Munger Hosts Groupies, Mocks Wall Street, Praises Buffett

Charles Munger
Charles Munger, vice chairman of Berkshire Hathaway Inc., surveys the crowd during the Berkshire shareholders meeting in Omaha, Nebraska, on May 4, 2013. Photographer: Daniel Acker/Bloomberg

Charles Munger became a billionaire helping Warren Buffett build Berkshire Hathaway Inc. into the fifth-biggest company in the world. Looking back, he says his contribution was minimal.

“I think Einstein needed somebody to talk to,” Munger, 90, said yesterday in Los Angeles at a meeting with investors when asked about his five-decade partnership with Buffett. “He wouldn’t have been as good as he was if he didn’t have a talking foil who knew something. And I think I’ve been very useful in that regard.”

Modesty aside, Munger’s accomplishments have earned him plenty of followers over the years, whom he affectionately calls “groupies.” They were on full display at the gathering, the annual meeting for Daily Journal Corp., a newspaper publisher where he serves as chairman. Buffett, Berkshire’s 84-year-old chief executive officer, has no affiliation.

During the two-hour event, Munger fielded questions on investing and life, while speaking in front of a standing-room-only crowd of more than 200 people. He criticized Wall Street and derivatives trading, while sharing his opinions on topics like tax policy and Elon Musk.

He opened with a few barbs for Daily Journal’s former auditor, Ernst & Young LLP. The publisher missed deadlines for its annual report and two quarterly filings to the U.S. Securities and Exchange Commission after a dispute with the accountant over internal controls. The delay pushed back the meeting, which usually occurs in February.

Hellish Audit

“We obviously had an audit from hell,” Munger said. “They were like the doctor who wanted to cure the nosebleed by fishing around in the groin.”

Ernst & Young spokesman John La Place declined to comment. Daily Journal caught up on its filings last month after hiring another accountant, BDO USA LLC.

Munger, who once called sellers of mortgage-backed securities “flim-flam artists,” continued his critique of Wall Street firms yesterday. While conceding that derivatives trading could be a lucrative business for banks, he said he would prefer if they stuck to lending to worthy borrowers.

“If you intelligently trade derivatives, it’s like a license to steal. You can understand why they all want to do it,” Munger said. “I just don’t think it does the country any good to have this huge gambling market.”

Nevertheless, Munger has shown how to profitably invest in banks. After stocks plunged during the financial crisis, he used Daily Journal cash to buy shares of Wells Fargo & Co. and U.S. Bancorp. The lenders have since rallied, helping to boost the publisher’s own market capitalization five-fold since the end of 2008. Berkshire also invests in both banks.

Tax Policy

Munger also took a question on what should be done about American companies moving outside the U.S. in search of lower corporate taxes. President Barack Obama has criticized the deals, called inversions.

Berkshire added fuel to the debate last month when it agreed to provide financing for Burger King Worldwide Inc.’s planned takeover of coffee-and-doughnut chain Tim Hortons Inc. The combined company plans to have its headquarters in Canada, which will be its largest market. Burger King is based in Miami, while Tim Hortons is in Oakville, Ontario.

Munger pushed back against the assertion that the merger was motivated by tax savings. Berkshire’s payments to the government will go up as a result of its $3 billion investment, he said.

“Anyone who thinks this is a great tragedy and a great injustice is stark raving mad,” Munger said of the fact that the new company will be based in Canada. “It’s a non-event.”

Wealthy Taxpayers

He said his preference would be for lower corporate rates and a system that raises revenue from wealthy individuals, perhaps by taxing what they consume.

In several responses, Munger reflected on what makes a lasting business and the nature of competition. He said Tesco Plc, the U.K.’s biggest grocer, has been hurt by missteps and challenges in its home market from discounters like Aldi. Berkshire is among Tesco’s biggest investors.

Munger singled out Musk for his brains and ability to take on big projects. The entrepreneur, 43, has helped popularize electric cars through Tesla Motors Inc. and also runs SpaceX, a closely held rocket company.

“I think Elon Musk is a genius, and I don’t use that word lightly,” Munger said in response to a question about whether they’d talked. “He’s also one of the boldest men who ever came down the pike. So put me down as saying I’ve always been afraid of the guy whose IQ is 190 and he thinks it’s 250.”

Munger wasn’t so sanguine about the future of Daily Journal’s newspaper and magazine business, which he said is in decline. In recent years, the publisher has purchased legal-software companies to diversify.

Toward the end of the meeting, an attendee said Munger was being too modest about his performance at Daily Journal.

While the company long ago made back the $2.7 million he bought it for, the returns have been nothing like Berkshire’s, Munger responded.

He then added: “It’s pretty good for a failing business.”

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