Charlie Munger: This One Thing Helped Me Become a Billionaire

Warren and I, we never tried to make money out of the dumb, say, out of the stupidity of our dumb buyers. We tried to make money by buying, and if we were selling horse [ __ ], we didn't want to pretend it was a cure for arthritis. And I think it's better to go through life our way instead of theirs.

You take the modern world where people are trying to teach you how to come in and trade actively in stocks. Well, I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin. It is really stupid. And when you're already rich, to make your money by encouraging people to get rich by trading? Then there are people on the TV—another wonderful place—and they say, "I have this book that will teach you how to make 300 a year, and all you have to do is pay for shipping, and I will mail it to you."

How likely is the person who had suddenly found a way to make 300 a year to be trying to sell books on the internet to you? It's ridiculous. And yet, I've described modern commerce, and the people who do this all day think they're useful citizens. The advertising agents invent the lingo.

So insurance, they say, well, they say the two people who shifted from Geico to the Glottis Insurance Company saved 400 each, but they don't tell you there's only two such people in the whole United States, and they were both nuts. But they mislead you on purpose, and I get tired of it. I don't think it's right that we deliberately mislead people as much as we do.

Let me tell you another story that I think is an interesting one about modern life, but this goes back to a different time. This man has this wonderful horse. It's just a marvelous horse—got an easy gait, and good looking and everything. It just works wonderfully, but also occasionally just gets so he's dangerous and vicious and causes enormous damage and trouble and breaks arms and legs of his rider, and so on.

He goes to the vet and says, "What can I do about this horse?" The vet says that's a very easy problem, and I'm glad to help you. He says, "What should I do?" And the man says, "The next time your horse is behaving well, sell it."

Well, think of how immoral that is. Haven't I just described what private equity has to do? When private equity has to sell something that's really troublesome, they hire an investment banker. And what does the investment banker do? He makes a projection. You can't—I have never seen such expertise in my whole life just created in making projections in investment banking.

There is no business so lousy you can't get a wonderful projection. But is that a great way to make a living? To have phony projections and use it to make money out of people? You look right into the eyes of—I would say no.

And by and large, Warren and I, we never tried to make money out of the dumb, say, out of the stupidity of our dumb buyers. We tried to make money by buying, and if we were selling horse [ __ ], we didn't want to pretend it was a cure for arthritis. And I think it's better to go through life our way instead of theirs.

And I think it's always been this way. I think there's always been chicanery. Think of the carnival, so the carny operator. Think how much trickier there is in a carny operation. People just seek out the weaknesses of their fellow man and take advantage.

You have to get wise enough so you avoid them all, and you can't avoid them if they're in your family. I have no solution to that one. But where you have a fair choice, there are just so many people that should be avoided.

My father had this best friend and client, and he also had this other client who is a big blowhard. He was always working for the big blowhard and he wasn't ever working for his wonderful clown, whom I admired. I said, "Why do you do this?" And he said, "Charlie, you idiot. The big blowhard is an endless source of legal troubles. He's always in trouble, overreaching and misbehaving and so forth, whereas Grant McFaden treats everybody right—the employees, the customers—everything he gets involved with. Some psychotic walks over there and makes a grace election immediately. A man like that doesn't need a lawyer."

My father was trying to teach me something, and it really worked. I spent my whole life trying to be like Grant McFaden, and I want to tell you it works. It really works. Peter Coffin is always telling me if the crooks only knew how much money you could make by being honest, they'd all behave differently.

Warren has a wonderful saying I like. He says, "You take the high road, it's never crowded." And it's worked. Take the Daily Journal Corporation. We made quite a few millions of dollars out of the foreclosure boom because we published legal notices and we dominated the publication of foreclosure notices in the worst real estate depression in the history of modern times.

We could have raised our prices at the time and made more tens of millions of dollars, but we didn't do it. You know, when your fellow citizens are losing their damn houses in the worst recession, Charlie Munger—billionaire—raises prices? It would look lousy on the front page of the paper for people around. Honestly, should you do it? And the answer is no, of course not.

But maybe when you’re—Warren always said it's probably always a mistake to marry for money, and it's really stupid if you're already rich. And it's really stupid when you're already rich to get a reputation of being a total no-goodnik.

Rick Garan always loved the story about the guy who had been a total miscreant all his life and he died. The minister said, "Now is the time in the funeral ceremony when somebody says something nice about the deceased." Nobody came forward. Nobody came forward. Nobody came forward. Finally, one guy stood up and he said, "Well," he said, "his brother was worse."

Well, you can laugh, but there are people like that. When Harry Cohen died, the saying was everyone went to the funeral to make sure he was dead.

And so there are a few simple truths that really work. And when it gets to this difficult business the Daily Journal is in, I would say it is a real pleasure to be serving these courts and agencies. They need the automation. Other people are trying to take advantage of them in ways that we aren't, and we're struggling against the odds of a little tiny company.

And we're taking a lot of territory. It's slow going, but the prospects are good. And of course, the nice thing about Ring Riches is it doesn't matter if it's a little slow.

And how do we get rich? Well, we remember Grandpa Hang Him. When one of the few opportunities came along, we reached out and seized it.