Charlie Munger on Berkshire's BYD Investment

Daily Journal meeting notes

- Question #1 got right to the point - what will happen to the Wesco meetings now that WSC has been fully absorbed by Berkshire? In honor of the "hard core groupies" Munger said that he would continue to hold the Wesco meeting and that he would probably "pay for it out of my own pocket." He further added that this would probably be for 1-2 more years.

- On ratings agencies, "They have disgraced themselves," They made easy decisions to enrich themselves, Law schools and business schools taught the wrong stuff and it became accepted dogma, It was CRAZY to rate all of those things AAA. But - as bad as it is, it's hard to develop a better system, It worked for 130 years and all things have a lifespan, How else would you do it? All human systems are gamed, Do you want the (govt controlled) SEC to make the ratings? Everybody failed, "Most of what I'm talking about is not going to be fixed." He mentioned that last evening he ate dinner with Chief Justice Kennedy and that there was concern that there is deep resentment across society that the elites haven't paid a price for all of the wrongs... told quip about King Lear.

- A guy pestered him about his dog-eared page. Munger said that he grew up with the tables and that they haven't changed. The guy persisted - what's the number? 10? 12? Munger shot back that "I want to know the present value of something so I use my table - it's just not complicated. A lot of people DO use complicated stuff - they're the ones who got us into trouble."

- A question about "unlearning" a good idea. Munger said that learning gets harder and harder. Unlearning likewise so. China is good to learn. Munger didn't appreciate the potential, "I've learned a lot there." Munger underestimated the rate at which technology could be assimilated into the society.

- It's hard to get a man to believe X when his living comes from believing in Y.

- Too much dumb bureaucracy, Hard to have a smart one,

- "It's why I'm a Republican, I can not STAND the way they go crazy."

- On housing. "When you get into trouble on a $1000 a month mortgage then Grandma and family can help out. When the mortgage is sizeable then Grandma can't help - you're on your own."

- inflation. When asked what he thought the rate would be Munger started talking about agriculture. He related how significant percentages of good farmland is now being used to fill our gas tanks, Ethanol is "Stunningly stupid" yet all politicans run to Iowa and tell them what they want to hear. "We're exporting misery."

ed note - obviously he's talking about all the diverted land resources which shrink the food supply and cause massive inflation across food commodities (note - for a first hand example of social upheaval caused in part by massive food inflation see all after "Egypt")

As for govt and printing money and debasing the currency? Inflation is "The glorious hand of government."

ed note 2 - I was quite taken aback by Munger's grasp of the commodities sector. He immediately knew that it was Brazil where a certain iron is produced. He knew the differences between coal types and their different industrial charactistics and where they're mined and how expensive it is to mine each type and to transport each and the size to which it has to be crushed in order to ship it safely (not too small lest it explode in a black misty cloud of coal dust which I saw first hand as a small boy in our coal fireplace. He asked Pabrai a few commodities questions.

- It's unbelievable but Posco went to India and proposed building a plant, PKX has a unique method to make steel from lesser quality that would be perfect for India. It's now 6 years later and they are still working on the permit. Unbelievably stupid. "I'd rather invest where we don't have these problems."

- Everybody in a financial institution trading operation will go plum
crazy. An irresponsible system. They want to do it to match others' earnings.

- A man will believe what he wants to believe.

- They specialize in stupid things at Law School

- Question stating that in years past management earned 40-1 more than the working class. Today it's 1100-1 (ed. I hope I'm right about that figure). Munger refers to Aristotle - we're asking for a lot of problems.

- General Re - just got sloppy. Cleaning that up was a hell of a lot of difficult work. We just missed it. It had such a good reputation and had been going for a long time. Over time you can get a lot of deterioration in a culture. Costco has great culture - makes it hard for people to game the system. At least in the end we did fix GRN.

- A man running a small business knew Wal Mart was coming. He sold out prior to their arrival. Very smart. He knew the landscape and reality.

ed. note - OK BYD nuts. Recall bYD's problems with their plant not having proper permissions and they got into trouble with Chinese govt. Recall how this was a sure sign that doing business in China would creat problems for BYD over time.

- On BYD - The province gave BYD the right to build and the province did not gain requisite approval from federal government. ByD and the province got fined. ByD about $400K (or peanuts if you're counting at home). "My guess is that permission will be granted later this year." BYD is a Chinese hero. Head of BYD is a former peasant - a communist hero.

