Highlights from Charlie Munger's Conversation with Todd Combs (2022 Singleton Prize for CEO Excellence)

"I am a guy who has been able to take moderate obsession and a long attention span and turn them into pretty good results. A long attention span will help you a lot, if you're reasonably smart."

Hello everyone,

Yesterday I found this amazing fireside chat between Charlie Munger and Todd Combs, recorded in April 2022 for the ‘Singleton Prize for CEO Excellence’. You can listen to the full conversation here or read a transcript.

Munger recounted one of his last conversations with legendary CEO Henry Singleton who tried to sell Teledyne to Berkshire — but he wanted stock. That was not going to fly with Buffett and Munger (“New subsidiaries would usually be bought with cash, not newly issued stock.”) Munger responded:

Henry, we're not going to issue stock or give away all our business that we know and like and understand to get in another business we don't know and don't understand. It can't happen.

Regardless, Munger is a huge fan of Singleton:

You could say that a life like Singleton's, what it demonstrates is the vast power in being remorselessly rational.

You can find my highlights from Munger’s conversation with Combs below.

Enjoy,

Frederik

What kind of a mind, in designing a dormitory, imitates a cruise ship? Well, that's what my mind does, and it's coolly logical. That's the kind of mind Singleton had, too. He was just coolly logical.

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• On the nature of capitalism (and a must-read book).

• On the chemistry of booms and busts.

• On inflation (“It won't be my problem, if I'm honest. It may be your problem.”)

• On investing: intelligence vs. temperament.

• You just need one or two great businesses (“The people who tend to get the best results are fanatics.”)

• Half the secret of life: obsession and a long attention span

• Charlie’s life changed at age 7, when he realized even smart people were not acting rationally all the time.

• “I almost worship reason.”

• Look for the Wooden system (“If you can find a mini-Singleton or a mini-Buffett, and play them when they have a hell of a run, that can be a very good way to invest.”)

• Look for people with the fiduciary gene.

• A little perspective on life.

• The secret behind the windowless dorms: Munger borrowed the idea from cruise ships.

• “There are people who will make you feel that you're born into the wrong species.”

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On the nature of capitalism (and a must-read book).

The nature of capitalism is that all things die. But death is part of the creative process.

Munger expanded on previously dominant businesses that declined during his lifetime:

Just think of what I've seen wane. All the big department stores. All the big newspapers and monopolies. US Steel. Alcoa. The auto manufacturers. General Motors once stood in the world like a colossus, and it eventually wiped out its own shareholders and part of its own workers' pensions

GE is one of the worst cases of all, because I knew Jack Welch. He was likable and he was intelligent, but he went a little crazy trying to do well in the system. He was very competitive. He wanted to win at golf, he wanted to win at business, all over. He just let it… he got them into that wretched excess. In the end, he was lying about what had been accomplished.

I think that that book, "Lights Out," which chronicles the decline of GE, ought to be required reading in every business school in the country. It won't be, because they don't want to offend anyone. But it should be. If there's anybody here's who's not read "Lights Out," you should buy it and read it.

You can argue that Rockefellers' empire was the only business of the old days that really became a giant that's still lasting. Everybody else, it's all a type of mortality. They all die or become insignificant.

On the chemistry of booms and busts.

The process of capitalism automatically speeds up in both booms and depressions, and it feeds on itself for awhile. So it's like autocatalysis, in chemistry. It's just automatic. You get this speed up in both directions, which makes it very, very dangerous.

Ever the optimist:

The Great Depression came from excesses which in many ways aren't as bad as those we have now. And with those cheerful thoughts, we should go on to the next question.

On inflation (“It won't be my problem, if I'm honest. It may be your problem.”)

It's the nature of things that a bunch of democratically-elected politicians will eventually print too much money. Now, in my life, I would argue that what we have now is so valuable, the fact that the currency went down by 80% or 90%, it was worth having the depreciation of the currency to get growth. I don’t think it was a bad bargain for civilization so far, but on the other hand, the Weimar inflation that eventually led to Hitler's rising, that's a different problem. To get into that, I have no... It won't be my problem, if I'm honest. It may be your problem.

On investing: intelligence vs. temperament.

Warren used to say, “You really don't need to be very smart to be a very successful investor.” And I think Warren was right. It's a field where the temperament is, it's good to have the extra mental horsepower that Henry Singleton had. That is helpful, but it's perfectly possible to do splendidly well if you have the right temperament. Just go at it over a long time.

You just need one or two great businesses (“The people who tend to get the best results are fanatics.”)

Munger talked about Ken Langone:

The people who tend to get the best results are these fanatics who just keep searching for the great businesses. And the best of them don't expect to find 10 or 20 or 30. They find one or two. And that's the right way to do it. All you need are one or two.

I know the guy who invests with the banker that backed the Costco copy which was Home Depot. He also backed Eli Lilly very early. He has several billion dollars between those two investments. He didn't need any more. And in a lifetime of investment banking, that's what he got: two. I regard that as a successful life.

