Key points from Munger Wesco’s 24 years of shareholder meetings

Munger Wesco

Please also check my post of “Key points from Munger Daily Journal’s 10 years of shareholder meetings” if you are interested in Munger’s shareholder meetings at Daily Journal.

These days, I took some time to read through all the transcripts of the Q&A sessions at Munger Wesco Financial’s shareholder meetings during the 24 years that Munger served as chairman of the company. That’s right, from 1987 to 2010, a total of 24 years, I have summarized my personal thoughts and reflections into the article you are reading now.

Since the period from 1987 to 2010 is 24 years in total, which is really too long, I will only list the key points, and for ease of reading, I will classify them into four major categories, including fourteen sub-themes.

About Wesco Financial

After 1965, Charlie Munger serves as chairman of Wesco Financial Corporation, a subsidiary of Berkshire Hathaway.

In August 2010, Berkshire Hathaway acquired Wesco Financial. Berkshire Hathaway said in the filing: “Wesco is a holding company engaged principally, through its subsidiaries, in the property and casualty insurance and the steel service center businesses. It is a publicly traded, 80.1% subsidiary of Berkshire Hathaway Inc. (tickers: BRK.A and BRK.B), which is a holding company whose subsidiaries engage in a number of diverse businesses.”

Recommend Munger Wesco shareholders’ meeting

First of all, Munger Wesco shareholders’ meetings over the years (1987 to 2010) are a must-read collection for U.S. stock investors.

Buffett and Munger are two of the few investors that I personally highly recommend and who deserve in-depth study. Their demeanor, personality, knowledge, investment achievements, selfless sharing, and dedication to society are obvious to all. I will not go into detail here. If you are interested, you can use their names to find dozens of articles about their achievements in these areas in my blog.

Berkshire’s annual shareholder letter is written by Buffett, and Munger plays only a supporting role in Berkshire’s shareholder meetings. Munger rarely speaks and only gives a brief response when the host Buffett designates Munger to answer. However, Weisco’s annual shareholder letter is written by Munger, and Munger’s shareholder meetings are presided over by Munger himself.

Wesco Financial has always been a subsidiary of Berkshire Hathaway and is known as the “Little Berkshire Hathaway”. Shareholders can hear many inside stories about Munger’s important decisions for Berkshire at the Weisco Annual Shareholder Meeting, including how Buffett decides on investment targets, how the two discuss key issues, and other insightful views of Munger that shareholders cannot get at Berkshire.

Compared with Berkshire, Wesco Financial is much smaller, but the grandness of Wesco’s shareholders’ meeting is no less than that of Berkshire. There is one big difference between the shareholders’ meetings of the two companies: Berkshire’s shareholders are more like the Woodstock of the investment world, while the number of people attending Vesco’s shareholders’ meetings will not be that large. Apart from Vesco’s shareholders, most of the attendees who can attend the Vesco shareholders’ meetings in person are Charlie. Munger’s personal admirers want to hear his views on major issues or investment problems, as well as answers to important questions related to Berkshire that cannot be heard at Berkshire shareholders’ meetings.

Key points of the shareholders’ meetings over the past 24 years

Investment

How does Berkshire invest?

  • Buffett said that the unforgivable investment mistake he made was biting his finger, which is the mistake of not doing what he should have done (Mistake of Omission). We missed the investment in Wal-Mart and lost 8 billion US dollars. For this part, please refer to my special article introduction: “Mistakes of omission and mistakes of commission“
  • We are watching about 45 investment targets at the same time.

What makes a good deal?

  • Buffett believes that in a good business, every decision is simple and requires no thought; in a bad business, every decision is difficult.
  • No business is worth paying a premium for.
  • Unless I come across a truly rare and outstanding person, I would never pay more than the intrinsic value of any company.
  • Investors should choose good businesses with a high tolerance rate so that they can withstand management problems.

Long-term investment

  • For example, buying a group of stocks with the cheapest valuations in the 10% and waiting for them to rise is a formula that can make money. Munger considered it when he was young, but now he no longer believes in it and thinks it is better to hold on to it for the long term.
  • Graham’s blind spot: He did not fully understand that some good companies can generate good returns if held for the long term, even if the purchase price is several times the net asset value.