- California. Thinks Jerry Brown is the best governor option. If bad news is to be delivered it's better that a Democrat do the deed in California. It adds more credibility that way and is easier for the liberal CA public to swallow..

- Talked of immoral insanity of police pensions where a retiring guy can put in 1500 overtime hours in his last year and spike his last takehome pay which then gives him huge retirement check and where he can earn more in retirement than his last salary - "Insane."

- Singapore is the best govt ever. They came from nowhere. They built on swamp a great civilization. It's an example of a govt that does things right.

- Roughlyright pointed out that Daily Journal portfolio perfectly matched Wells Fargo and that therefore now we know that munger must have bought Wells with the entire portfolio. Munger said that that was mostly right - they have a little that's not WFC. When asked why the DJ purchased it a a much better price than say Wesco Munger said that it was all accidental - a circumstance of reality - that the DJ needed to hold cash longer to ensure survival of the business and they got lucky on timing.

- People don't realize how close the system came to implosion. GE would have gone bust without government. Govt HAD to save GE. (ed. note - I took this to mean that it's because it's an American icon that is a core part of our society, Not becaue it was systemic risk caused by GE).

- "We don't CARE if we are a digit less in 20 years, If we used leverage like Murdoch Berkshire could own the world. We don't sweat blood like Murdoch either. We sleep well. Murdoch really had to sweat."

-A mistake to let Lehman go under? "Gotta let someone go. Lehman at the top had a disgusting culture. I would have picked Lehman to go under." (ed note - is that funny or what!)

- This was as close to chaos as we want to come - the idea that we want massive chaos in order to profit is wrong.

- We LOVE the railroad business. This from two kids who had model trains.

- Passanger trains. "Obama is out of his mind." makes sense for China but not for us. It would take a whole new track system. Exceptionally stupid. Obama hasn't had a lot of business training.

- "We love our railroad." There are now 80% fewer employees and it's safer, more efficient, profitable - a very efficient place.

- never in my life have I seen more young, rich, smart people holding so much cash - like we do at the Daily Journal. It's wise. Bill Gross's "new normal" is modest lower returns. in a period of modest returns it shouldn't make any difference. Why SHOULD life be easy? People destroy themselves in good times too.

That's my take. As usual his appealing blunt spoken way makes things so crystl clear. We all know where he stands. This is a decisive and penetrating mind.

Link

Buffett and Munger on China's BYD

A Conversation with Charlie Munger

Link

From Tiananmen Square to Possible Buffett Successor

Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire HathawayInc.

Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.

The job of filling Mr. Buffett's shoes is among the most high-profile succession stories in modern corporate history. Mr. Buffett, who will turn 80 in a month, says he has no current plans to step down and will likely split his job after he leaves the company into separate CEO and investing functions. Mr. Li's emergence as a contender to oversee Berkshire investments is the first time a name has been identified to fill the investment part of Mr. Buffett's legendary role.

Mr. Li's big hit began in 2002 when he first invested in BYD, then a fledgling Chinese battery company. Its founder came from humble beginnings and started the company in 1995 with $300,000 of borrowed money.

Mr. Li made an initial investment in BYD soon after its initial public offering on the Hong Kong stock exchange. (BYD trades in the U.S. on the Pink Sheets and was recently quoted at $6.90 a share.)

When he opened the fund, he loaded up again on BYD shares, eventually investing a significant share of the $150 million fund with Mr. Munger in BYD, which already was growing quickly and had bought a bankrupt Chinese automaker. "He bought a little early and more later when the stock fell, which is his nature," Mr. Munger says.

In 2008, Mr. Munger persuaded Mr. Sokol to investigate BYD for Berkshire as well. Mr. Sokol went to China and when he returned, he and Mr. Munger convinced Mr. Buffett to load up on BYD. In September, Berkshire invested $230 million in BYD for a 10% stake in the company.

BYD's business has been on fire. It now has close to one-third of the global market for lithium-ion batteries, used in cell phones. Its bigger plans involve the electric and hybrid-vehicle business.

The test for BYD, one of the largest Chinese car makers, will be whether it can deliver on plans to develop the most effective lithium battery on the market that could become an even bigger source of power in the future. Even more promising is the potential to use the lithium battery to store power from other energy sources like solar and wind.

Says Mr. Munger: "The big lithium battery is a game-changer."

BYD is a big roll of the dice for Mr. Li. He is an informal adviser to the company and owns about 2.5% of the company.

