Thursday, February 13, 2020

Notes from the Charlie Munger meeting; Deep Survival: Who Lives, Who Dies, and Why

By Whitney Tilson

1) For more than 20 years, I've been attending the Berkshire Hathaway (BRK-B), Wesco, and Daily Journal (DJCO) meetings to hear Warren Buffett and Charlie Munger speak. I have never once regretted making the trip. These two are so wise and unique – and I love meeting and catching up with my friends and readers.

Yesterday, I attended Munger's Daily Journal annual meeting in Los Angeles, along with my analysts Alex Griese and Kevin DeCamp. We live-blogged it – read our notes here. In addition, CNBC livestreamed the event and posted it here.

Much of what Munger says is old-school – but, as he likes to joke, "If it's trite, it's right!" It's truly amazing that, at 96 years old, he's getting better with age. I cannot detect any sign that he's slowing down mentally.

Since I'm now climbing in Yosemite (see further below), I asked Alex and Kevin to share their thoughts and highlights of the meeting. Take it away, gentlemen!

Alex Griese

Yesterday was my first Daily Journal, Wesco, or Berkshire meeting. I wish I had gone to one of these sooner, but I'm happy that I attended my first one at just 24 years old!

I had high expectations for the meeting, and yet I was totally blown away by Munger's ability to field questions on a wide variety of topics – ranging from macroeconomics to psychology to value investing – for two hours. He hasn't lost a step and continues to learn at a rapid rate at the spry age of 96. I really hope I'm as lucky as Munger, who has been able to work on his passion day in and day out for most of his career.

One of my favorite things about Munger is that he harps on the importance of being a multi-disciplinarian. This is one of the major reasons why I chose to attend a liberal arts college (coincidentally, the same school as two of Whitney's daughters, Carleton College), and ultimately why stocks are my passion.

Attending the Daily Journal meeting yesterday was special for me, as I experienced Munger's aptitude for multiple disciplines firsthand. He drew connections between the importance of psychology and mental tricks to investing and an individual's happiness... touched on far-flung things like bitcoin and Elon Musk... discussed excesses in the financial system today and in the past... and opined about the current set of media owners. Clearly, he's a multi-disciplinarian through and through, but what I like most is that he knows the limits of his abilities and doesn't answer questions that he genuinely knows nothing about (of which there are few!).

Munger mentioned that easy money can be made in finance (via fees for making deals that need not be made, or for poorly managing portfolios, as an example), which creates "wretched" incentives. To sum up, he said the financial-services industry was like a pack of rabid hyenas feasting a carcass near a watering hole.

I loved this metaphor because it represents two key mental models: first, the ability to simplify complex problems into more understandable ideas... and second, the role incentives play in human behavior (which I learned from reading Poor Charlie's Almanack). Learning about incentives from Munger was a "light switch" moment for me – it explained a number of peculiar behaviors and situations I had observed in my life. With this in mind, I definitely agree that it's best to "take the high road, because it is less crowded."

The other quote I loved from Munger was that "you should act like a survivor and not a victim." What I took from this was the idea of accountability – if you suffer a setback, own it, and continue on with your life rather than complaining that it's someone's else fault. Munger thinks that far too many of today's politicians fuel citizens' sense of victimization.

Hopefully, I can keep learning, taking the high road, and being resilient for the rest of my life!

Kevin DeCamp

Just to clear the air... Yes, I am Whitney's analyst who's long been bullish on Tesla (TSLA) – yet still consider myself a member of "the church of Buffett and Munger." In fact, when I met Whitney on a ski lift years ago, one of the first things I told him was that had I owned Berkshire for more than a decade (and still do). (In hindsight, this may have been the only reason he hired me!) So I was excited when I had the opportunity to attend the Daily Journal meeting last year for the first time. I share Whitney's impression that, based on what we saw yesterday, Munger's mental acuity hasn't declined one bit.

After following Buffett and Munger for so long, sometimes I feel like I can finish their sentences... but there are always fresh nuggets of wisdom any time they speak. There's nothing like those two on stage at the Berkshire meeting... but the Daily Journal meeting is the chance to hear just Munger with all his wisdom, wit, and frankness.

I found his views on negative interest rates interesting, as he thinks they're "dangerous and peculiar" and he's generally "uncomfortable" with extremely low interest rates. However, Munger acknowledged that the central banks had to do what they did to save the system during the financial crisis. His overall message was that he doesn't know what the solution is – nor does he believe anyone does – and we are right to be worried about this extended period of ultra-low rates. The fact that such an intelligent investor with decades of experience feels this way confirms the unusual environment we're in... Last time I checked, I saw $13 trillion of negative-yielding bonds trading globally!

