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Daily Journal AGM 20170215 stream by CNBC.com


kiwing100
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FYI, looks like it was streamed live by CNBC.com - available to CNBC.com pro subscribers only.  Full replay available later - not sure if free to all or only available to CNBC.com pro subscribers.

 

http://www.cnbc.com/2017/02/15/watch-live-charlie-munger-speaks-at-the-daily-journal-annual-meeting.html

 

NOTE: The live stream has now ended...check back shortly for a full replay of this exclusive event.

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Guest longinvestor

The highlight of this was Munger sharing his 3 position portfolio. BRK, Costco and Li Liu(spelling). 'The probability of ALL of them going to zero is zero'

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what were the books or documents he gave to everyone who attended?

 

See link for handout: https://www.dropbox.com/s/tfwhsgo6n45iasv/DJCO%202017.pdf?dl=0

 

Also, I came in late and wasn't able to grab the annual report.  If someone has it, would you mind posting Munger's Chairman's Letter?  Thanks.

 

Poor Charlie,

Thank you for posting the link to the document.

 

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Guest longinvestor

Munger's response to a question on the rise of index funds;

 

- Terrible problem for money managers; "Your generation of money managers will have it really hard; A little difficulty is not a bad thing"

- Fees going down to "20 basis points" - that is something that needed to happen. Managers who got rich so far didn't get there by charging 20 bp.

- For those who realize that they are unlikely to outperform, mental anguish is huge; Most cope by simple denial. Of course, I don't want to think of death either

- Berkshire has beaten the index by making 2 decisions per year over 50 years. We didn't have a trillion dollars; nor did we have sub-groups; pharma etc.

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I like this part:  :)

 

"Am I comfortable with a non-diversified portfolio? Of course… if you take the Munger’s, I care about the Munger’s. The Munger’s have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu’s fund, and the rest is dribs and drabs. So am I comfortable? Am I securely rich? You’re damn right I am. Could other people be just as comfortable as I who didn’t have a vast portfolio with a lot of names in it? Many of whom neither they or their advisors understand? Of course they’d be better off if they did what I did. And is three stocks enough? What are the chances that Costco’s going to fail? What are the chances that Berkshire Hathaway’s going to fail? What are the chances that Li Lu’s portfolio in China’s going to fail? The chances that any one of those things happening is almost zero. And the chances that all three of them are going to fail?

 

That’s one of the good ideas I had when I was young. When I started investing my little piddly savings as a lawyer,  I tried to figure out how much diversification I would need if I had a 10% advantage every year over stocks generally.  I just worked it out. I didn’t have any formula, I just worked it out with my high school algebra. And I realized that if I was going to be there for thirty or forty years, I’d be about 99% sure to do just fine if I never owned more than three stocks and my average holding period is 3 or 4 years. Once I’d done that with my little pencil, I just… I never for a moment believed this boulderdash they keep… why diversification… diversification is a rule for those who don’t know anything. Warren calls them ‘know-nothing investors’. If you’re a ‘know-nothing investor’ of course you’re going to own the average. But if you’re not a know-nothing investor, if you’re actually capable of figuring out something that will work better, you’re just hurting yourselves looking for fifty when three will suffice. Hell one will suffice if you do it right. One. If you have one cinch, what else do you need in life.

 

And so the whole idea that the ‘know-something’ investor needs a lot of diversification. To think that we’re paying these investors to teach this crap to our young. And people think they should be paid for telling us to diversify. Where it’s right, it’s an idiot decision. And where it’s wrong, you shouldn’t be teaching what’s wrong. What’s gone on in corporate finance teaching is that people are getting paid for dispensing boulderdash. And since I never believed that it was a great help to me, it helps if you’re out in the market and the other people are believing boulderdash and you know what the hell’s going on. It’s a big help. So of course you don’t want a lot… if you’re Uncle Horace who has no children has an immense business which is immensely secured and powerful. And he’s going to leave it all to you if you come to work in the business. You don’t need any diversification. You don’t need any corporate finance professors, you should go to work for Uncle Horace. It’s a cinch. You only need one cinch! And sometimes the market gives you the equivalent of an Uncle Horace. And when it does, step up to the pie-cart with a big pan. Pie carts like that don’t come very often. When they do you have to have the gumption and the determination to seize the opportunity shrewdly."