Mr. Li's fund's $40 million investment in BYD is now worth about $400 million. Berkshire's $230 million investment in 2008 now is worth about $1.5 billion. Messrs. Buffett, Munger, Sokol, Li and Microsoft founder and Berkshire Director Bill Gates plan to visit China and BYD in September.

Link to the Article

Chinese Foreword by Li Lu (Chinese Version of Poor Charlie’s Almanack)

一个偶然的契机，我遇到了终生的良师益友查理·芒格先生。初识查理是我大学刚毕业在洛杉矶投行工作时，在一位共同朋友的家里第一次见到了查理。记得他给人的第一印象是拒人于千里之外，他对谈话者常常心不在焉，非常专注于自己的话题。但这位老先生说话言简意赅，话语中充满了让你回味无穷的智慧。

【《中国企业家》杂志】20多年前，作为一名年轻学生只身来到美国，我怎么也没有想到后来竟然从事了投资行业，更没想到机缘巧合有幸结识了当代投资大师查理·芒格先生。2004年，芒格先生成为我的投资合伙人，自此成为我终生的良师益友。这样的机遇恐怕是过去做梦也不敢想的。

1996年我从哥伦比亚大学毕业，并于1997年创立我的投资公司，自此开始了我的职业投资生涯。从那时到现在，绝大多数个人投资者和机构投资者在投资理念上基本上还是遵从一些“坏理论”。比如他们相信市场完全有效理论，因而相信股价的波动就等同真实的风险，判断你的表现最看重你业绩的波动性如何。而在我看来，投资股市最大的风险其实并不是价格的上下起伏，而是你的投资未来会不会出现永久性的亏损。单纯的股价下跌不仅不是风险，简直就是机会。不然哪里去找便宜的股票呢?然而我发现，表面上那些成名的基金经理接受巴菲特/芒格的理论，而且对他们表现出极大的尊重，但在实际操作上却根本是南辕北辙，因为他们的客户也是南辕北辙的。他们接受的还是一套“波动性就是风险”、“市场总是对的”这样的理论。

直到我们认识的第七年，在2003年一个感恩节的聚会中，我们进行了一次长时间的推心置腹的交谈。我将我投资的所有公司，我研究过的公司以及引起我兴趣的公司一一介绍给查理，他则逐一点评。我也向他请教我遇到的烦恼。谈到最后，他告诉我，我所遇到的问题几乎就是华尔街的全部问题。整个华尔街的思维方式都有问题，虽然伯克希尔·哈撒韦已经取得了这么大的成功，但在华尔街上却找不到任何一家真正模仿它的公司。如果我继续这样走下去的话，我的那些烦恼永远也不会消除。但我如果愿意放弃现在的路子，想走出与华尔街不同的道路，他愿意给我投资。这真让我受宠若惊。

我于是进入到投资生涯的又一个黄金时期。我无须再受华尔街那些投资者各式各样的限制。虽然数字依然上下波动，但最终结果却是大幅度的增长。新的基金从2004年第四季度至2009年底，除去营运成本外，每年的复合回报率超过36%。而自1998年1月原基金创建开始计算，每年的复合回报率则超过29%。12年间，回报增长超过20倍。

一次，一位漂亮的女士坚持让查理用一个词来总结他的成功，查理说是“理性”。然而，他对理性有更苛刻的定义。正是这样的“理性”，让他具有敏锐独到的眼光和洞察力，即使对于完全陌生的领域，他也能一眼看穿事物的本质。巴菲特把查理的这个特点称作“两分钟效应”——他说查理比世界上任何人更能在最短时间之内把一个复杂商业的本质说清楚。伯克希尔投资比亚迪的经过就是一个例证。记得2003年我第一次同查理谈到比亚迪时，他虽然从没有见过王传福本人，也从未参观过比亚迪的工厂，甚至对中国的市场和文化也相对陌生，可是他当时对比亚迪提出的问题和评论，今天看来仍然是投资比亚迪最实质的问题。

查理喜欢与人早餐约会，时间通常是七点半。记得第一次与查理吃早餐时，我准时赶到，发现查理已经坐在那里把当天的报纸都看完了。虽然离七点半还差几分钟，但让一位德高望重的老人等我让我心里很不好受。第二次约会时，我大约提前了一刻钟到达，发现查理还是已经坐在那里看报纸了。到第三次约会，我提前半小时到达，结果查理还是在那里看报纸，仿佛他从未离开过那个座位，终年守候。直到第四次，我狠狠心提前一个钟头到达，六点半坐那里等候，到六点四十五的时候，查理悠悠地走进来了，手里拿着一摞报纸，头也不抬地坐下，完全没有注意到我的存在。以后我逐渐了解到，查理与人约会一定早到。到了以后也不浪费时间，会拿出准备好的报纸翻阅。

查理非常欣赏孔子。我有时会想，若孔子重生在今天的美国，查理大概会是其最好的化身。若孔子返回到2000年后今天的商业中国，他倡导的大概会是：正心，修身，齐家，致富，助天下吧!