When asked about electric vehicles ("EVs") versus hydrogen fuel cell vehicles, Munger said that electric cars are going to do better, and that getting energy from the sun for electricity and using that electricity for cars is a good idea. Berkshire – under the direction of Munger – invested in Chinese battery and EV company BYD in 2008. The fact that Munger understood the potential of EVs long ago, when their viability was still in doubt, reminds me of what a brilliant and multi-disciplinary mind he has.

Munger also had some interesting comments on oil. He thinks that it's "dangerous" to depend on fossil fuels and – even if global warming wasn't a problem – it would be smart to move towards renewable energy now. He thinks it's smart to preserve our hydrocarbon reserves for other uses, and his views are discussed in more detail in Bethany McLean's book Saudi America: The Truth About Fracking and How it's Changing the World, which I highly recommend.

His comments on longevity were both funny and valuable:

I don't deserve any credit for longevity – it just happened. There is no male in my family that ever lived to such an age. It's weird, so I can't help you.

But he later went on to say:

I like my life. I'm surrounded by wonderful colleagues, friends, and family. My problems are interesting to me. I've been a very fortunate man. I could have had a different hand and been a miserable alcoholic in the gutter.

I would like to think that this is a big part of his (and Buffett's) longevity – the fact that he has surrounded himself with great people and loves what he does.

It's always inspiring and enlightening to listen to Munger at this age – he's still sharp as a tack! There were many more valuable insights, so I recommend you watch the livestream. But if you really want to dig deeper, then I recommend the definitive book on Munger that Alex mentioned – of which Whitney was a contributor – Poor Charlie's Almanack. I hope to see you there next year!

2) As you read this, I'm on a rock face somewhere in Yosemite National Park in California (I'm not sure what my guide has in store for me, though we will be climbing this bad boy over the weekend: The Prow, Washington Column).

I flew here yesterday from Los Angeles to spend five days training to climb The Nose of El Capitan later this year. You may have seen Alex Honnold do this in the epic movie, Free Solo... But I'll be with a guide, it'll take me four to five days instead of four hours, and I'll be using a rope to not only catch me if I fall, but also help me scale the toughest pitches that are far above my climbing ability (a technique called "aid climbing").

As you may have guessed, I'm a bit of an adrenaline junkie. I love doing things like climbing mountains, going for big hikes into the wilderness, and rafting on raging rivers.

But I truly don't have a death wish. I want to have incredible, challenging, outside-the-box adventures... but do so as safely as possible.

So I read this book with great interest: Deep Survival: Who Lives, Who Dies, and Why. In it, author Laurence Gonzales tells the stories of numerous disasters in which people have to survive a calamity like being in a plane crash, swept out to sea, lost in the wilderness, stranded in the middle of the ocean, or capsized in a raging river. In each case, as the subtitle indicates, he analyzes who lives, who dies, and why.

Hopefully nothing like this will ever happen to me – but if it does, I'll be better prepared thanks to this book.

By far the biggest lesson from the dozens of stories he shares is: don't be a reckless dumbass! The vast majority of the deaths and near-deaths are due to overconfident or stubborn men (yes, they're nearly all men) who fail to recognize or act on obvious warning signs. They climb into well-forecasted bad weather, don't turn around when they should, climb or snowmobile into an area with well-known avalanche risk, kayak or raft on a river that's flowing well above normal levels, swim out beyond the designated area, etc., etc., etc.

A related book I read long ago is The Unthinkable: Who Survives When Disaster Strikes – and Why. Unlike Deep Survival, however, it focuses on average people who have the misfortune of being in things like one of the Twin Towers on 9/11, a hotel fire, or a ferry capsizing. The main lessons:

  • Don't under-react. If you smell smoke, for example, get out! Humans tend to sit tight until it's too late because 99% of the time that you smell smoke (or a similar warning), nothing happens. This mistake is made even more likely when people are all together – if you see everyone else just sitting there, you're more likely to do so as well.
  • Prepare in advance. For example, if you're in a hotel or on an airplane, memorize where the exit doors are ("three rows in front of me" or "the second door on the left") so that if there's a fire and you're crawling with no visibility, you can find your way out.

Best regards,