Steven Myhill-Jones
All right. Ladies and gentlemen, the meeting will come to order. Hello, everyone. I'm Steven Myhill-Jones, the new Chairman and Interim CEO of Daily Journal Corporation as of the end of March 2022. I'm here today at our Los Angeles headquarters with an individual who really needs no introduction, the legendary, Mr. Charles T. Munger, who until last year served as Daily Journal Corporation's Chairman for many decades.
I'm grateful that Charlie, who remains a Director on our Board, has agreed to join us today. I also want to acknowledge and express our gratitude that Mr. Munger continues to manage Daily Journal Corporation's considerable portfolio of marketable securities and at no cost of the business, I might add. So thank you, Charlie.
Over the years, this annual shareholder meeting has become an increasingly popular event. And it's been a unique and wonderful opportunity to hear from and ask questions with Mr. Munger. I recognize this is why many of you are joining us today. And so my goal is to go through our formal business as quickly as possible without sounding too much like an auctioneer.
I also want to say that we really wanted to return to an in-person format this year with an audience of our shareholders actually here with us and with the other members of our Board, Mary Conlin and John Frank joining us on stage. However, for health and safety reasons, we opted to err on the side of caution again this year and do another round of the online approach that we've followed over the pandemic. I recognize we're all done with COVID, but COVID doesn't quite appear done with all of us.
So before I turn things over to Becky Quick of CNBC to moderate the Q&A, we'll now proceed to the formal business of the annual meeting. Michelle Stephens, Executive Vice President and Secretary of this meeting; and [ Ellen Ireland ] is Inspector of Elections. Ellen, will you please report the number of shares represented at this meeting?
Unknown Attendee
On December 16, 2022, the record date fixed by the Board of Directors for determining the shareholders entitled to vote today, there were 1,377,026 shares of common stock of the corporation outstanding. I have a list of the shareholders who are of record of that date, certified by the corporation's transfer agent, Equiniti Trust Company. I also have an affidavit certifying the completion of the mailing of the notice of this meeting, the proxy card and the 2022 annual report, along with a prepaid postage return envelope to the shareholders.
The total number of shares represented by proxy at this meeting is 849,758, which is more than a majority of voting power of all outstanding common stock of the corporation, and the meeting may proceed. I will attach the affidavits to the minutes of this meeting and have a copy of the minutes of the last annual meeting.
Steven Myhill-Jones
Thank you. A majority of the voting power of the corporation is represented at this meeting, and this meeting is ready for the transaction of business. As the first order of business, we will act upon the first proposal, which is the election of Board of Directors. Four directors are to be elected at this meeting, and the following people have been nominated and received a number of votes and are thus elected to serve: Charles T. Munger, Mary Conlin, John B. Frank, Steven Myhill-Jones. The inspector of elections has tabulated the vote.
Unknown Attendee
The nominees have received the following number of votes: Charles T. Munger, 428,537; Mary Conlin, 516,625; John B. Frank, 573,419; Steven Myhill-Jones, 543,229.
Steven Myhill-Jones
Since each of the nominees has received the number of votes required for his or her election as director, I declare that each has been elected director to serve for the next year until his or her successor has been elected and qualified.
The second proposal is the ratification of the selection of the independent registered public accounting firm. The Audit Committee and the Board of Directors have selected Baker Tilly US, LLP for this fiscal year. And the ratification requires a vote of the majority of the shares represented at this meeting. The Inspector of Elections has tabulated the vote: for, 846,716; against, 1,097; abstain, 1,945. Proposal 2 is hereby declared approved by this meeting.
The third proposal concerns the advisory note on executive compensation. Tu To, our CFO, and I are the only executive officers of the company, and our compensation is described in the proxy statement. The approval requires a vote of the majority of the shares listed -- represented at this meeting. The Inspector of Elections has tabulated the vote, and the following votes have been cast: for, 608,903; against, 1,296; abstain, 3,005. Proposal 3 is hereby declared approved by this meeting.
The fourth proposal concerns the advisory note on the frequency of the advisory vote on approval of executive compensation. The option of 1 year, 2 years or 3 years that receives the highest number of votes cast will be the frequency for the advisory vote on executive compensation selected by the shareholders. The Inspector of Elections has tabulated the vote, and the following votes have been cast: 1 year, 185,735; 2 years, 4,281; 3 years, 416,321. Accordingly, the stockholders have elected to hold the vote on executive compensation once every 3 years.
Since there is not any further business to be brought before the meeting, the meeting is adjourned.
We'll now transition to the Q&A once again with Becky Quick of CNBC serving as our moderator. Thank you in advance, Becky. I recognize most questions will be for Charlie, and I'll likely answer the occasional question if it's specifically about Daily Journal or Journal Technologies. Thanks, everyone. Over to you, Becky.
Rebecca Quick
Steven, thank you very much, and welcome, everyone. We got a great number of questions that came in, and I've tried to sort through as many as I could. We'll go through as many of these questions as we can during the session. But first of all, Charlie, thank you for taking the time today.
The first question that we have comes from [ Ryan Fusaro ], and his question is related to Journal Technologies. He says, "Can you give an update on the company's new CEO, Steven Myhill-Jones? He was appointed as interim CEO nearly 1 year ago. How is he performing? And when will the decision be made on selecting a permanent CEO?"
Charles Munger
Well, the answer is Steve chose his own titles coming in and we'll change whenever he wants to change it. How's that?
Rebecca Quick
That sounds fair enough.
Steven Myhill-Jones
Yes. No.
Rebecca Quick
Steven?
Steven Myhill-Jones
Yes, I'll say that when we were in discussions a year ago, I told Charlie that I was committed to ensure the success of the business, but that I wasn't sure I would be the right long-term CEO. And I had incomplete information at that time, and I thought it was important that I have the optionality to hire someone better suited or promote from within if we discover that be a better path.
And I founded and helped grow a geography software company with no background in publishing or the legal and court sector. And what I can say now is that the parallels between the software company I built in and Journal Technologies are remarkable. And I believe I can add value. I like the business and the potential for it. So I expect a lot of clarity on our long-term approach sometime later this year.