That isn't what they teach in our educational institutions. They need some mystery they can teach that will make you good at investing. It's total bullshit. There is no way to know enough about a thousand different stocks to be very good at it.

Half the secret of life: obsession and a long attention span

I'm not a polymath. I am a guy who has been able to take moderate obsession and a long attention span and turn them into pretty good results. A long attention span will help you a lot, if you're reasonably smart.

If you're reasonably obsessed with something, even if it's intermittent, and you have a long attention span, you keep working over the serious problems, you’ll stumble into an answer. That’s half the secret of life.

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Charlie’s life changed at age 7, when he realized even smart people were not acting rationally all the time.

Combs: When asked how old you were when you figured out the secret to life, you said, "Seven. When I realized everyone's a little bonkers, and there's so much irrationality in the world.”

Munger: My father had a great friend whose father had been the chief mathematician at the University of Nebraska, and he played the violin. He was mechanically gifted. He was an enormously talented man. But he’d been very poor, because in those days, a mathematics professor of a university got paid practically nothing. And this man had conquered poverty all those years of scholarship, working 90-hours weeks. I loved him and admired him. His house was an alternative house for me. I went back and forth because he had children my age.

And one day, the man got a leak in his house that caused some extra cost. And he practically went berserk. All that power he had, he took extra care of the home. Things like leaks — Of course, a surgeon would be very fanatic about leaks, too. Anyway, he went berserk. And I thought God Almighty, here's this genius going berserk. A world where even geniuses are that nuts, I have a chance…

“I almost worship reason.”

I almost worship reason. You can argue that Henry Singleton did, too, and certainly Warren Buffet does, too. The people I know that are good, they feel you have a duty to become as wise as you can be by constantly studying things and thinking about it.

And that angle is partly temperamental. And partly, it was family example in my case. My Grandfather Munger, whose name I bear, was a self-made, self-educated man. He was a damn genius. And I watched him, and his life worked pretty well. He was not making many mistakes.

Look for the Wooden system (“If you can find a mini-Singleton or a mini-Buffett, and play them when they have a hell of a run, that can be a very good way to invest.”)

Munger mentioned this in the 2014 letter as well, noting that Buffett “out-Woodened Wooden” because all decisions, that is “the exercise of skill”, was concentrated in just one person.

And, with the extra playing time, the best players improved more than was normal.

Munger’s advice in this talk is to find people who apply this and thus improve faster than their competitors:

And Wooden had the best basketball coaching record in the world, and nobody else was even close. How did he do it? The answer was, he concentrated almost 100% of the playing time on his top seven players. And of course, they got better and better during all the extra playing time. And that's what happens when you give so much power to a Wooden or a Buffett or something. You're doing the Wooden system, and it works like gangbusters.

As an investor, if you can find somebody, even as a mini-Wooden or a mini-Singleton or a mini-Buffett, and play them, and when they have a hell of a run, certainly that can be a very good way to invest.

Look for people with the fiduciary gene.

Combs: Some of your heroes, not exclusive, Lee Kuan Yew, Otto von Bismarck, Deng Xiaoping, George Marshall. They all seem to have a sense of duty and honor as a common thread.

Munger: I like the fiduciary gene. Think of the difference between somebody like George Washington, who voluntarily left power, setting an example. And these paranoid rulers who come into power and start killing people to stay in power, trying to subvert the systems and so forth.

What maybe the current world is teaching us is, our forefathers who gave us term limits, they understood human nature. They were trying to prevent some major rifts, and it has worked pretty well so far.

A little perspective on life.

Two hundred years ago, we'd all be in a field, going to work and never leaving the little valley we were born in and having fungus we couldn't fix, watching our children die of nasty diseases. It was not an easy life.

The secret behind the windowless dorms: Munger borrowed the idea from cruise ships.

If you’ve followed Munger, you probably know about his controversial designs for windowless college dormitories.

I knew those students would be better off close together. You get them close together, and then you get window shortages. Absolutely unavoidable. And so I thought, how in the hell can I handle this? Well, I went to the cruise ships and figured out how they handled it, because most state rooms -- not most, but a lot of state rooms on a cruise ship can't have real windows. They used artificial windows and they had a system where you could leave your own place and go into the light and air, all kinds of things. So I just copied the cruise ships and their invention.

What kind of a mind, in designing a dormitory, imitates a cruise ship? Well, that's what my mind does, and it's coolly logical. That's the kind of mind Singleton had, too. He was just coolly logical. But if you don't think of the cruise ship, you get the wrong answer.

“There are people who will make you feel that you're born into the wrong species.”

It’s nice to know there are people who even leave Charlie Munger stunned!

CalTech has a Rubik's Cube contest every year. And one year, a guy came in and he gave them scrambled cubes and he juggled three or four of them. As they went by, he was twirling them in his hands. Even though they were constantly in motion there. Nobody will ever top that. He solved all the cubes.

The next year, in came a woman, they gave them two cubes all scrambled, and she looked at them for a long, long time. She put one in her left hand and one in her right hand and put them behind her back and started twirling, and then brought them out both fixed. That really happened. There are people who will make you feel that you're born into the wrong species.

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