Information on Wesco Financial Corporation (WSC) and Charlie Munger:
Charlie Munger has served as Vice Chairman of the Board at Berkshire Hathaway since 1978, Chairman of the Board and Chief Executive Officer at Wesco Financial since 1984, Chairman of the Board and Director at Daily Journal Corporation (DJCO) since 1977, and on the Board of Directors at Costco (COST) since 1997. He also is Chairman of the Board for Good Samaritan Hospital in Los Angeles and is a trustee for Harvard Westlake School in North Hollywood, CA.
Web Links
Charlie Munger Holds Court : Notes from the 2001 Wesco Annual Meeting.
Charlie Munger Speaks: Notes from the 2000 Wesco Annual Meeting.
Charlie Munger's letters to Wesco Shareholders
Mr. Munger's Speech at the Miramar Sheraton Hotel in 1998
Two brief video clips of Mr. Munger speaking
Friendly investment advice from Warren Buffett's buddy (Oct 1996)
HOW TO GET RICH: A Talk by Jared Diamond
Damn Right! by Janet Lowe
Listen to Janet Lowe discussing her book and Mr. Munger
Good Review
Notes from 1998 Wesco annual meeting provided by Sir Royce(Yahoo Message board name):
I will lay for readers here some of the topics covered at the annual meeting on May 27 in Pasadena. This is not comprehensive and any errors of commission or omission are mine.
As a preface however, let me say how struck I am that most of the questions did not relate much to Wesco--they related more to BRK and to inveting philosophy in general and one guy even asked Charlie's advice on how to raise their kids!! As was noted earlier on the board, Charlie answered a question about why the WSC tradng volume was up over the past few years and he said that they have become 'a cult'--maybe a good cult, but still a situation where many people have becoem interested in every move he and Warren make. I got the impression that it was a little discomforting to a logical mind like his, but he recognizes he has become a guru, like it or not.
When asked about preparation for an investing career, he suggested the study of physics, which was an eye-opener for him.
When asked how he approaches an annual report he looks at the footnotes aboput accounting treatment, and the manager's account of the operation. He is disappointed in those companies who hire p/r flacks to write the annual report. The big question he asks himself is 'how long can this continue and what are the forces that could stop this?' He also said that the Value Line charts, not their opinions, are very good to look at first.
He said that a few good 'models' in your head will do most of the work [see OID for USC lecture where he talks about models]. The main one being Return on Capital. He repeated Buffett's recent phrase that "if you want a really good sled ride, pick a long hill." A plain example of the concept is Wrigley gum--how could one start up a new gum company and expect to do well? For two bits you know what you are getting--why would you put Glotz' gum in your mouth for a nickel?
As to the Citigroup merger, he is flabbergasted by the size and audacity of the deal. He is not saying it is bad or good, but he is amazed that these guys are planning a deal which under present law is illegal but they say they will get the law changed. He acknowledges that maybe they will get that done--but he questions the 'cozy CEO' approach which others have tried but which mostly doesn't last.
As to WSC itself, it is easy to make calculations of value and that is why they do it in the annual report. He does not agree with the stock touters who come up with different formulas to exaggerate the value. BRK on the other hand is much harder to value because of the intrinsic value of its businesses. He says that there are momentums in place now at Berkshire that will continue after WB's demise. BRK gets more opportunities to do deals because sellers want BRK shares, not WSC shares. The companies are two different animals.
When asked about Coke, and chairman Ivester's goal to double volume, he says it will happen. He would be exptremely disappointed if Coke had not tripled its volume in 15 years.
If someone inherited $1 million from grandmother tomorrow, it would be a hard decision on what to do with the new money--before present conditions, the easy answer would be to invest it. IT is not such an easy question to answer now. You should have a good reason for a long term holding now.
He repeated his philosophy that options are a dumb way to incentivize executives but it is a fact of life in Silicon Valley and that may be the only way to hold talent there. Whe BRK acquires a copmany they seek to bring option plans more in keeping with their philosophy without necessarily scrapping them.
He said that the vast majority of managed money should be in indexed funds given the track records that most managers don't equal the Indexes.
They are out of the business of looking for undervalued situations like the old days--they have too much money for it to work in those situations. He feels you are better off taking the best Five of the Nifty Fifty say, then scrapping around for used cigarette butts on the street, or owning 30 different stocks.