 

 

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Guest longinvestor

I like this part:  :)

 

"Am I comfortable with a non-diversified portfolio? Of course… if you take the Munger’s, I care about the Munger’s. The Munger’s have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu’s fund, and the rest is dribs and drabs. So am I comfortable? Am I securely rich? You’re damn right I am. Could other people be just as comfortable as I who didn’t have a vast portfolio with a lot of names in it? Many of whom neither they or their advisors understand? Of course they’d be better off if they did what I did. And is three stocks enough? What are the chances that Costco’s going to fail? What are the chances that Berkshire Hathaway’s going to fail? What are the chances that Li Lu’s portfolio in China’s going to fail? The chances that any one of those things happening is almost zero. And the chances that all three of them are going to fail?

 

That’s one of the good ideas I had when I was young. When I started investing my little piddly savings as a lawyer,  I tried to figure out how much diversification I would need if I had a 10% advantage every year over stocks generally.  I just worked it out. I didn’t have any formula, I just worked it out with my high school algebra. And I realized that if I was going to be there for thirty or forty years, I’d be about 99% sure to do just fine if I never owned more than three stocks and my average holding period is 3 or 4 years. Once I’d done that with my little pencil, I just… I never for a moment believed this boulderdash they keep… why diversification… diversification is a rule for those who don’t know anything. Warren calls them ‘know-nothing investors’. If you’re a ‘know-nothing investor’ of course you’re going to own the average. But if you’re not a know-nothing investor, if you’re actually capable of figuring out something that will work better, you’re just hurting yourselves looking for fifty when three will suffice. Hell one will suffice if you do it right. One. If you have one cinch, what else do you need in life.

 

And so the whole idea that the ‘know-something’ investor needs a lot of diversification. To think that we’re paying these investors to teach this crap to our young. And people think they should be paid for telling us to diversify. Where it’s right, it’s an idiot decision. And where it’s wrong, you shouldn’t be teaching what’s wrong. What’s gone on in corporate finance teaching is that people are getting paid for dispensing boulderdash. And since I never believed that it was a great help to me, it helps if you’re out in the market and the other people are believing boulderdash and you know what the hell’s going on. It’s a big help. So of course you don’t want a lot… if you’re Uncle Horace who has no children has an immense business which is immensely secured and powerful. And he’s going to leave it all to you if you come to work in the business. You don’t need any diversification. You don’t need any corporate finance professors, you should go to work for Uncle Horace. It’s a cinch. You only need one cinch! And sometimes the market gives you the equivalent of an Uncle Horace. And when it does, step up to the pie-cart with a big pan. Pie carts like that don’t come very often. When they do you have to have the gumption and the determination to seize the opportunity shrewdly."

 

Yeah, but! 😄

 

Munger is not paying anyone to hold BRK or Costco. If you're a money manager and tell your client to hold 3 positions, for 30 years, how will you collect fees? Why terms like position sizing, sell-when-iv-reached etc. exist.

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Guest longinvestor

Yeah, what in the end counts are the incentives of the decision maker. So be aware of (high) agency costs.

We will hear more about it in 1-2 weeks in the Berkshire Hathaway annual letter.  ;)

 

I believe the letter will be posted online this coming Friday or Saturday AM (Feb 24 or 25) @ 8 AM!

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Munger is being a bit disingenuous when he says that BRK, Costco and Li Lu's fund  ::) is just three stocks...

 

Clearly Li Lu's fund is not a single stock.

And BRK is not really a single stock either ... hey it's more like a fund that has over 50 stock positions by now plus what 20+ operating businesses?

 

It's almost the same as saying, "I just hold a single stock and it's called SPY".  ::)

 

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I love Munger and his wisdom, however, I'm not sold on his lack of diversification viewpoint. It makes sense that a few big ideas creates the majority of wealth but like others pointed out BRK is significantly diversified as is Liu Li.

 

Also Schloss was highly diversified and seems to have created even more wealth. Many of the other super investors seem to be more diversified as well.

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Some interviews with Munger after the Meeting  :):

 

 

 

Cheers!

Great stuff.

 

Loved the reading Barrons part: 50 years reading to get out a single idea that was a 15 bagger to him (40 bagger in total). I believe a lot can be learned from this:

1) patience is needed:

a) both in the waiting, in the holding and selling

 

2) He recognized the idea as good because he was prepared:

a) he knew the type of business and that is was usually sticky

b) it was distressed investing, bonds were selling at 30 cents. His knowledge of the business led him to believe it would survive

 

3) He is looking for high return ideas

a) When he considered the idea good enough it went on to be a 40 bagger.

b) In 50 years of waiting he certainly refused many certain doubles or triples while waiting for the fat pitch.

c) Just to think that I am happy and load up when I find an almost certain double in a few years...

 

 

1st post  ;D ;D ;D

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