Concentrated Investment

  • The investment portfolio collected Chinese investments. What was Munger thinking at the time?
  • Investments in tranches 6-8 make up the majority of GEICO’s investment portfolio.
  • Fisher’s influence on Berkshire – concentrated investing, with fewer than a dozen people on site most of the time.
  • Opportunity cost considerations, why do we need to consider another opportunity?

Munger’s investment thinking logic

  • Strive to find the most reasonable investment logic at the moment and remain calm regardless of cycles and fluctuations. This is my investment approach.
  • Opportunity cost considerations, why do we need to consider another opportunity?
  • By expanding your circle of competence and increasing your opportunity cost, you can become a better investor.
  • The ideal company is one that can generate more disposable cash than net profit each year, and can bring a large amount of freely available cash to shareholders.
  • Business school students should study companies from the perspective of securities analysts and analyze whether the companies are worth buying.
  • If everyone buys the index, index investing will become ineffective.
  • Investors should look for companies that can grow without investing more capital: Compare two extreme cases: AT&T and Thomson Reuters. Regarding AT&T, please see my post of: “Decisive factor for AT&T and Verizon stocks valuation“

Humanity is important

Managers and corporate culture

  • It is only right that UnitedHealth Group’s management should face the consequences for its involvement in the option backdating scandal.
  • When it is not suitable, change the manager decisively and don’t procrastinate.
  • Henry Singleton has generated a return on equity (ROE) of more than 50% for many consecutive years, which is better than Berkshire Hathaway. About Henry Singleton, please see my post of:”Outsiders, one of the greatest investment books for managment team“

How to develop a sharp eye for discovering able people?

  • There are four types of people: those with bad conduct and those who are stupid but hardworking should be fired.
  • How to evaluate people? More thinking and more practice can reduce the chances of making mistakes.
  • Buffett’s method of judging outstanding talents is to throw him from a train to a remote town, penniless, but he can become rich in a short time without cheating others.

Psychology and human nature are important

  • The disaster for Lloyd’s, which was once a great company, was that its rules violated psychology.
  • Ponzi schemes occur when people seek social recognition.
  • The shareholders of large enterprises are dispersed, and the managers appointed by the shareholders control the board of directors. In this case, how can we expect the management to do its best for the shareholders?

Listed companies

Berkshire-Related Topics

  • Why do so few companies learn from Berkshire? Because it is difficult for people to break the existing framework, Berkshire is not an ordinary company that does not stick to the rules.
  • Berkshire will not break up the company; we hate complex corporate structures.
  • Berkshire never makes long-term plans. Instead of worrying about an uncertain future, it is better to do well in the present.
  • Why Berkshire created its own SCORES securities?
  • Investments in tranches 6-8 make up the majority of GEICO’s investment portfolio.
  • Even if the insurance business disappears, the profitability of the assets remains in our hands.
  • Simpson does independent research and makes its own investment decisions, and does a great job.

Listed companies discussed

  • Walmart and Costco are both good companies. We missed the opportunity to invest in Wal-Mart and lost $8 billion.
  • Freddie Mac’s advantage.
  • Wrigley’s business was better when it was founded and had a monopoly on the global supply of rubber.
  • Johnson & Johnson reviews its mergers and acquisitions after five years, which is a rare and excellent example of an excellent company in the business world.

Corporate Culture

  • Corporate culture is extremely important to a company and is related to its business opportunities.
  • The disaster for Lloyd’s, which was once a great company, was that its rules violated psychology.
  • The assimilation process required after acquiring a company takes a long time and usually fails; the assimilation process during Wells Fargo’s acquisition was not very smooth.

Accounting and financial report

  • The biggest accounting loopholes are in derivatives trading and pension estimates, as well as false accounts and inflated revenues.
  • Difficulties in liquidating a company: taxes must be paid and the company may have hidden assets.
  • Layoff costs are a major accounting loophole.

Other topics

Graham and Buffett

  • For the major factors of Buffett’s success, please refer to my other article: “Seven key factors contribute Buffett success”
  • Graham’s blind spot: He did not fully understand that some good companies can generate good returns if held for the long term, even if the purchase price is several times the net asset value.

Munger’s life wisdom

  • Try to avoid pain, and when you can’t, learn how to deal with it. This is wisdom.
  • Wake up every day a little wiser than the day before, strive to take on greater responsibilities, and strive to complete the work to perfection.
  • Without the incentives he pursued in his youth, what is Monger’s driving force now? Because if you want to have freedom, you must be financially independent.
Munger Wesco
credit: Wiki

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Author: Andy Lin

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