, but I think they will be biggest in hybrid and electric cars.4
Speaking of electric vehicles, what do you think about Tesla? Is that company going to become a major player?