Link

Li Lu on BYD

“BYD is really running on all cylinders,” says Li Lu, a BYD investor and money manager who brought the company to the attention of Berkshire vice chairman Charles Munger several years ago. Munger took the idea to Buffett and to MidAmerican chairman David Sokol, who now sits on BYD’s board.


“The big challenge now is to bring down the initial cost,” Li Lu told me. Eventually, BYD would like to sell the car for about the same price as conventional vehicles, and win over auto buyers by offering them lower operating costs and higher performance. “The only way to conquer this market is to provide a product that is comparable at the beginning and superior in the end,” he said.


“There are not many in the world that have comparable experience and expertise,” Li Lu says. “They seem to have a commanding lead right now.” The BYD technology is super safe, its batteries will last a long time and they will cost less than competitors, he said.

All that remains to be seen, of course. But BYD has not one but three opportunities to change the world–with its electric cars, its rooftop solar panels with battery storage and with large-scale batteries that could be used by electric utilities to store solar or wind power.

If BYD succeeds in even one of those businesses—let alone all three—it will become one of the most important clean tech companies in the world.

Link to the Article

李路充满感情地回忆道：“从2004年到现在，近六年的时间，芒格先生既是我的老师、是我最大的投资人，同时也是我的好朋友。我觉得自己非常非常的幸运。”

李路说：“对我来讲，这是一段很愉快的经历，我介绍芒格和巴菲特先生认识中国比亚迪，帮助他们谈判，自己也成为大股东，我非常高兴能够促成这件事情。这项合作不仅对伯克希尔和比亚迪是很好的投资，成就了中国和美国的具有重大意义的价值投资，同时比亚迪创新的技术对人类所面临的能源挑战也是一个非常好的解决方案。”


李路介绍说：“比亚迪从开始创业就开始赚钱，上市的时候借了一笔钱，但是当时盈利状况已经非常的好。比亚迪的盈利能力非常强，尽管中国汽车行业内有些数据不公开，但是我猜想比亚迪应该是中国汽车行业盈利水平是最高的，如果说比亚迪在全球的汽车行业中盈利水平是最高的，我也不会惊讶。”


据李路介绍，比亚迪平均每年销售额都以70%的速度增长，2009年已经达到400多亿这样的规模，创造了全世界少有的企业成就。


李路说：“我们很快会看到比亚迪新能源技术、太阳能技术、醇电站技术，三者结合所提供的服务，这恰恰是能够解决人类面临的石化能源危机的最佳的、全套的方案。”


李路说：“比亚迪公司是所我看到的最有可能成为代表中国制造向中国创造转向的企业。如果比亚迪在绿色技术的创新上再次成功的话，这不仅对中国未来的经济发展能够解决最大的瓶颈问题，也会对全球经济面临最大的挑战提供全套的方案，更会逆转全球气候变暖的趋势，使得人类在地球上的“租期”可以持续延长。”

Link to the Article

Interview with Charlie Munger (on China, Bank Regulation and Lehman)

Note: Thanks to Gurufocus and Shai for the original reference

Gates, Munger and Buffett on BYD Investment

Charles T. Munger’s Letters to Wesco Shareholders

Download the Letter

Build Your Dreams. Blow Your Mind

"This guy is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it." --- Charlie Munger

"I didn't really convinced him. The facts convinced him. What -- has already done is ridiculously difficult to do. And they've done it anyway." --- Charlie Munger

Tracking BYD:
China's Top 10 PC by Model in 2007


Top 10 Sedan Brand's Line-up by Sales Jan-Dec08


Top 10 Sedan Brand's Line-up by Sales Jan-Apr09 (very impressive)

Sales of BYD Auto in April 2009 (by model)

PV OEMs Market Share 2008

PV OEMs Market Share Change 2008 vs 2007

BYD E6 Pure Electric Vehicle

BYD Dual Mode Electric Vehicles

Related Articles:
Shenzhen to subsidize buyer of BYD hybrid car
Only 'green' vehicles permitted to enter Beijing
Warren Buffett's Big Battery Play
What business is BYD really in?
More on BYD and Wang ChuanFu

LEGAL MATTERS WITH CHARLES T. MUNGER

Link to the Q&A

Notes: Thanks to Eric50 from Corner of Berkshire and Fairfax

Warren Buffett, Charlie Munger, and Bill Gates on Fox Business

Link

One on One with Charlie Munger, Vice Chairman Berkshire Hathaway

GHARIB: How are Berkshire's businesses doing so far this year?

