Interview · 2009

Charlie Munger on Boom and Bust (BBC, 2009)

2009 11m video medium confidence

Source: BBC News · embedded from the original; we don’t host it.

A viewer re-upload of the original BBC segment — BBC never posted it to YouTube — so it may be taken down over time; we re-verify links periodically.

Eleven blunt minutes from late 2009. Munger on why a genuine long-term investor has to sit through a 50% decline without flinching — the line quoted more than almost anything else he said — plus his verdict on Greenspan (“overdosed on Ayn Rand”) and the incentives that blew up the system.

financial crisis temperament investing

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how worried are you by the declines in the share price of buer ha away the difficulties in this is the third time that Warren and I have seen our Holdings in berer go down top tick to bottom tick by 50% I think it's in the nature of long-term shareholding with the normal vicisitudes and in worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down and then by say 50% fact you can argue that if you're not willing to react with Equanimity to a market price decline of 50% two or three times a century you're not fit to be a common shareholder and you deserve the mediocre result you going to get compared to the people who do have the temperament who can be more philosophical about these Market fluctuations you can never take all the boom and bust out of a capitalist economy but they could be enormously dampened if there were wise legislative restraints on human conduct that eliminated more of the sin and Folly that will inevitably come without the wise restraints and what happened in America is that the people who were making money out of a lack of wise restraints just got more and more power by doing more and more lobbying and making larger and larger political contributions and uh and being aided by a certain ideological nuttiness which assumed that because free markets worked so well compared to say communism that automatically followed that if there were no laws at all restraining Financial conduct the economy would work better and that's not so the economy Works worse if you allow unrestrained sin and Folly in finance that goes back all the way to the South Seas bubble without a system of wise restraints gross immorality and extreme craziness will happen in markets they need to be dampened sin and Folly needs to be stepped on both parties have wings that are full of idiots that is the nature of the game and the reason it's worked as well as it has is that the people in the middle have sort of overtime tuned out the idiot OT on both Sid and but every once in a while the idiots get in control and of course that has terrible consequences so you're really that's the nature of the system you're thinking of the last 10 we went way too far in financial deregulation we and people were making so much money and the economy was doing so well because it was being puffed up by this uh idiot boom and idiot expansion of consumer credit that everybody thought oh isn't this wonderful and of course it was your life for the next three weeks would be more pleasant if you went on heroin but it would totally destroy you over the long pole and that's what an economy does when it allows itself to be seduced by the potential for an idiot boom into allowing all this gross immorality and this and this craziness to take over to his credit of all the major figures he's the only one who promptly said I was a horse's ass I'm ashamed of my lack of foresight I miss this who else but Alan Greenspan is talking that way so in my book He's sort of a hero in that it is hard at his age to look back at a career as distinguished as his with as much success and agulation and basically say I was a horse's patoo and that's what he's done so to me he's a hero we need more of that sort of thing Wall Street tracks and rewards what I call a locker room culture they L the people who just have to win at football or soccer or something like that and they in the nature they're just so competitive that whatever a is doing they have to be as good or better than a and of course Warren and I don't have those compulsions and I would rather live my way than theirs they do enormous damage to the rest of us with their damn locker room culture that has to win and doesn't is not very squeamish about what they have to do to win we have to deal in things that we're capable of understanding and then once we're over that filter we have to have a business with some intrinsic characteristics that give it a durable competitive advantage and then of course we would vastly prefer a management in place with a lot of integrity and talent and finally no matter how wonderful it is it's not worth an infinite price so we have to have a price that makes sense and gives a margin of safety considering the natural vicissitudes of life that's a very simple set of ideas and the reason that our ideas have not spread faster is they're too simple the professional classes can't justify their existence if that's all have to say I mean it's all so obvious and so simple what would they have to do with the rest of the semester well at the time we bought it was succeeding mightily on multiple fronts and it was cheap in relation to what was plainly going to happen that was a valuable insight there are times when even a company as big as cocacola is too cheaply priced by the market considering what it's going to do for the shareholder and there are times when we can figure that out and there are times when we can't and the times when we can figure it out we tend to go in heavily for many months we were buying as much cocacola as we could buy roughly a third of the volume trading every day for months so we were very aggressive in buying into Coca-Cola we have the mindset of the person that's buying the whole business at the price you would realize by multiplying the price we're paying by share by the number of outstanding shares and we want they price for the whole business so calculated to look very attractive so we like buying individual shares at a price that's lower than we think a rational person would pay if he could buy the whole business Warne would have been a huge success if Charlie Munger had never lived how often do you speak to him well in the early days it was almost every day and now it's maybe once a week only once a week yeah not very much but sometimes it's a long conversation you and Warren are very much a double act in the chairman and vice chairman of the company at some point you want to probably retire don't you step down rest a bit well I don't think either of us wants to quit accept as the laws of physiology force it and that no doubt will be soon on us but uh you got to remember that birkshire is probably the most decentralized big Corporation in the world I think the very decentralization of birkshire and the extreme pockets of talent in all the subsidiaries will give Berkshire a very respectable future long after we're gone on and you got to remember that we started with a little nothing and our successors are starting with something that is not a little nothing and you ought to be able to achieve a lot more when you're given a mighty hand than you were when you start with a little nothing now they won't be able to multiply money as fast per share because that can't happen when you're working with such large sums but in terms of a creditable institution that serves the wider world I think berard's contribution after Warren is dead will utterly dwarf the contribution made while he was alive

In his words — from this talk

“In fact, you can argue that if you're not willing to react with equanimity to a market price decline of 50% two or three times a century, you're not fit to be a common shareholder, and you deserve the mediocre result you're going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”

BBC interview with Evan Davis (2009) · 2009 · as recalled

From his BBC interview; the widely-circulated short version drops the closing clause restored here.

“Both parties have wings that are full of idiots. That is the nature of the game. And the reason it has worked as well as it has is that the people in the middle have sort of over time tuned out the idiots on both sides. But every once in a while, the idiots get in control. And, of course, that has terrible consequences. That's the nature of the system.”

BBC interview with Evan Davis (2009) · 2009 · as recalled

From his BBC interview — a separate segment from Buffett's. These are Munger's words, not Buffett's.

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