Rebecca Quick
Okay. Steven, thank you. The second question comes in, and it's in regards to capital allocation. This is from Paul in Linwood, Michigan, [ Paul Fam ]. In the past year, you've -- in the past, you've described Daily Journal's unique position of being a newspaper, which generated enough excess cash in the past to invest in an equity portfolio. Now its fastest-growing subsidiary, Journal Technologies accounts for a large part of the company's earnings. Is the technology business a natural area to allocate excess capital for the best return on equity for the company?
Charles Munger
The sound has gone off.
Rebecca Quick
Oh, can you hear me, Charlie? I'll keep talking.
Charles Munger
I can't hear you.
Rebecca Quick
1, 2, 3, 4, 5. I'll test this out. Maybe you guys can play me -- I don't know if there's a Voice of God you could play to the floor there, but I'll keep talking on the hopes that Charlie can pick up on this. And Charlie, just let me know when you do hear this.
This is a question, again. It sounds like they're not hearing, folks. I don't know in the control room if you guys have any ideas about what's happening. Again, this is the Annual Meeting for the Daily Journal Shareholders Meeting. We have a lot of questions that have come in for Charlie Munger (Trades, Portfolio), and we're going to be getting to those questions as soon as we can get the audio fixed for this. Sounds like...
Steven Myhill-Jones
Becky, we can hear you over -- someone's brought a tablet over, and we can hear you over the tablet for the time being.
Rebecca Quick
Okay. Steven, thank you. Charlie, I'll just wrap up. I don't know where this got cut off, but this is from [ Paul Fam ]. He was asking about capital allocation. And he's just wondering if the technology business is a natural area to allocate excess capital for the best return on equity for the company. How should we think about or how does the current investment manager think about investing in the equity portfolio in relation to reinvesting in growing areas of the business or share buybacks?
Charles Munger
Well, it's all very simple. We made a lot of extra money out of the publishing business in its heyday, and that was about $30 million. And that was all made in the foreclosure boom. And of course, in the old days, we had information monopoly on publishing the appellate court's decisions daily in newsprint. And the Internet came along and destroyed our position. Our circulation went way down and so forth.
So we've had a drastic change in good fortune in our publishing business. And Steve actually ran a small software company in Canada for years and years and years, which is quite similar to what Journal Technologies does. And so that's how we got together.
The future of this business is not in the publishing side, it's on the Journal Technologies side. And the good news is that we're a huge market because all the courts of the world are in the Stone Age still in terms of automating with modern technology. And so it's a big market.
The bad news is it's a long, slow slog where you deal with all of the bureaucracies in response to RFPs or request for proposals. And it's just a very slow, difficult business. So we got a slow, difficult business of chewing our way into a huge market that's not going away with one big competitor in it.
And that's the future. And like many publishing company, which used newsprint, it's a miracle when any survive. If you look in the small and mid-cap addition of the value line books, you'll find there are 2 entries left. One is Gannett, which used to own the monopoly newspaper, I don't know, 50, 60, or 100 different cities. And the executive used to ride their own jet airplanes and be treated like lords of England when they went to publishers' convention.
And every newspaper publisher was a hugely powerful in this own community. And so they're like the lords of England, all these publishers. And now mighty Gannett is just a pale shadow of itself. Newspapers shrunk down to a tiny little few and very limited assets and so forth.
So there's been an unbelievable change in the technology and competitive outcomes in publishing ordinary newspapers on newsprint. And by and large, the safe rule is they're all dying just in different states of near death.
And so if this place has a future, it's in the Journal Technologies side. And that's a long, slow grind. And the only reason we have a lot of marketable securities is we have the extra money, and we preferred the marketable securities to cash in an inflationary world. And so -- and of course, there's been a minor miracle that we've got as much as we have in marketable securities because our investments have done better than average.
Rebecca Quick
As a follow-up...
Charles Munger
So the good news is we survived so far, and we've got some surplus wealth. And the bad news, it's a long, slow slog ahead, and the main future is in Journal Technologies.
Rebecca Quick
As a follow-up to that, this is a related question. It comes from [ Gareth Moore ] in Northern Ireland, and maybe you can both comment on this. He says that given the extended amount of time that it will take to digitize the court systems because of complexity, risk and bureaucracy and the fast-moving world of software innovation, how can shareholders be assured that Journal Technologies solution remains cutting-edge long enough to reward shareholders? And how do you think about the risk of arriving in 2030 with a great software business, which only lasts a few years until it gets disrupted by some new technology?
Steven Myhill-Jones
Sure. I mean...
Charles Munger
Steve, you take that one.
Steven Myhill-Jones
Yes. Of course, there are no assurances. And at the same time, I do have some background dealing with this challenge because I did it for 19 years with my former company. And we earn consistent and appealing profits, and I expect the model is still working well for the folks who acquired us.
I think a key responsibility is to get technology change working for us and our customers rather than against us. And it takes advanced planning and investment to engineer software with change over time in mind. And so it's inherently upgradable.
And I think this model works with great if you can establish a sufficient licensee base to fund that proactive R&D to evolve products in a way that manages technology change so that -- and it also needs to be highly repeatable. And I think all of this requires a mindset that enterprise software development is an ongoing process and not a onetime event and so are customer deployments.
Rebecca Quick
Okay. Let me move on to another question that comes from [ Gage Sanchez ]. Gage writes in with a question for you, Charlie. 2 years ago, during the 2021...
Steven Myhill-Jones
Yes.
Rebecca Quick
Yes, let's try that.
Steven Myhill-Jones
Okay. We can hear now.
Rebecca Quick
So you've got the speaker there? Okay. So [ Gage Sanchez ] writes in and says, "2 years ago, during the 2021 Annual Meeting, you said Daily Journal's $350 stock was selling way above the price that you would pay for the new shares. As I write this, Daily Journal trades for $305 a share, a $420 million market cap. With a total equity portfolio value of over $310 million, debt charge is covered several times over by the bank's dividends. And Journal Technologies' off financial statement value in huge markets, do you still hold the same belief?"
Charles Munger
Well, you accurately stated our circumstances. We do have a lot of surplus wealth, but we needed to attack this big market. These courts, why would they gamble on a little company with no net worth, the courts that are letting the RFP contracts. So we're using our net worth to help the business.
