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A Conversation with Charlie Munger :: Video

9/28/2010 --

Vice chairman of Berkshire Hathaway shares insight, wisdom at Ross event.

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ANN ARBOR, Mich. — Economic headwinds are likely to continue for a while, and ramifications from the crushing financial crisis still abound. But Charlie Munger, Warren Buffett's right-hand man, thinks it's a great time to be alive.

"I don't think it's a time to be at all discouraged," Berkshire Hathaway's vice chairman told CNBC anchor Rebecca Quick during a Sept. 14 presentation at Ross.

The current recession is far less severe than the Great Depression, and the past hundred years saw unprecedented advancements in quality of life, technology, and social justice, he noted. "To look back on [the last hundred years] in a big-picture way and be discouraged is to underestimate your species and civilization."

Instead of worrying about what will happen with the macroeconomy, Munger suggested young people "deal with competency and grace with what life throws at you."

The investment manager and philanthropist recently shared his opinions with a University audience in Blau Auditorium as a guest of the U-M Law School. He addressed the accounting profession, underfunded retirement, healthcare reform, business ethics, and the rise of Asia.

Munger predicts a slower economic rebound than in past recessions, especially when it comes to employment statistics. "I do think the job market is likely to be fairly lousy for some time," he said.

To fix the economy, Munger favors investment in infrastructure instead of using government spending to "shove it at people." In particular, he would like to see more investments in solar energy with an emphasis on storage and transmission of power.

Underfunded pension and retiree healthcare obligations are two major issues that require much attention, and Munger said he would not touch Social Security if he were in charge.

"I think that, net, [Social Security] has been a credit to our civilization," he said. "It's worked with low administrative costs and low fraud and it's given a lot of people their main dignity in old age. As long as we're as rich as we are, we should find a way to support it."

Munger said he doesn't think "the world comes to an end" if the government enacts a value-added tax to pay for Social Security promises. Though he doesn't think it'll happen in his lifetime — noting that he'll be 87 in January — he called the VAT a "very desirable tax," since it helps support exports.

Where tension could come is if the U.S. finds itself in a situation like Japan after its last major recession where growth stagnated for more than a decade. Munger thinks the U.S. will respond better, but he noted that Japan tried every fiscal and Keynesian trick and still wound up stagnant. That outcome would cause more social tension in the U.S. than it did in Japan, he said.

For individuals who want to invest, Munger said he likes good stocks instead of government bonds and he "doesn't have the slightest interest" in investing in gold, a hot commodity.

"I like working and understanding what works and what doesn't in human systems," he said. "To me, that's not optional. That's a moral obligation. If you're capable of understanding the world, you have a moral obligation to become rational. I don't see how you become rational hoarding gold. Even if it works, you're a jerk."

Munger also called out the accounting profession for failing to act as an effective referee when Wall Street became overheated.

CEOs by nature are competitive, driven people who require the oversight of ethical directors and accountants, he said. Wall Street had a long run of easy money where "idiots and knaves were making a fortune selling shoddy mortgages with ridiculous theories."

"If you attract very competitive people and they are thrown together into this miasma, of course there's going to be more regrettable behavior than you might find in a monastery," he said, adding, "the adults who could have fixed it — like the accountants who had ridiculous standards — utterly failed us."

Munger acknowledged that accountants sometimes are in tough positions and "legitimately fear the liabilities that would come if they had to make more difficult judgments," but said accounting oversight would improve quickly with new laws and rules.

He then advised the crowd to avoid working at places where the corporate culture encourages temptation.

"It's easy to drift in the wrong direction," he said. "If you're shrewd, you can see where the culture is not going to tempt you."

Current business students are up to the looming challenges, as long as they understand that power is shifting, Munger said. The rise of Asia as a world and economic force is a major game-changer, especially for manufacturing states like Michigan.

"The rise of Asia is an awesome force and it's a tidal force," he said. "And if you're going to have free trade, which I think we have to have with a fellow nuclear power in the complex world we live in, you're talking about something that's very hard on a manufacturing place like Michigan."

The upshot is that the U.S. also benefits from the economic growth and rise of educated professionals in Asia. The downside is dealing with the disruptions. The trick, he noted, is to find the few big opportunities that come along in life and attack them with a vengeance.

"Don't hang by like a timid little rabbit," he said. "There aren't that many of the really good ones."

He cited the history of Berkshire Hathaway to illustrate his point. "If you take out the 20 best transactions, our record is a joke," he admitted. "The 20 best transactions occurred over some 40 years — that's one every two years. And we work at it all the time. Life is not just bathing you in unlimited opportunities, even if you work at being able to find them and seize them."

—Terry Kosdrosky

For more information, contact:
Terry Kosdrosky, (734) 936-2502,