He is skeptical about issuing shares of a really wonderful business like Gillette for a less wonderful business like Duracell. Gillette's dominance in shaving is much greater than its near dominance in batteries with Duracell. But he says WB was there for that deal and WB was comfortable with it. He is not sure how it will work out.
Asked about whether railroads could be approach oligopoly situation and thus be good franchises to purchase, he said he has never owned a railroad stock in his life, yet, due to union rules, capital investment, etc., but he could conceive of railroads working out--but they are not as good as the next Coca-Cola.
Asked about the Microsoft suit, he said he has watched many leading industries in the U.S. lose their competitive position to foreigners. Examples are TVs, small appliances, autos, and steel. Now we have a big company dominant in an area of software and the government is trying to break it up. There are foreign software companies who will benefit from this. He does not understand it and says if he was the AG, the suit would not have been brought.
He has no advice on raising kids--he says you can hide your money from them or be open about it--it is best to be open about it, especially since they could read about it in an SEC discloure form anyway. He is happy with all of his kids, some of whom were home when they were in moderate circumstances and others when they were in immoderate circumstances, but he laments that none of them are adding to the Munger family fortune.
Things that were not discussed included how Kansas Bankers is going to prosper as it has in the face of increasing bank merger activity, or why it would not be more effieicnt for BRK to just tender for the remaining 20% or so of WSC that it does not already own.
Notes from 1999 Wesco Meeting (Courtesy of Robert Porter):
I went to Pasadena yesterday to attend the WESCO annual meeting. Attendance was small, about 200 people, but very enthusiastic. Lou Simpson, investment manager for GEICO, came for his first time and I got an enjoyable opportunity to talk to him. Charlie walked over and joined the conversation, which went on for about 30 minutes until the meeting began. At one point Charlie launched into a long discussion on Ben Franklin and Nathaniel Bowditch, who is the first famous American mathematician. Bowditch did early work on navigation and insurance. He may be the father of the American insurance industry. According to Charlie, he made his money in the insurance business.
Some highlights: Stock options and incentives - Stock options are a ponzi scheme and a corruption of American accounting and business practice. (I have heard this somewhere before, but where..........?) BRK has several different approaches to pay for managers of purchased companies instead of stock options. Most desired is to leave the present system intact. If options must be eliminated, there are 2 approaches. If the company has a very large return on capital like many BRK subsidiaries, give the managers a direct share of earnings as a bonus. I like that! If the business uses significant capital, the bonus is based on returns that exceed some cost of capital. Warren likes this bar to be set fairly high.
Freddie Mac and legislative risk - Charlie says that the business is so great that you have to expect people to take pot shots at it. FRE has improved its execution dramatically over the last few years, so don't get hung up on the manueverings.
Analysts - they operate in an awful system but individual analysts are good and BRK is happy to have the coverage. However, they do not and will not get numbers and other info before the shareholders. Then Charlie said, "We have an analyst here! Alice Schroeder Alice stand up!" (We applaud.) She is very nice and quite bashful. Several of us are impressed that she covered the WESCO meeting. Charlie hates the practice of companies dishing out selective data to the analyst community before the shareholders get the info.
Models - Charlie believes in simple models as a paradigm for analyzing conflicting situations. He carries around many of these in his head and tries to apply the most relevant one to each investing or life situation. An example is that good companies have cash at the end of the year and do not have all their cash tied up in inventory. He gave a talk on this to a business school at a California university a few years ago. His advice - Develop lots of models so that you have the right one in your mind for each investing situation, instead of overusing the wrong ones.
Books - Charlie recommends a book called Influence by Robert B Cialdini. I found two on Amazon. I think Charlie meant Influence: Science and Practice which deals with models as decision aids. I ordered it. He also recommended again Ron Chernow's book Titan: The Life of John D Rockefeller, Sr. He embellished this recommendation with some interesting stories of Rockefeller's philanthropy and business practice.
Charlie enjoyed the meeting and said that if we were all nutty enough to come from afar to query him that next year he would start the meeting earlier and run longer. This year it began at 4PM and ran until 7PM.
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Developed by: Richard M. Rockwood
Last Updated on: May 11, 2001