Rebecca Quick
But does that get at the question of whether you'd buy the stock at $305?
Charles Munger
Well, I don't buy it, and I don't sell it. So that's what the Mungers have been doing. You know what?
Steven Myhill-Jones
We now have...
Charles Munger
It's not a crazy evaluation considering what everything else is selling for these days. So I have no feeling that it's -- almost foolishly I have some crazy mystique, somebody, well, it's a small Berkshire, and it will double like rabbits. And of course, it's not a small Berkshire. I'm 99 years old.
Rebecca Quick
That question mentioned the bank dividends that you all have at DJCO. Another person wrote in, [ Norman Bergman ], who asks, "Charlie, Berkshire has unloaded the bank stocks. If it's not good enough for Berkshire shareholders, why is it good for us?"
Charles Munger
Well, I might have different ideas. If you own securities -- marketable securities within a corporation, located in California, you pay huge state and federal taxes and you sell things at a big gain. And that affects our willingness to sell somewhat. Those bank stocks I bought on the bottom tick in the foreclosure crisis. Literally, it was the bottom tick, and they're practically all gain.
So I immediately give the government 40-some-percent, everything we sell out of it -- out of those bank stocks. So -- and of course, they're producing a tax -- the dividends are almost tax free. So based on what we would get if we sold them and the return we're getting out of the dividends, it's not so bad for us.
The answer is it's -- we're not in a normal position. All factors considered, we're willing to hold them for a while. And there is a big disadvantage in adding a huge layer of federal corporate taxes and state taxes between us and any money we make in a state like California, which is a very business unfriendly state as my people are rushing to come out and incorporate in California.
And there are all kinds of states that have no income taxes and deliberately use that lure to bring in corporations. California is trying to force its wealthy people and its wealthy corporations out of the state. And I must say it's working fine. They're leaving just one after another.
And that's just where it is. But if we succeed in the software business, it will all come good in the end. And if we fail, we have a crutch under us in our real estate and our securities, which means we won't lose so much from the present market price. So it's not a crazy thing to own now at the market valuation, but it's not cheap either.
Rebecca Quick
All right. All right. This next question comes from [ Thomas Slane ], who says he's a longtime Berkshire shareholder but a pretty recent Daily Journal shareholder. He says, "Well, I know that Daily Journal is not a mini Berkshire. I have suspected that there would be some shared principles in the area of governance, specifically regarding the Board of Directors. I'm surprised to see such a small ownership, 3 of the 5 own 0 shares. A fourth owns 100 shares." Thomas says, "Pretty unimpressive. Doesn't suggest much alignment between the Board members and shareholders." He says he's not trying to be rude, but he thinks it's a fair question.
Charles Munger
Well, what happened is we used to have [ Garon and ] Munger, who were the 2 biggest shareholders. And of course, we've been partners for years and years. And we took no fees, no directors fees, no expenses, no nothing. And so it was a very user-friendly Berkshire-type place.
Well, [ Garon ] died finally at age 90-some. And so now we're down to one last survivor of the old guard. And of course, we need a certain number of new directors. And our new directors are pretty damn smart, and they're all rich, by the way. So it's still a very Berkshire-like Board, smart and rich and thinking like a capitalist to -- we still -- we have that.
Steven Myhill-Jones
I would add that while I don't have equity yet, I'm certainly keen to participate in the future growth of the business. What should the timing of that be with someone as new as me? I think that's an interesting question. Thomas, I...
Charles Munger
We'll work it out.
Steven Myhill-Jones
Yes. Right now, I don't think that's impacting my drive or decisions. I already feel enormous skin in the game that Mr. Munger and the Board entrusted me to take the reins of the business is something I take very seriously.
Charles Munger
It's really quite interesting to have a pile of securities and one interesting activity in a very high-tech field and with a lot of politics and travel and difficulty in it. But it's a huge, huge market. And it isn't like there are a lot of
other people in it.
Most of the big corporations that would be our natural competitors are places where they -- they hate RFPs. In other words, one of the reasons the business is good for us is a lot of the big companies just hate what we're doing. They want easier money, they are able to sell standard piece of software just repeat it over and over and get.
They're spoiled. We're willing to slug it out of the mud of all these little consulting contracts. And that makes us to have literally a few competitors in the field.
Rebecca Quick
Charlie, since you brought up Rick Aaron -- oh, go ahead.
Charles Munger
No, go ahead.
Rebecca Quick
Well, since you brought up Rick Aaron, I want to get to this question from [ Roni Pereira ] in Mumbai, who says, "Your friend, Rick Aaron, passed away about a year ago. He was your long-time friend and business partner for several decades. How was he as a person, as an investor? And how do you remember his legacy?"
Charles Munger
Well, he was just terrific as a person, as an investor, and I miss him terribly, of course. We were together for years and years and years, and we were poor together, and that creates a bonding. When we met in 1961, we were both poor and struggling and young. So we had a long ride together. And -- but all things in, that's the nature of the human condition.
Rebecca Quick
I want to get to a question from Lee, just the first name from this shareholder, wrote in a question about ChatGPT and artificial intelligence and the impact on the Daily Journal's business model and civilization at large, says, "I'm not sure if you've tried to converse with ChatGPT, given all the rage in the news lately. Briefly, it's artificial intelligence known as a language model. It's trained on a large data set of text like books and articles. What are your thoughts on AI's impact on Daily Journal's business and more broadly, our civilization at large?
Charles Munger
Well, I think artificial intelligence is very important, but it's also a lot of crazy hype on the subject. Artificial intelligence is not going to cure cancer. It's not going to do everything that we want done. And there's a lot of nonsense in it, too.
So I regard as a mixed blessing, all this artificial intelligence. Some people have used it in some things like insurance underwriting pretty well. But a lot of people tried to use it, ordinary things like buying office buildings or something, I think that's way more -- I don't think it's going to help when you're going to buy an office building. Not very much anyway.
Steven Myhill-Jones
Through the lens of Daily Journal Corporation, AI is something that we started experimenting within the summer -- in the summer for certain types of -- writing certain types of articles. That's something we're certainly tracking very closely.
I think in terms of complex work, I think it's a long way off. But for many types of activities, especially routine things, I think it will be fascinating to see how disruptive it is over a relatively short time horizon for many types of work and activities.
