Berkshire Hathaway (NYS: BRK.A) (NYS: BKR.B) Vice Chairman Charlie Munger may be 88 years old, but he's still as witty, wise, and irreverent as ever. He sat down for a long interview with CNBC last week before the company's annual meeting in Omaha. Here are some of the highlights.
On Berkshire's future: "I've never been more comfortable about succession or duration of culture than I am right now. Our new investment people [Todd Combs and Ted Weschler] show enormous promise. ... I have enormous confidence in the continuation of the culture."
On 2008: "The panic that came as a predecessor of the Great Recession had common themes [with the past] that are always the same. The crazy greed, the crazy leverage, the crazy delusions. I think we were very lucky that the outcome wasn't worse. If it were a just God it would have been worse than we got."
On gold: "I think 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."
On humility: "[Former Federal Reserve Chairman Alan] Greenspan to his credit has since recognized that he was wrong. He's the only one who's done that. Everyone else has managed to look at this enormous [failure] and leave the previous ideas intact. That's a common human way of handling things. No matter how bad the evidence, you just keep your previous conclusions."
More on Greenspan: "[Greenspan] really overdosed on Ayn Rand. And in fact everybody else did, too."
On Berkshire's investments: "I love the portfolio we've gradually developed at Berkshire. We have a wonderful portfolio of businesses if you average them out. By and large they are doing productive and useful work -- it's not outsmarting the computer systems in the trading markets."
On Buffett's purchase of IBM (NYS: IBM) : "I was perfectly OK with it. It's a very Buffett-style play. It's simple. They announced what they were going to do and why they thought it was going to work. You could see how entrenched IBM was in many places, including the Burlington railroad. I think our business experience helps our investment judgment, and vice-versa. ... We've always said that what we like best was owning a wonderful business outright, and second best we like good ideas in securities. That has never changed."
Asked if he tweets: "No, I don't use the cellphone."
On manufacturing and competiveness: "It's just amazing what happened to American manufacturing. I have a brother-in-law who made draftsman stools for years in a little factory right here in Omaha. When the Chinese got good at making draftsman stools, it was impossible for that business to continue. I don't think that was evil or anything else. I think that kind of creative destruction happens in capitalism with free trade. It's very painful for the people who get hit by it. It's painful for Kodak when the technology changes. I don't think you should look for a villain. What happened to Kodak is just a natural outcome of completive capitalism. It's awful for Rochester and it's awful for a lot of people, but it's probably good for the greater system of the world."
On Buffett's support of President Obama: "I'm in the other party, but there's plenty to regret in the Republican Party. But there's plenty to regret in the Democratic Party. I am not enthusiastic about our politics now where the nutcases in each party have come to power and hate each other. I remember a more bipartisan world with affection.
I think [Romney] is by far the best of the Republican nominees. So does Warren. I think, considering how poisonous the political atmosphere in the country is, it's amazing that we have two people as outstanding as those we have. ... There is a lot of merit in both these people."
Asked if a new president will change business: "Everybody likes to think that there's a holy war that matters terribly. I don't think it matters that much. I think it's the nature of democratic capitalism to have a social safety net. That doesn't go away when the Republicans get in office, and the Democrats aren't allowed to go as crazy as they would like to when they get into office. The system has worked at least moderately well in preventing really extreme bad governmental conduct."
When reminded that the country faces big challenges: "We always do. Think when we had the Cold War when we had those intercontinental missiles aimed at one another. There's always some big problem that we're coping with. I just think that comes with the human condition."
On the stock market: "Averaged out we're pretty agnostic about the market at Berkshire. We just try and swim better than the tide and take the vicissitudes of the tide as they come. But I do not think that the civilization is going totally to hell or anything like that. ... I'm not nervous about the basic portfolio of Berkshire as part as our insurance operation."
On individual investors: "The ordinary investor who actively is trading with the help of an ordinary stock broker is going to get a result which is way worse than the market provides. I just think the people who listen to CNN and want to be do-it-yourself investors averaged out are going to be losers. ... If you don't know very much, you should buy an index. Knowing enough to make alternative conduct safe is something that is always going to be a minority sport."
On people looking for alternative investments after being burned by stocks: "That's a natural thing to do. What we've always tried to do is to be just the opposite. In other words when everybody is totally discouraged and think the world is going to hell, that's when we like to be buying."