MUNGER: Mixed. But the two biggest businesses, which are insurance and utilities, are flourishing. So I would say that even with all of the bad effects we've had, we're not catching our full share of the horror.

GHARIB: Some of Berkshire's investments are in financial stocks like American Express and Wells Fargo. Does it make sense to continue to hold on to these stocks? What's your outlook for the financials?

MUNGER: Well, I think the companies which we are invested have very respectable futures from this point forward. The financial world should be restructured so that these people who are too big to fail are not allowed to behave in such a gamey fashion. I'm pessimistic with the regulatory changes that come down. I'm afraid they won't be as severe as we need.

GHARIB: As an investment, investors should stay away from financials for now?

MUNGER: I didn't say that. We need the financials. We can't have a modern civilization without strong financial companies. But we don't need them as swashbuckling and as crazy and as venal as they've been.

GHARIB: Now I understand there are three candidates who are being considered to take over from Warren Buffett when the time comes. I know you're not going to tell me who they are. But what do you think is the most important characteristic for this job?

MUNGER: I don't think there's any one way that's the right way to run a corporation. Different people have different styles. Different people have different strengths. I am quite confident that Berkshire will be governed very well long after Warren and I are gone.

Full Transcript

Thanks to Sanjeev Parsad from Corner of Berkshire and Fairfax for the original reference

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Buffett's Partner Charlie Munger Blames Banks' "Evil and Folly" For Economic Crisis

Berkshire Hathaway Annual Meeting & News Conference

Warren Buffett's Q&A With Shareholders (Morning Session)

Warren Buffett's Q&A With Shareholders (Afternoon Session)

Warren Buffett News Conference

Dutton's shelf life finally runs out

The business is saddled with about $550,000 in debt, primarily from the ill-fated opening of a second store in Beverly Hills, and has been coping not only with tumult in the book industry but also with the planned redevelopment of the structure -- known as the Barry Building -- where the bookstore has been a fixture since 1984. In January 2007, the landlord revealed plans to redevelop the entire site, which includes the three-section, 5,000-square-foot Dutton's and several other enterprises in a number of buildings.

The property is owned by billionaire investor Charles T. Munger and his wife, Nancy. A founder of the Los Angeles law firm Munger, Tolles & Olson, he partnered in 1978 with Warren E. Buffett to run Berkshire Hathaway Inc., a holding company.

Munger was in Washington on Monday and could not be reached. He said in a statement that he would allow Dutton's to use the space rent-free during the liquidation and that he would cover the $550,000 debt in exchange for the store's closing. Dutton described the offer as "very gracious and generous." As part of the deal, Munger said, Dutton would retain the Dutton's trade name.

Full Article

Charlie Munger's 10 Rules for Investment Success

Those of you lucky enough to attend a Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) annual shareholder meeting have undoubtedly heard Charlie Munger say, "I have nothing to add."

In reality, the guy has quite a bit to add. Thankfully for us, Munger is almost as forthcoming with his investment thoughts as his pal Warren Buffett. In his must-read book, Poor Charlie's Almanac, Munger puts forth a 10-step checklist that even the most inexperienced investors could benefit from.

Full Article

Charlie Munger's Lollapalooza Effect and This Credit Fiasco

Charlie Munger, Warren Buffett's brilliant sidekick, has expounded many times on innate human biases and incentive effects. For anyone interested in this topic, I highly recommend you read the transcript of an amazing speech he delivered in 1995, called The Psychology of Human Misjudgement. I have read this speech at least a dozen times and each time I glean something new and valuable. At first it may seem somewhat rambling and confusing, but I think anyone who can get a grip on this material will have a leg up in life on the average Joe who has no idea about these important concepts.

Mr. Munger's treatise is clearly directed towards understanding how biases and incentive effects drive much of human behavior, and are not directed specifically at investing. However, the field of behavioral finance has grown to study many of these same concepts as they apply to financial decisions.

Full Article