Charles Munger
We had our big disruption when technology kind of severely -- it adversely affected our publishing business. And we have our opportunity in this new business, but it's just a long, tough slog. There's no short -- there's no royal road to success in what we're doing.
Rebecca Quick
Someone named [ Peter Ferlin ] wrote in from Oakville, Ontario. And he had a question that he asked ChatGPT to come up with a question to ask you, Charlie. And here's what ChatGPT came up with.
Mr. Munger, you've spoken about the importance of avoiding mental biases in decision-making. In your experience, what's the most challenging bias to overcome? And how do you personally guard against it? So I'd ask your answer to that question and then what you think of the question that GPT -- ChatGPT wrote for you?
Charles Munger
Well, what -- if I had to name one factor that dominates human bad decisions, it would be what I call denial. If the truth is unpleasant enough, people kind of -- their mind plays tricks on them, and they think it isn't really happening. And of course, that causes enormous destruction of business where people will go on throwing money into -- the way they used to do things, isn't going to work at all well in the way the world is now having changed.
And if you want an example of how denial is affecting things, take the world of investment management. How many managers are going to beat the indexes? All cost considered, I would say maybe 5% could consistently meet the averages.
Everybody else is living in the state of extreme denial. They're used to charging big fees and so forth for stuff that isn't doing their clients any good. It's a deep moral depravity. If some widow comes to you with $500,000 and you charge her 1 point a year for her, you could put her in the indexes, but you need the 1 point. And so people just charge somewhat a considerable fee for a worthless advice.
And the whole profession is full, that kind of denial. It's everywhere. So I had to say I was -- I always quote Demosthenes. It's a long time ago, Demosthenes, that's 2,000 -- more than 2,000 years ago. And he said, what people wish is what they believe. Think of how much of that goes on.
And so, it's of course, is hugely important. And you can just see it. I would say the agency costs and money management, there are just so many billions, it's uncountable. And nobody can face it. Who wants to -- keep your kids in school, you need the fees, you need the brokerage, you need this or that.
So you do what's good for you and bad for them. Now I don't think Berkshire does that. And I don't think we -- [ Garon ] and I did at the Daily Journal. [ Garon ] and I never took entire month salary or directors' fees or anything.
And if I have a business, I talk out of my phone or use my car, I don't charge it to the Daily Journal. That's unheard of. It shouldn't be unheard of, and it goes on in Berkshire. It goes on in the Daily Journal, but we have an incentive plan now in this Journal Technologies.
And it has $1 million worth of Daily Journal stock. That didn't come from the company issuing those shares. I gave those shares to the company to use in compensating the employees. And I learned that trick, so to speak, from a guy at BYD, which is one of the securities we hold in our securities portfolio.
And BYD at one time in its history, the founder, Chairman, he didn't use the company's stock to reward the executives. He used his own stock. It was a big reward, too. Well, last year, what happened? BYD last year made more than $2 billion after taxes in the auto business in China. Who in the hell makes $2 billion, who's a brand-new entrant in the auto business for all practical purposes. It's incredible what's happened.
And so there is some of this old-fashioned capitalist virtual lift in the Daily Journal, and there's something left in Berkshire Hathaway, and there's something left in BYD. But most places, everybody is trying to take what they need and just rationalizing whether it's deserved or not.
Rebecca Quick
Charlie, you bring up BYD. So I'll jump to a question from [ Stephen Spencer ], who writes in from New York, New York. He's curious why Mr. Munger prefers an investment in BYD to Tesla.
Charles Munger
Well, that's easy. Tesla last year reduced its prices in China twice. BYD increased its prices. We're direct competitors. We're so much ahead of BYD I mean, BYD is so much ahead of Tesla in China. It's like -- it's just -- it's almost ridiculous.
And if you look at BYD, which most of you never heard of, if you count all the manufacturing space they have in China to make cars, it would amount to a big percentage of what we have in Manhattan Island. And nobody ever heard of them a few years ago.
Rebecca Quick
All right. Let me jump to another question. This one comes from Michael [ Assetto ] who says, did the -- this is with regards to some movement at Berkshire, some sales of Berkshire's stake holdings. " Did the sale of BYD and Taiwan Semi shares have anything to do with the relations between the United States and China? Or was it for purely economic reasons?"
Charles Munger
Well, BYD is talking about 50x earnings. That is a very high price. On the other hand, they're likely to have increased their auto sales by another 50% this year. So it's -- we saw a part of ours, by the way, years ago -- not years, about a year ago at a much higher price than they're selling for now.
And no, we're not a mini Berkshire. We're not going to have a big correlation between us and what Berkshire does. And you could understand why somebody will sell Berkshire's -- BYD stock at 50x earnings at the current price of BYD stock, a little BYD is worth more than the entire Mercedes Corporation, market capitalization. So it's not a cheap stock.
On the other hand, it's a very remarkable company. And by the way, I want to tell people the great contribution I made to the success of BYD. We got into it through Li Lu (Trades, Portfolio), and it was a little company that knocked off the Japanese cellphones.
And the Chairman of this company was a -- genius say, I'll buy a bankrupt, a little crappy auto plant and go to the auto business from dead scratch when he's making cell phones little [indiscernible] company. And both Li Lu (Trades, Portfolio) and I tried talking about it. Please don't do this dumb thing.
You get your head handed to you in the auto business, little BYD and so forth. Well, last year, they made more than $2 billion in the auto business from that standing start at 0. It's unheard of. But Li Lu (Trades, Portfolio) and I get all the credit because we tried to get him -- we tried to talk about doing what works so well, which shows that there's some accident in life.
Rebecca Quick
Charlie, this question comes from [ Michael Gallagher ]. He says, "According to company filings, it appeared that Alibaba shares were purchased with leverage. And when the stock price fell last year, he was seemingly forced to sell," he being you. "Can you ask Charlie to confirm that it was bought with leverage? And if so, why would he do that as it seems to go against his philosophy? " I got several questions that were similar to that.
Charles Munger
Yes, it's true. I operated with no leverage for long stretches of my old age and Warren is the same way. And recently, I did use a little bit of leverage here in another place because the opportunities were so ridiculously good. I thought it was desirable to do that.