On China: "China has grown at a rate that for a country that big is unprecedented in the previous history of the world. So that's a huge development, and it's enormously important to the world. With that many people start getting ahead year after year at that kind of a percentage rate it affects the whole world. I think we have no sensible alternative except than to be very friendly with China, and I think they have no sensible alternative than to be very friendly with us. ...
Anything that is extreme as [China's growth] will eventually stop. China will not grow in real terms at 10% per annum for another 40 years. They would own the world! ... I would bet that with fluctuations China continues to do very well with its policies. I would argue that in some important respects they have been smarter than we have. Their set of policies, created by a nominally communist government, have actually been very intelligent in driving the welfare of their people ahead at a rapid rate. It's a huge achievement, what they've done ... considering where they started -- in a communist bureaucracy with widespread starvation -- and without any big wars, to have transformed a nation that big by a combination of population control and bringing in free-market business principles, it's one of the most remarkable human achievements in the history of the world."
On Singapore: "I regard what happened in Singapore as the best example of successful governance in the history of the world. To take a handful of people in a malarial swamp and turn them into a meritocratic civilization as well as Singapore has is a huge achievement. I think China to some extent has copied Singapore. And I think they deserve some admiration."
On legacy: "Ask Warren how he wants to be remembered. He wants to be remembered as a teacher. Who in the hell is saying that from the top of a company, from a record like Warren's? Why wouldn't I like being associated with that ethos?
I have a little different twist. I have less ambition than Warren about being a great teacher. I am trying to emulate my great-grandfather. When he died, they said about him, 'Nobody envied the success, so fairly won and wisely used.' It's a simple philosophy. And wouldn't Wall Street have worked better if more people had tried to imitate my great-grandfather?"
On Wall Street: "I think it's better. I would say the majority of what was wrong has not been fixed. ...
Take the rapid trading by the computer geniuses with the computer algorithms. Those people have the social utility of a bunch of rats admitted to a granary. I never would have allowed the rats to get in the granary. I don't want the brilliant young men of America devoting their life to being rats in someone else's granary. It's not my way of the right way to run the republic. If you let me write the laws, it wouldn't happen. ... I wouldn't allow anyone to make money in short-term trading. I might have Tobin taxes. I would do something. I think if we change the incentives a lot of this regrettable behavior will go away. ...
I've always felt it did more bad than good to have this enormous liquidity in stock markets . It makes those markets a perfect casino for gamblers. If you had the right tax incentives, the gamblers couldn't win on short-term trading. I don't think we need all this liquidity and all this gambling frenzy. But I'm the distinct minority."
On businesses relying on cost-cutting instead of growth: "Everybody always wants to do growth. It's when that avenue looks difficult that people go to cost containment. I have a friend with a moving business, and he used to have 330 employees, now he's got about 240. They used to be employees with perks; now most of them are independent contractors. He did that because he had to in the Great Recession, which enormously affected the moving business. He didn't shift to cost containment as some kind of strategy -- life was forcing it on him. A lot of that has happened in business, but it's not because they prefer it. Everyone would prefer to build new plants based on anticipated demand and do growth. This other stuff is stuff they do as a second choice. Berkshire has always tried to keep a culture where we act like we are having a recession when we aren't. So cost containment ... we're already there."
On plans: "I have a deep distrust in master planning. People get to believing the plan because they created it. What is needed is the kind of propensity to disbelieve by changing your previous conclusions. And we're very good at that, thank God."
Asking if his friend will ever go back to the old way of business: "No, it's never going back. He squeezed the cost out. That's one of the main troubles of the economy, that everybody has done what my friend in the moving business has done. It's perfectly logical. That's the way capitalism works. ...
I think you can argue that there is some duty to be a little optimistic, meaning that the successful corporation to some extent should be a shock-absorber in the civilization and take a little pain before it translates it into the workers' paychecks. And I think most businesses do operate that way. They do act as a shock-absorber. But they also have to change their cost structure to adapt to the competitive reality. People have no alternative."
On his outlook for America: "I think there's more sin than there used to be. But if you went back far enough you would find a lot of sin. My favorite saying is about Jay Gould and Russell Sage. They said of those two in Congress, 'When they're talking they're lying and when they're quiet they're stealing.' We've come a long way from that. ... We tend to idealize the past. A lot of what was very regrettable is now gone."
At the time thisarticle was published Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of International Business Machines and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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