Warren Buffett’s right-hand man blasted Robinhood, slammed SPACs, questioned bitcoin, and warned against speculating at the Daily Journal annual meeting. Here are the highlights.

charlie munger
Charlie Munger.

Warren Buffett's right-hand man issued a warning to stock-market speculators, criticized the trading platforms enabling them, blasted SPACs, and downplayed the significance of bitcoin at the Daily Journal annual meeting on Wednesday.

Charlie Munger, the vice-chairman of Buffett's Berkshire Hathaway, is also the chairman of Daily Journal, a newspaper publisher and software developer.

Here's a roundup of the 97-year-old executive's key comments during the meeting, lightly edited and condensed for clarity.

Market speculation

"These things do happen in a market economy, you get crazy booms. I've been around for a long time and my policy's always been to just ride it out."

"A lot of investors crowd in to buying stocks on frenzy, frequently on credit, because they see them going up. And of course that's a very dangerous way to invest."

"Shareholders should be more sensible and not crowd into stocks and just buy them just because they're going up and they like to gamble."

"I think it must end badly but I don't know when."

GameStop

"That's the kind of thing that can happen when you get a whole lot of people who are using liquid stock markets to gamble the way they would in betting on racehorses."

"The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers. When things get extreme you have things like that short squeeze."

"It's very dangerous and it's really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors. Of course that is going to cause trouble as it did."

Robinhood and trading apps

"If you're selling people gambling services where you make profits off the top like many of these new brokers who specialize in luring gamblers in, it's a dirty way to make money and I think we're crazy to allow it."

"[Wretched excess in the financial system] is most egregious in the momentum trading by novice investors lured in by new types of brokerage operations like Robinhood. All of this activity is regrettable, civilization would do better without it."

"Human greed and the aggression of the brokerage community creates these bubbles from time to time. Wise people just stay out of them."

Stock valuations when interest rates are low

"Everybody is willing to hold stocks at higher price-earnings multiples when interest rates are as low as they are now. I don't think it's necessarily crazy that good companies sell at way higher multiples than they used to."

"On the other hand, I didn't get rich by buying stocks at high price-earnings multiples in the midst of crazy, speculative booms, and I'm not going to change."

SPACs

"The world would be better off without them. This kind of crazy speculation, in enterprises not even found or picked out yet, is a sign of an irritating bubble. The investment-banking profession will sell shit as long as shit can be sold."

Bitcoin

"I don't think bitcoin is going to end up the medium of exchange for the world. It's too volatile to serve well as a medium of exchange. It's really kind of an artificial substitute for gold and since I never buy any gold, I never buy any bitcoin. I recommend that other people follow my practise.

"[The Daily Journal] will not be following Tesla into bitcoin."

Tesla and bitcoin

Munger was asked to choose the more astounding event, the stratospheric rise in bitcoin's value or the astronomical rise in Tesla's stock price over the past year.

He quoted author Samuel Johnson, who when presented with two choices, said, "I can't decide the order of precedency between a flea and a louse."

"I don't know which is worse," he added.

Banks

"Banking, run intelligently, is a very good business. The kind of executives who have a Buffett-like mindset and never get in trouble are a minority group, not a majority group."

"It's hard to run a bank intelligently. There's a lot of temptation to do dumb things which will make the earnings next quarter go up, but are bad for the long term."

Wells Fargo

"There's no question that Wells Fargo has disappointed long-term investors like Berkshire. The old management were not consciously malevolent or thieving but they had terrible judgment in having a culture of cross-selling, with incentives on the poorly paid employees that were too great to sell stuff the customers didn't really need.

"When the evidence came in that the system wasn't working very well because some of the employees were cheating some of the customers, they came down hard on the employees instead of changing the system. That was a big error in judgment. It's regrettable."

"You can understand why Warren got disenchanted with Wells Fargo. I think I'm a little more lenient. I expect less out of bankers than he does."

BYD

"BYD stock did nothing for the first five years we held it and last year it quintupled. What happened was that BYD is very well-positioned for the transfer of Chinese automobile production from gasoline-driven cars to electricity-driven cars. It's in a wonderful position and that excited the people in China which has its share of crazy speculators and so the stock went way up."

Selling overvalued stocks

"I so rarely hold a company like BYD that goes to a nosebleed price, that I don't think I've got a system yet. I'm just learning as I go along."

Costco

"People really trust Costco to deliver enormous values and that is why Costco presents some danger to Amazon. They've got a better reputation for providing value than practically anyone including Amazon."

Value investing

"Value investing, the way I conceive it, is always wanting to get more value than you pay for when you buy a stock. That approach will never go out of style.

"All good investing is value investing. It's just that some people look for value in strong companies and some people look for value in weak companies."

Portfolio diversification

"In wealth management, a lot of people think that if they have 100 stocks, they're investing more professionally than they are if they have four or five. I regard this as insanity, absolute insanity. I'm way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage."

Jeff Bezos

"I'm a great admirer of Jeff Bezos, whom I consider one of the smartest businessmen who ever lived."

Alibaba founder Jack Ma

"I think Jack Ma was very arrogant to be telling the Chinese government how dumb they are. Considering their system that is not what he should have been doing."