So you're right, it's unusual for us, but we did find a few things. And by the way, if you go back early in my career, I used some leverage. I sometimes ask myself a mettle question, I say, "What is the appropriate percentage of your net worth you should put it in the stock if you think it's an absolute cinch?"
Well, if you're kind of fellow who's right when you think something is the cinch the answer is 100% or maybe 150%. But nobody teaches people to think that way in finance. But if the opportunity is great enough, the logical answer is 100% or maybe 200%.
Rebecca Quick
Somebody else wrote in, and I don't have the e-mail in front of me at the moment, but he wrote in quoting you, where you said the 3 things that ruin people are ladies, liquor and leverage. So why would you use leverage when you know that's 1 of the 3 things that can destroy somebody?
Charles Munger
Well, I used a little on my way up, and so did Warren, by the way. The Buffett partnership used leverage regularly every year of its life. What Warren would do is, he would buy a bunch of stocks and any borrower -- and so stocks need by end of these -- they used to call the bad arbitrage, liquidations, mergers and so forth. And that was not -- didn't go up and down with the market. That was an independent banking business.
And Ben Graham's name for that type of investment, he called them Jewish Treasury Bills. And it always amused me that's what he would call them. But Warren used leverage to buy Jewish Treasury Bills on the way up, and it worked fine for him.
I don't think neither of us, everybody is -- well, no, Berkshire has stock in Activision Blizzard. And you can argue that's -- whether that will go through or not, I don't know, but that's the Jewish Treasury Bill.
Rebecca Quick
Arbitrage, the arbitrage play on Activision?
Charles Munger
Well, yes, arbitrage -- we sort of stopped doing it because it sets a crowd in place. But here's little Berkshire doing it again and Activision Blizzard and Munger using a little leverage at the Daily Journal Corporation.
Rebecca Quick
So is leverage...
Charles Munger
You can argue that I used that leverage to buy BYD, you can argue it's the best thing I've ever done for the Daily Journal.
Rebecca Quick
So is leverage the least evil of the 3 Ls?
Charles Munger
I think most people should avoid it, but maybe not everybody need to play by those rules. I have a friend who says, the young man knows the rules, and the old man knows the exceptions.
Rebecca Quick
All right, another question.
Charles Munger
He's lived right. He knows it.
Rebecca Quick
Yes. Another question comes in from [ Brandon McKee ]. He's also asking about some of the situations with Alibaba. He said, "How should investors view geopolitical events in regards to their investment in foreign countries? How do you look at the situation of the recent Chinese spy balloon in regards to the Alibaba investment?"
Charles Munger
Well, of course, it was a very interesting thing. Jack Ma was a dominant capitalist in Alibaba. And one day, he got up and made a public speech, where he said the communist party is full of monarchy. They don't know [indiscernible] they're no damn good, and I'm smart.
And of course, the communist partly didn't like his speech. And pretty soon, he just sort of disappeared from view for months on end, and now he's out of BYD. It was pretty stupid. It's like poking a bear in the nose with a sharp stick. It's not smart. And Jack Ma got way out of line by popping off the way he did to the Chinese government.
And of course, it hurt Alibaba and -- but I regard Alibaba as one of the worst mistakes I ever made. In thinking about Alibaba, I got charmed with the idea of their position on the Chinese Internet. I didn't stop to realize they're still a God damn retailer. It's going to be a competitive business, the Internet. It's not going to be a cakewalk for everybody.
Rebecca Quick
Just about China in general, I had a lot of questions that came in regarding that. I'll ask this one from [ Wilco Schulzendorf ]. It's coming in from Walnut Creek, California, who just said, "Previously, you stated that despite certain shortcomings, China was generally moving in the right direction. However, with the recent actions taken by the Chinese government such as capriciously punishing technology and educational companies, declining to import effective COVID vaccines, escalating threats towards Taiwan, do you still maintain that China is a viable investment option for foreign capital? Or is China experiencing a similar regression as Russia has seen under Putin's leadership that culminates in the invasion of Taiwan?"
Charles Munger
Well, that's a very good question, of course. But I would argue the chances in a big confrontation from China have gone down, not up because of what happened in the Ukraine. I think that the Chinese leader is a very smart, practical person. And he doesn't -- Russia went into the Ukraine is like a cakewalk.
I don't think Taiwan looks like such a cakewalk anymore. I think it's off the table in China for a long, long time. And I think that helps the prospects of investors who invest in China. And the other thing that helps in terms of the China prospects are that you can buy the best -- you can buy better, stronger companies at a cheaper valuation in China than you can in the United States.
So you're getting -- the extra risk can be worth running, given the extra value you get. That's why we're in China. It isn't like we prefer being in some foreign country. Of course, I'd rather be in Los Angeles right next to my house. It will be more convenient. But I can't find that many investments right next to my house.
Rebecca Quick
Just a follow-up on that. Alex [ Wrightson ] -- [ Alex Furmansky ] --I'm sorry, it's a very small print, writes in, "How have political events in China over the last few months affected your thinking on the country?" Several people, including me, were taken aback by the forceful withdrawal of former President, Hu Jintao, at the October 22 Annual Congress. President Xi seems to have consolidated power, and his actions have indicated that he thinks very differently about the role of business in Chinese society."
Charles Munger
Well, I have more optimism about the leader of the Chinese party than most people do. He's done a lot right, too. And he had led a big anticorruption drive. He's done a lot of things right. So -- and I don't know where this man lives. Where is there a place where the government is perfect in the world of sin and sorrow? Democracies aren't that rigidly run either. So it's natural to have some decisions made by government that don't work well. It's natural to have decisions in each individual life that don't work very well.
We live in a world of sin, sorrow and misdecision. That's what human beings get to cope with in their days of life. So I don't expect the world will be free of folly and mistakes and so forth. And I just hope I've invested with people who have more good judgment than bad judgment. I don't know anybody who's right all the time.
Rebecca Quick
And [ Keith ] from Cupertino, California writes in, and this is in the same vein but a little more focused. "How should we think about the political climate around Taiwan and the long-term impact on the semiconductor industry?
Specifically, do you see the chips -- the CHIPS and Science Act favorably?"
