In my previous three articles, I have shared my notes and observations from the 2017 Daily Journal Corp. (DJCO, Financial) meeting with each article focusing on one or two specific topics. Today’s article is the last one of this series and I will cover a few other topics that I call miscellaneous (I am not heeding Charlie Munger (Trades, Portfolio)'s suggestion on avoiding sloth).
On how specializing in life can make a big difference:
"Generally, specialization is the way to go for most people. It’s just I’m an example of something different. It’s awkward for me because I don’t want to encourage people to try to do it the way I did, because I only go to work for most people. The basic idea for being rational and disciplined and deferring gratification, those will work. But if you want to get rich the way I did, by learning a little bit about a hell of a lot, I don’t recommend it to others."
"I basically think John Bogle is right about his basic approach, that people are not going to match the averages, and he is. His idea has succeeded and he’s succeeded and he was right. On the other hand, he’s kind of a one-trick pony. I don’t think he has another ... he had one good idea in his lifetime. He rode it very hard. It’s all you need. He’s another example. He had one good idea, he pushed it hard and it worked. You don’t need a lot of good ideas, but you do need one."
“Al Gore had come into you fellows’ business. Al Gore is in your business and he has made 300 or 400 million dollars in your business. He’s not very smart. He drank a lot, he smoked a lot of pot. Coaxed through Harvard with a gentleman’s C. He had one obsessive idea, that global warming was a terrible thing, and he said he’d protect the world from it. His idea when he went into investment counseling is he was not going to put any carbon dioxide in the air. He found some partner to go into investment counseling with and he says, 'We’re not going to have any carbon dioxide.' This partner’s a value investor, a good one.
What they did is Gore hired a staff to find people who didn’t put carbon dioxide in the air. Of course, that put him into services companies. Microsoft (MSFT, Financial) and all these service companies who were just ideally located, and this value investor picked the best service companies. All of a sudden, the clients are making hundreds of millions of dollars and they’re paying part of it to Al Gore. And now Al Gore has hundreds of millions of dollars in your profession and he’s an idiot. It’s an interesting story.”
"There’s a leveraged buyout operator in Los Angeles that I know casually. He’s made 35% per annum for 30 years. All he buys is service companies. Instead of buying 100%, while leaving management to have 10, he always tries to buy 60 and let the old manager who created the company own the other 40. He buys nothing but services companies, and he knows a lot about it. With that formula, inventories, receivables, there are all kinds of horrible things in business that if you just buy service companies you can avoid. It’s amazing how it’s worked for this guy, who does the buyouts, it was just the way it worked for Al Gore. Thirty-five percent per annum. He’s smart because he’s causing people to have more of their own skin in the game, they know more about it. They’re more like partners instead of ... the new manager’s not an employee. If some other guy owns 40 and you own 60, that’s a different relationÂship, and he’s the founder. What a clever way to do it. And it worked better. Of course, he knows more about it when he does nothing but service companies."
"I know another guy who does nothing but mail order and internet companies. Also a leveraged buyout operator. He’s made 20 some percent per annum for a long, long time. He knows more about getting customers and this ratio, he knows more about this damn mail order internet companies. He really knows a lot. Two specialists, each one with a different specialty. Both working, interesting. That’s why I made all that talk about the specialization frequently works. I’ve had more fun to go on and do everything, but these specialists do better, averaged out. They know a lot."
On how to live a happy life:
“Well it’s all imitable. If your marriage reasonably works and if your family life reasonably works, and I don’t mean perfectly because nobody’s family life works perfectly, particularly with the children, and if your partnerships work well, we have had marvelous partÂners. Warren’s been a marvelous partner for me, I’ve been a good partner with him. All of our other subsidiary partnerships, which don’t overlap totally, have been marvelous. I do not have a big failed partnership of any kind. That’s because I am a good partner and Warren is a good partner. You want a good spouse, deserve one. If you want to have a good partner, be a good partner. It’s a very simple system and it’s worked very well, and of course it wouldn’t work very well without it. Also get rid of the bureaucracy. You deal with good people you trust. Expense, trouble, lawyers, checking, we’re all closing something with no audit. We basically are very old-fashioned. We bought the Northern Natural pipelines. We needed money Monday and it was Saturday, it was lots of money. We just gave them the money and took the pipeline, worked out the details later. Other people can’t do that. Their whole culture is there are all kinds of bureaucrats that want something to do, they can’t make an exception.”
On cloning:
"Well cloning is, of course, it’s not a very ambiguous word when you use it biologically, but when you take it into some other field, clonÂing is a very interesting idea. You do remove ideas from one place and bring them into another. If that’s cloning, I do it all the time.
It’s a very plausible idea and I’ve encouraged one young man to look at it. I can hardly say that it has no merit. Of course, it’s useful if I were you people to look at what you regard as great investors are doing for ideas. The trouble with it is that if you pick people as late in the game as Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), our limitations caused by size.
You really need to do it from some guy that’s operating smaller places and finding places with more advantage. Of course, it’s hard to identify the people in the small game, but it’s not an idea that won’t work. If I were you people, of course I would do that. I would want to know exactly what the smart people were doing, and I would look at every one of them. Of course. That would be a no-brainer for me."
I hope you enjoy Charlie's widsom as much as I do.
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