The rich getting richer during the pandemic

"That's a misplaced concern. Nobody's was trying to make the rich richer, that was an accidental byproduct of trying to save the economy under terrible conditions. It was probably wise that we acted exactly as we did."

Modern monetary theory

"Maybe the modern monetary theory is right. Put me down as skeptical."

Inequality

"I don't mind a little inequality," Munger said, describing it as an "inevitable consequence" of a growing economy.

Wealth tax

"Any rich nation ought to have a social safety net that expands a little with its wealth."

Politics

Munger bemoaned the rising amount of "hatred" in politics, but argued the country had been well governed for the past century.

"The system fo checks and balances and elections that our founders gave us actually gave us pretty much the right policies during my lifetime, and I hope that will continue."

Haven

"I don't know anything about Haven," Munger said, referring to the joint healthcare initiative between Berkshire, JPMorgan, and Amazon that was dismantled recently.

The evolution of business

"Business success long term is a lot like biology. In biology, the individuals all die and eventually so do all the species. And capitalism is almost as brutal. Just look at what's changed in my lifetime. Who ever dreamed when I was young that Kodak and General Motors would go bankrupt? It's incredible what's happened in terms of the destruction."

Learning

"I think I had the right temperament. When people gave me a good idea I quickly mastered it and used it. It's such a simple idea. Without the method of learning, you're like a one-legged man in an ass-kicking contest."

Psychology

"It's one of the most ignorant professions in the world," Munger said, highlighting that many psychologists can't connect what they know with other types of knowledge.

Adapting to technological change

"If you have a fixable disadvantage, remove it, and if it's unfixable, learn to live without it. What else can you do?"

Challenging one's beliefs

"I think I'm not really equipped to comment on a subject until I can state the arguments against my position better than the other side. That's a good way to help remove ignorance. When we shout our knowledge out, we're really pounding it in, we're not enlarging it."

Zero-commission trading

"Commission-free trading is a very good candidate if you want to emphasize disgusting lies. Commission-free trading is not free."

Sequoia Capital

"Warren and I are better at buying mature industries than we are at investing in startups. I would hate to compete with Sequoia in their field, they would run rings around me."

"I got close to Sequoia when, with Li Lu, we bought into BYD. We were buying into a venture-capital-type investment on the public market. With that one exception, I've stayed out of Sequoia's business because they're so much better at it than I would be."

The Queen's Gambit and investing

"I have seen an episode or two. To some extent, you can't be good at chess unless you have a natural gift, and even if you have a natural gift, you can't become great at it unless you start playing at a very young age. Any intelligent person can get to be pretty good as an investor and avoid obvious traps, but I don't think everybody can be a great investor or a great chess player."

Managers owning their stock

"If you do that I'm a moral leper," Munger said about the idea that managers have a moral responsibility to own their stock at as close to its fair value as possible.

"The Daily Journal stock sells way above the price I would pay if I was buying a new stock. The management should tell it like it is as all times and not be a big promoter of its own stock."

Technology and company valuations

"I don't know how permanent it will be but it's certainly caused a change," Munger said about the idea that technology has permanently altered how companies should be valued.

Wealth managers being too active

"The wealth-management industry has a crisis on its hands. They really need the world to stay the way it is. That isn't necessarily right for its customers."

Oil and gas

"The oil-and-gas industry will be here for a long, long time even if we stop using many hydrocarbons in transportation. The hydrocarbons are also needed as chemical feedstocks. I'm not saying that oil and gas is going to be a wonderful business, but I don't think it's going away."

Bill Gates and climate change

"I kind of admire the way Bill takes on these very hard problems," Munger said, adding that he avoids challenges he won't be good at addressing.

Wealth and happiness

"Most people are born with a happy stat, and their happy stat has more to do with their hap pines than their outcomes in life," Munger said, arguing that most people wouldn't be significantly happier if they were richer or much more miserable if they were poorer.

Physics and investing

"I don't use much physics in investing. Occasionally some damn fool will suggest something that violates the rules of physics, and I will always turn off my mind when I realize the poor bastard doesn't know any physics."

Ageing and innovation

"I've pretty well run the course. I don't think I'm likely to have any new thoughts that are likely to work miracles. I've found that the old thoughts work well still. I'm kind of pleased that I'm still functioning at all. I'm not trying to move mountains."

The secret to a long and happy and healthy life

"I don't have any secrets. I'm alive because of a lucky genetic accident. I think I would have lived a long time if I'd lived a different life."

"A happy life is very simple. The first rule of a happy life is low expectations. That's one you can easily arrange. If you have unrealistic expectations, you're going to be miserable all your life. When you get reverses, if you just suck it up and cope, that helps more than if you just fretfully stew yourself into a misery."

"Rose Blumkin [of Nebraska Furniture Mart] had quite an effect on the Berkshire culture. Her mottos were, 'Always tell the truth' and 'Never lie to anyone about anything.'"

Lessons from the pandemic

"We can do with a lot less travel and a lot more Zooming," Munger said. "A lot of things are going to change," he continued, predicting a lot of people will work from home a couple days each week once the pandemic ends.

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