Charlie Munger, Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment firm chaired by Warren Buffett, has a piece titled: ‘Basically, it’s Over‘ in Slate this week.
Charles Munger
First, let me say, what I like about investors (and managers and entrepreneurs) with long-term track records of success, is it means — it must mean, by definition — they have a high quality view of the future. Not only a high-quality view, but a high quality view that renews itself. There is no doubt that Berkshire Hathaway has consistently over time had a better view of the future than most expert forecasters, policy pundits, and futurists. The record is clear.
Anyway, Munger this week offers a parable about Basicland, a C18 Pacific island colonized by Europeans where: “Property rights were greatly respected and strongly enforced. The banking system was simple… Almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property… Speculation in Basicland’s security and commodity markets was always rigorously discouraged and remained small…
“(But) as their affluence and leisure time grew, Basicland’s citizens more and more whiled away their time in the excitement of casino gambling… Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called “financial derivatives.”
And so it goes on, telling the history of America and the route to the Credit Crunch, and potential for new misery going forward, via this parable. He uses the parable as parables have always been used, to say something in ‘make-believe-land’ that cannot be said (or will not be heard) in reality. The folly of Basicland’s citizens and government is much easier to acknowledge than our own. Scenarios of the future are similar in function, similarly allowing mental and institutional ‘permission’ to think the unthinkable and ’say the unsayable.
The worst investor in America
Munger wouldn’t be the first to say: “Change yer ways or ye be doomed.” Isaiah and many before and since have said that. Nor would he be the first old white guy to espouse traditional ways of doing things. We factor that in. But he does look to basics and basics are important in having a high-quality view of the future. They signal the limits of the excess and reversion-to-the-mean imperatives.
I remember in the 1990s, when I was living in Washington DC, and Warren Buffet was “the worst investor in America” for missing out on the dot.com boom and Nasdaq bonanza. He just stuck to his guns saying, time after time, ‘there are no fundamentals behind these valuations (aka, this is just a casino) and fundamentals will prevail, which of course they did.
Now the brains at Berkshire Hathaway are saying that forums where risk, debt, currencies, etc., are up for speculation are ‘casinos,’ and their players therefore gamblers (rather than, as they would have it, ‘investors), and that they produce little fundamental value and fundamentals will prevail.