Charles Munger
Well, the semiconductor industry is a very peculiar industry. In semiconductor industry, you have to take all the money you've made, and with each new generation of chips, you throw in all the money you've previously made. So it's compulsory investment of everything you want to stay in the game.
Naturally, I hate a business like that. In Berkshire, we like a whole lot of surplus money to come in that we can do something else with. And of course, now if you're now ahead of it, like Taiwan Semiconductor is, that may be a good buy at these prices.
It's not at all clear to me that they're not going to succeed mightily. But it's a difficult -- its bit of an enormous promise for the big winner, but it's a difficult business and requiring everybody to keep increasing the bets on and on with all the money. And so -- it's not perfect, that semiconductor business.
But remember when Intel owned the world? Intel was once the Taiwan Semiconductor business of the world. They invented the damn business, and they've dominated it for decades. And it's not clear to me that Intel is going to have a very decent semiconductor business, getting as far behind as they are now. My answer is it's not so damn foolproof as it looked.
Rebecca Quick
Even with the incentives to build plants here in the United States, like Intel is doing in Ohio?
Charles Munger
Well, of course, that will really help. But they're borrowing money. There's no indication that government is going to forgive the loans or something. It's not like the recent loans to the business where they said, "we'll you owe the money and then oh, keep the money."
The government is not planning to do that at least new semiconductor loans. And so -- okay, it's not a field where I feel I have a lot of expertise. What the hell do I know about semiconductors?
Rebecca Quick
Do you worry about any conditions that the government would put on companies that end up using any of that money with semiconductors or anything else?
Charles Munger
Well, of course, all of that, it's deeply intertwined with government policies in both China and the United States. So I would rather have something that's more foolproof myself. But I do think Taiwan Semiconductor is the strongest semiconductor company on earth. So I am a big admirer of what they've achieved. It's just incredible of what they've achieved.
Rebecca Quick
Speaking of things you like better...
Charles Munger
By the way, maybe a wonderful investment, the fact that I don't like it because I am an old man, and I don't like learning new tricks. That doesn't mean it isn't right for some younger person that understands it better than I do.
Rebecca Quick
Okay. And actually, that -- I'm going to switch gears. We'll come back to this question in a minute, but that leads me to this question about crypto that Benjamin writes in. He says, "In 2007 at the USC Law School, Charlie said, I'm not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who are supporting it. The question is, does this also apply to your Wall Street Journal article on banning cryptocurrencies? And if yes, would you care to share the arguments against your position?"
Charles Munger
Well, I don't think there are good arguments against my position. I think the people who oppose my position are idiots. And so I don't think there is a rational argument against my position. This is an incredible thing. Naturally, people like who're in gambling and seals wherever people lose. And the people who had been in this crypto crappo which is my name for it, sometimes I call it crypto crappo and sometimes I call it well, crypto s***.
And it's ridiculous that anybody would buy this stuff. It isn't -- you can think of hardly nothing on earth has done more good to the human race than currency, national currencies. They were absolutely required to turn man from a damn successful ape into modern successful humans and human civilization. This has enabled all these convenient exchanges.
So if somebody says I'm going to create something that sort of replaces the national currency, it's like saying I'm going to replace a [ natural ] air. It isn't slightly stupid, it's massively stupid.
And of course, it is very dangerous. And of course, the governments were totally wrong to permit it. And of course, I'm not proud of my country for allowing this c***, what I call a crypto s***. It's worthless. It's no good. It's crazy. It will do nothing but harm and its antisocial to allow it.
And the guy who made the correct decision on this is the Chinese leader. The Chinese leader took one look at crypto s***, and he says "not in my China," and boom is over, there isn't any crypto s*** in China. He's right, and we're wrong. And there is no good argument on the other side. I can't supply it.
Rebecca Quick
So does that counter what you said back at USC that you shouldn't have a position unless you can encounter?
Charles Munger
I do think you ought to be able to state a lot of issues. You ought to be -- how big should the social safety net be? That's a place where reasonable minds can disagree. And you should be able to state the case on the other side about as well so the case you believe in.
But when you're dealing with something as awful as crypto s***, it's just unspeakable. It's an absolute horror. And I'm ashamed of my country that so many people believe in this kind of crap and the government allows it to exist is totally, absolutely crazy, stupid gambling with enormous house odds for the people on the other side.
And they cheat -- in addition to cheating and like betting, it's just crazy. So that is something. There's only one correct answer for intelligent people there, just totally avoid it and avoid all the people that are promoting it.
Rebecca Quick
How do you feel about the gambling that took place at the Super Bowl and surrounding that and the legalized gambling taking place in this country at this point?
Charles Munger
Well, it's not as bad as crypto s***. I don't think there's much harm in betting a modest amount you can afford on a Supermarket Bowl game. That strikes me as a pretty -- thing you do it with a friend and not with a bookie. So I don't have the same feeling -- I obviously don't think you should have a gambling impulse around betting against odds. If you take all the money that I have bet against odds in my whole life, I don't think it's more than a few thousand dollars.
Rebecca Quick
[ Allan Shay ] writes in, and he says...
Charles Munger
I'm all in favor betting with the odds.
Rebecca Quick
With the odds, yes. [ Allan Shay ] writes in and...
Charles Munger
Yes, sure.
Rebecca Quick
He says, "If Mr. Munger thinks that Bitcoin and Ethereum are rat poison, has he ever profited by shorting them?"
Charles Munger
No, I don't short. I have made 3 short sales in my entire life, and they're all more than 30 years ago. And one was a currency, and there were 2 stock trades. In the 2 stock trades, I made a big profit on one of them, made a big loss on the other, and they canceled out. And my currency bet, I made $1 million, but it was a very irritating way to make $1 million. I mean, I've stopped.
Rebecca Quick
Not worth the headache, I guess.
Charles Munger
Well, you can laugh, but that's true. It was irritating.
Rebecca Quick
Because you were worried?
Charles Munger
Well, like I'm asking you for more margin. I kept sending over treasury notes. It was very unpleasant. I made a profit in the end, but I never want to do it again.
Rebecca Quick
Charlie, I said I'd come back to this question. This was about something that you do like as an investment. Ami Patel from Montreal, Quebec writes in that you love Costco. So what do you think can hurt Costco's economic moat in the long term?
