Munger Disbands His Investor Cult With Barbs for Walls Street

Tuesday, 05 Jul 2011 12:08 AM

 

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Charles Munger, the 87-year-old billionaire, used his farewell conference to criticize Wall Street, reflect on investing and raising children, and treat a fawning audience to his gratitude and familiar jibes.

“You all need a new cult hero,” Munger said on July 1 at the conference, called ‘A Morning with Charlie,” in Pasadena, California. “I’m doing you a favor” by ending the annual question-and-answer sessions with investors, he said.

Munger, vice chairman of Berkshire Hathaway Inc., began the three-hour meeting with observations on the deficiencies of bankers, the rise of China and the record of George W. Bush. He criticized decisions at Bank of America Corp., praised Costco Wholesale Corp.’s pricing policies and said he hopes he’s dead before Berkshire pays a dividend.

“I think that some of you will live to see a Berkshire dividend but I hope I don’t,” Munger said. Omaha, Nebraska- based Berkshire, which uses earnings to fund acquisitions and stock picks, has said it will consider a payout when managers are no longer able to find investments for its profits.

Munger gained a following among investors as the outspoken business partner of Warren Buffett, Berkshire’s chairman and largest shareholder. He speaks in front of tens of thousands of people at Berkshire’s annual meetings in Omaha, where his role on stage is the caustic foil to a courtly Buffett. Hundreds of people, whom Munger called “groupies,” would show up at the Pasadena events to see him speak without Buffett.

‘Peculiar People’

“You people aren’t normal,” Munger told the audience last week. “It’s only peculiar people like you that I want to impress.”

Investment bankers and mortgage issuers were afflicted with “insanity, megalomania and evil” when they helped inflate the pre-2008 housing bubble, Munger said. He said U.S. unemployment must be faced with “gumption” — which he called one of his favorite words — because people in China, Japan and other Asian countries have demonstrated talent at production and innovation.

“This brutality of capitalistic competition is really something,” Munger said. “I kind of like seeing the Chinese rise after so many years being down.”

Bank of America, which has lost more than three-quarters of its stock value since 2006, was guided by decision-making that Munger called “a disgrace.” Wells Fargo & Co., which counts Berkshire as its biggest shareholder, was better than most big banks at “avoiding the common stupidities,” Munger said. Berkshire divested a three-year holding of Charlotte, North Carolina-based Bank of America last year.

Punic Wars

Munger quoted Oscar Wilde, cited author W. Somerset Maugham’s views on romantic relationships and likened the U.S. response to the credit crunch of 2008 to the strategy employed by ancient Rome in wars that left Carthage destroyed. The bailouts under former President Bush and then-Treasury Secretary Henry Paulson helped the U.S. recovery, he said.

“I feel good about the way the Romans handled the Punic Wars, and I feel good about the way Paulson, and both political parties and George W. Bush handled the great recession,” Munger said.

Munger, a lawyer who gave up his practice after meeting Buffett in 1959, promised the “Morning with Charlie” to former shareholders of Wesco Financial Corp. Berkshire, which had owned 80 percent of Pasadena-based Wesco since 1983, increased its stake to 100 percent this year and removed the company from the stock exchange. Munger was Wesco’s chairman and chief executive officer and presided over the unit’s annual meetings.

Member of ‘Cult’

“I’m delighted to count myself in as a member in your cult,” a questioner said.

Attendees, who lined up behind microphones at the Pasadena Convention Center, thanked Munger for his time, and some said their lives had been improved by the billionaire’s musings on topics ranging from investment planning to filial relations. Munger was asked to give pointers for wealthy parents and recounted a conversation he once had with a successful friend.

“I just think it’s too damn bad that you got too rich and you can’t provide hardships for your children,” Munger said he told the person. “I gave him the same advice I gave myself, ‘Lose graciously.’”

Wesco investors were offered cash or Berkshire stock for their holdings in a transaction completed last month. Elizabeth Caspers Peters, a former Wesco director and an ally of Buffett and Munger in the 1970s when the men were building a stake in the firm, said in an interview that the deal made her a Berkshire shareholder for the first time. She didn’t need stock in Buffett’s company as long as she had Wesco shares, she said.

Berkshire’s Surge

“I had my own and I thought they were better than his,” Caspers Peters said at Munger’s conference. “And it worked out fine.”

Berkshire has surged more than 30-fold since 1987 when it was listed on the New York Stock Exchange. Wesco advanced more than 20-fold since the end of 1983. Wesco paid dividends to shareholders, while Berkshire hasn’t. Berkshire, whose Class A shares ended at $117,050 on July 1, will continue to provide growth for investors, Munger said.

“I think that people that own Berkshire stock at current prices will do quite all right just sitting on their patoots,” Munger said.

Munger had a lawyer on stage at his event, whom he turned to for help understanding what a questioner said or meant to say. Munger didn’t seek clarification for all his doubts, as when he told one attendee:

“I’m not sure I fully understood the question, but let me answer the question I would prefer to have been asked,” Munger said. He made a few remarks about Berkshire’s growth, and said, “Anyway, I think that answers the question I hope you asked.”

BYD, Coca-Cola

Munger was asked to review some of Berkshire’s holdings, including BYD Co., the Chinese carmaker facing a decline in sales. BYD has the ability to recover from missteps, he said.

Coca-Cola Co. was cited by Munger as one of his favorite consumer-goods companies. Even so, “it’s not nearly as good a business as it was 20 years ago,” he said. Berkshire is Atlanta-based Coca-Cola’s biggest shareholder.

Costco, the largest U.S. warehouse-club chain, was praised by Munger, a Costco director, for its skill at cutting costs and passing savings on to customers.

“It’s almost a religious duty,” Munger said. “Costco is just about the most admirable capitalist enterprise that ever existed.”

© Copyright 2014 Bloomberg News. All rights reserved.

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