Charlie Munger: First $100k is the Toughest

So I entered law because I didn't want to be a surgeon. I didn't want to be a doctor. I didn't want to be a university professor. I finally did it. There was only one. I just left the family. way and, uh, it wasn't the wisest decision I've ever made and you didn't once you started investing your legal training your mathematical training your experiences so well what it became to be a resident for you What happened was that There were things I didn't like about the practice of law and I had an army of children to support and I had no family money or anything to start with, so I had to make my way in life for this army of children and I had to be a little difficult and there were things about the practice of law that I saw that were quite limiting and what happened was that my pitifully small earnings when I was young I continued to spend less of them and I continued to invest quite boldly and intelligently and in the end In my

first

13 years of law practice, I had more liquid investments than I made in all those years of law practice before taxes.

I did it in my free time with these small sums, so it was natural for me, partly motivated. because of Warren Buffett's success thinking that I should start working for myself instead of other people, so another connection with my free time I thought well, what will happen if I do it full time? So one of the things that connects my career connects Caltech to uh. Investment is, of course, the process of discovery that creates new technologies and, for an economic historian, one thing we are well aware of is that technological change has driven much of the growth of the American economy in recent centuries, but from your perspective as an investor, what has been the most dramatic transformation that you have seen in those 75 years that tom rosenbaum reminded us that he has been connected to us but that he has also lived there, there have been big booms in big busts and that's been very interesting and of course the government has tried to do things that dampen fluctuations and speed up recovery from crises and of course that has caused a lot of inflation in a life that has been lived as long as mine and What has happened in the investment field is, of course, that a lot of people have gotten into it and made a lot of money, which has generated almost frenetic activity.

In the field of investments, when I was young there was probably no one and they weren't. I'm not very smart and now almost everyone is smart, even a Caltech graduate, a good proportion of them are sucked into money into finance and that's been a hugely important development. I don't appreciate it at all. I don't think we want everything. The world is trying to get rich by outsmarting the rest of the world and tradable securities, but that's what happened and there have been frenzies of speculation and so on, so it's been very interesting, but it hasn't been all that good at some point. level once By making an investment, you are putting your money in the hands of an entrepreneur who is actually going to produce something.

At least it seems like the value investing you practice has that characteristic relative to a pure arbitrage approach to trying to make money in finance. Well, overall I didn't make my fortune on the latest technology. My

first

investment with my pitiful savings from some adventure. I invested in a community right in Pasadena and it was called William Miller Instruments and I almost lost all my money. It was hell on earth, we barely achieved a substantial result, but what ended up is that the oscillograph that we had invented and that we were so proud of and thought was going to bring down the world, someone invented magnetic tape. without telling me and when we had the telegraph ready to go on the market, we sold three in total all over the world, all over the country, so this technology is deadly and also an opportunity, and my first experience almost killed me and So, but that is the other part, over the 75 years that you've been around, you've been involved in investing for a long time, was to stay out of venture capital on the edge of technology, but I still try to avoid it, but still, in companies with The ones you're talking about, some of them are market leaders at a given time and, as you just suggested, some technological change or change in preferences will cause those companies to lose a smaller market than they used to have. they have for their products and so how can you think about this in the long term?

Because corporate America behaves more like biology than anything else in biology. All individuals die and so do all species. It's just a matter of time and that's pretty good, which also happens in the economy, all the things that were really great when I was young have regressed enormously and new things have come up and some of them started to die and that's what which is the long-term investment climate and that makes it It's very interesting, look what's dead, all the department stores, all the newspapers, American steel, John D. Rockefeller's standard oil, the pale of his old I.

You know, it's like biology, so they have their little power, they have their little time, and then they get. hit and then how can one, as a kind of witness or in a certain way, live more than the life of some of these companies, deal with the change correctly to be able to think about an investment portfolio that you created? in time will only be valid for a certain period of time and so how do you learn to deal with change? It is a question that I always ask my students and I would ask myself: how can someone who has to take on very large resources?

There are many people facing change, any thoughts on that topic, well some people try to be at the forefront of change, so they destroy other people instead of being destroyed themselves, and those are the Googles and the apples , etc., other people like me. We do some of that by bringing together things like Apple and in some ways we're just trying to avoid big changes that we think are probably going to hurt us, which is why Berkshire, for example, owns the Burlington Northern Railroad. You can hardly think of a more old-fashioned business than a railroad business, but who the hell is going to create another trunk railroad?

So it's a very good asset for us and we achieve that success not by conquering change but by avoiding it now. Burlington Northern itself has been quite smart in adapting the technology to its needs. railway Imagine the good fortune of being able to take an existing railway and put all the trains on two floors and raise the height of the tunnels a little, etc., and suddenly have twice the capacity with very little incremental cost, which is What that railroad has done is that everyone uses new technology, but it really helps to have a position that technology almost can't take away.

How else are you going to transport goods from the port of Los Angeles to Chicago except on our railroad