Charles Munger
Well, as long as Costco keeps the faith with a strong culture and their extreme low markup policy, I don't see any stopping at that. The trouble with Costco is it's 40x earnings. But except for that, it's a perfect damn company. And it has a marvelous future. And it has a wonderful culture, and it's been run by wonderful people. And I love everything about Costco. I'm a total addict. Never going to sell their share.
Rebecca Quick
The next question comes from David Kass, who is a Professor of Finance at the University of Maryland. He says he's a shareholder of the Daily Journal Corporation and would appreciate it if you'd answer one of these questions. The question that I'll ask from is President Biden has proposed increasing the tax on stock buybacks from its current level of 1% to a new higher level of 4%. What are your views on taxing stock buybacks?
Charles Munger
Well, I'm strongly opposed because I think if you're -- a good culture has a lot of people who are good fiduciaries. And it is like stealing to do something dumb with the corporate money once you can get more advantage to your shareholders from buying back your own stock. And I like encouraging morality and decency and honor, and so you're dealing with the people you're the fiduciary for. And so I agree with our President on some things, but this is not one of them.
Rebecca Quick
Vehemently disagree?
Charles Munger
What?
Rebecca Quick
Vehemently disagree?
Charles Munger
Say that again.
Rebecca Quick
Do you vehemently disagree?
Charles Munger
Well, I'm not vehement because it's not as bad as cryptocurrency. Yes, it's a forgivable error. But yes, I disagree strongly. I think it's a big mistake to adopt that policy. But I'm a Republican. I sometimes vote for Democrats, but I am a Republican.
Rebecca Quick
Another question on stock buybacks comes in from Ed Prendiville in Morristown, New Jersey. He says, "Berkshire share repurchases slowed considerably from $3 billion in the first quarter of 2022 to $1 billion in the second quarter and $1 billion in the third quarter." Even though the price declined somewhat as did the general market, one would think that the buyback would increase with a lower stock price. Does Berkshire adjust its buyback price based on the intrinsic value of the approximately $300 billion stock portfolio or the quoted price?"
Charles Munger
I never pay any attention on how they do it. They're cautious and careful people. And -- but if you take the amount that's been brought back in the last 3 years, it's a lot. And so I thoroughly approve what we're doing, and I don't consider at all fair that we're being taxed. We're doing something good for our own shareholders.
Rebecca Quick
The President laid out the case today, I think he said something like north of 90% of executives are paid with stock compensation, at least in part. He said maybe this was yesterday that he said this. He said that, that's not fair. The best way to boost your own compensation is to buy back your shares. So it helps the executives, it helps the shareholders, but it doesn't help the employees or other constituents.
Charles Munger
Well, there's no question about the fact that he sympathizes with the employees more, and that's understandable. And a lot of people would have the President's orientation on that issue. And I don't have a big opinion about how well thought it'd be distributed in the country.
I think -- I don't know the answer. I do think we need a capitalistic system if we want to have a productive economy to make some of these in advance.
Rebecca Quick
All right. The next question comes in from Michael, and I think his last name is [ Masso ], but I'm going based on the address from the e-mail and not his given last name. He says he's a very long-time Berkshire shareowner who read an irritating recent Barron's article that stated Berkshire shareowners could benefit after Warren as the company could come under pressure to break up. I don't see how we would benefit with our businesses being broken up. As you and Warren have long stated, the company as a whole is stronger than -- and one division could always aid another division in need. He said he knows Warren and you, Charlie, have said that the current structure and philosophies will be preserved after your departures. And I hope for a very -- I hope not for a very long time. However, please offer us shareowners reassurance that the company would never succumb to these silly pressures to break it up.
Charles Munger
Well, I don't think it's at all likely that we're broken up for a long, long time. A lot of companies are worth more dead than alive, meaning at the current price for whole businesses, you could sell things at higher prices. You can only do it once. The shareholders will pay a big tax then you have the problem of what to do with the money and forth. I think all factors considered and with Berkshire buying in its own shares when they are reasonably priced, I think Berkshire's a pretty damn good bet for shareholders as a whole of long term in the future.
And I don't think it's any hardship. It isn't being broken up. It works pretty damn well. Everybody that bought Berkshire and held it for 20 years has done well. I think that will be true for those who buy at the current price.
Rebecca Quick
What about the potential for pressure?
Charles Munger
I don't think it will be as good in the future as it was in the past, but it will be okay considering how poorly everything else is going to do.
Rebecca Quick
Why do you think everything else is going to do so poorly?
Charles Munger
Because the valuations start higher now and because government is so hostile to business.
Rebecca Quick
And that's a view over the next 5, 10, 20 years? How far out are you thinking?
Charles Munger
I would say it will fluctuate naturally between administrations and so on. But I think basically, the culture of the world will become more and more anti-business in the big democracies. And I think taxes will go up, not down.
So I think the investment world is going to get harder for everybody. And -- but it's been almost too easy in the past for the investment class. It's natural that it would have a period of getting harder. I don't worry about it much because I'm going to be dead. It won't bother me very much...
Rebecca Quick
I guess, you want to point out to people you're 99. Nobody lives forever, and that's what you're referring to? You're not sick at the moment...
Charles Munger
Yes, 99, right?
Rebecca Quick
You're not sick at the moment, right?
Charles Munger
No, I'm eating this good peanut brittle. That's what you want to do if you want to live to be 99.
Rebecca Quick
We did get some people who wrote in asking about what...
Charles Munger
I hate to advertise my own product, but this is the key to longevity.
Rebecca Quick
He eats peanut brittle, I can see. I saw the box earlier. We did get a lot of people who wrote in questions just asking what your daily habits are, what you do every day, if you exercise, if you think exercising a lot when you're younger is important to longevity?
Charles Munger
Well, that's a very -- I have almost no exercise, except when the Army Air Corps made me do exercise. I've done almost no exercise on purpose in my life. If I enjoyed the activity like tunnels, I would exercise. But for the first 99 years, I've gotten by without doing any exercise at all.
Rebecca Quick
And you're not planning on changing that anytime soon?
Charles Munger
No, no, I'm not changing it.
Steven Myhill-Jones
Other people's mileage may vary, yes.
Rebecca Quick
I'm looking for one question that somebody wrote in because I want to word it properly, and it has to do with what you've just been talking about. I don't know if I can find it. There's a lot of questions in here. No, here it is.
Somebody said, and this came from [ Adi Gon ] in Australia. What would the 100th day of your life look like? And how would you want to spend it when you step out of bed in the morning?
Charles Munger
Well, I step out of my bed these days and sit down in my wheelchair. So I am paying some price for old age. But I prefer it to being dead. And whenever I feel sad of -- in a wheelchair, I think Roosevelt ran the whole damn country for 12 years in a wheelchair. So I'm just trying to make this wheelchair thing last as long as Roosevelt did.
Rebecca Quick
That's a good plan. I like it. Somebody else wrote in, this is [ Adam Mead ], and he said, "Charlie, in your 1995 talk, the psychology of misjudgment, you listed senescence as a cause of misjudgment." You said, "Old people like me get pretty skilled without working on it at disguising age-related deterioration because social convention like clothing hides much decline." You went on to say that such decline was inevitable. He says, "You're my hero, Charlie, and I offer you this question with the utmost respect, but feel it needs to be asked. Would 71-year-old Charlie trust the judgment and mental capacity of 99-year-old Charlie?"
Charles Munger
Well, there's no question about the fact that you lose some mental acuity as you get older. But some people get shrewder at adapting to their limitations, and they do pretty well. And so far, I've had plenty of decline, but I'm pretty shrewd about the way I handle it. And so far, the results have not been that bad in my old age.
Rebecca Quick
As evidence...
Charles Munger
My s**life would be a different subject.
Rebecca Quick
Well, I will point out to people we have not given you any of these questions in advance. So you're taking blind questions.
Charles Munger
Yes, that's all right.
Rebecca Quick
Yes. For a large stretch of time on this, too. Okay. How do I follow that up? Just another question. This gets back to the investing what we were just talking about a minute ago, but Michael [indiscernible] writes in and says, "Given the increasing rate environment, what are the ramifications of moving away from a close to zero interest rate policy? Warren and yourself have frequently spoken about [ Aesop ] and a bird in the hand is worth 2 in the bush to describe the essence of investment decision-making. So what do you do now that the interest rate environment is changing?"
Charles Munger
Well, there's no question about the fact that the interest rates have gone up. It's hostile to stock prices. And -- but they should go up. We couldn't have kept them forever at 0. And I just think this is one more damn thing to adapt to in investment life as that there are headwinds and there are tailwinds.
And one of the headwinds is inflation. And I think more inflation over the next 100 years is inevitable with -- given the nature of democratic politics -- politics in a democracy. So I think we'll have more inflation. That's one of the reasons the Daily Journal owns securities instead of government bonds -- owns common stock instead of government bonds.
Rebecca Quick
When you say the nature of democratic policies, and I forget exactly how you worded it. Are you talking about the Democratic party? Are you talking about democracy as a whole?
Charles Munger
No, no. I'm talking about -- Trump ran a deficit that was bigger than the Democrats did. All democratic -- all politicians in a democracy tend to be in favor of printing the money and spending it. And that will cause some inflation over time. It may avoid a few recessions, too. It may not be all bad.
But it will do more harm than good, I think, from this point forward.
Rebecca Quick
Okay. On that point, [ Ron Trerotola ] says, "Should we continue to maintain a debt limit? The adjustment process seems to be a very simple and mechanical process. However, such a measure only seems to create an environment rife with political jockeying and sniping. What's the purpose if we continue to budget beyond our means and then the bill comes due?
Charles Munger
Well, if you take the history of democracy in the world and go back far enough, it fails a lot and gets succeeded by dictatorships and all kinds of awful things. And as a matter of fact, the worst thing that happened to the human race in my lifetime was an advanced civilization like Germany was taken over by a dictator as awful as Adolf Hitler.
That happened as a consequence of a big worldwide depression. It would never have happened if we hadn't had the Big Depression. And once Hitler got in, that meant World War II was inevitable. And that could have worked out a lot worse than it did for the people like the United States.
So these things are quite important. And they're not going to be done perfectly in the future, no more than they were done perfectly in the past. So of course, you've got to expect a certain amount of future trouble in the world, and your government is going to do some things that aren't exactly right.
On the other hand, I would argue that the U.S. government did some things magnificently right. I said on many occasions that the thing that makes me proudest of my own government is the way we handled the sequel to World War II.
Instead of punishing the Germans and the Japanese, we made them into some of our best friends on earth. Now that was a stunt. And it was to the credit of our country that, that was done. And it was done on a bipartisan basis. And I think we can all be proud of that. That was a smart thing to do. It took some generosity. We had to give up some of our money to help them rebuild.
And it was a credit to our species that we behaved that well on that occasion. And I don't think our future behavior will lack similar episodes of some kind.
Rebecca Quick
Will lack similar episodes or...
Charles Munger
We'll do some things very right and some things very wrong. That's the way it happens.
Rebecca Quick
Yes. That's very Churchill-esque, right? We'll try everything -- all the wrong things until we do the right thing.
Charles Munger
No, I will keep doing both wrong and right as far ahead as you can see.
Rebecca Quick
Charlie, a user writes in from Chicago and wants to know if you think we might have on and off waves of inflation like we did prior to when Volcker stepped in at the Fed in 70s era.
Charles Munger
Of course, it will happen some in the future. Yes, I think we'll have some of that in the future.
Rebecca Quick
Do you think we'll have it immediately right now with what Jay Powell is dealing with?
Charles Munger
I don't regard myself -- I think I'm pretty good at long run expectations, but I don't think I'm good at short-term wobbles. I don't have the faintest idea what's going to happen short term.
Rebecca Quick
Okay. Well, let me ask this one as a follow-up. It's similar, and you may not want to answer this one either, but [ Jake Polard ] says, "Do you have faith in Jay Powell? Are you expecting a soft landing?"
Charles Munger
Well, the way I feel about Jay Powell is that I feel he's about as good as we have any right to expect. I think he's honorable and intelligent doing the best he can. And I have no feeling that I know a lot of people who'd do it a lot better. So I'm glad we have him.
