Category Archives: Investing

Inflation and Investments

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Inflation is an economy-wide, sustained trend of increasing prices of goods and services, and loss of dollar purchasing power from one year to the next. It affects investments in several ways:

Real Value Erosion:

The rate of inflation represents how quickly investments lose their real value and how quickly prices increase over time.

As prices rise, the purchasing power of money decreases. For example, if you can buy a burger for $2 this year and the yearly inflation rate is 10%, next year the same burger will cost $2.20.

To maintain your standard of living, your investments need to generate returns equal to or greater than inflation.

Investment Returns and Inflation:

If your investment returns do not outpace inflation, your real returns (adjusted for inflation) may be negative.

Suppose ABC stock returned 4% and inflation was 5%. The real return on investment would be minus 1% (5% – 4%).

Asset Classes and Inflation:

Liquid assets (e.g., cash, short-term deposits) tend to appreciate more slowly than other assets. They are more vulnerable to the negative impact of inflation.

Illiquid assets (e.g., real estate, long-term investments) are also affected by inflation but may appreciate in value or generate interest, providing a natural defense.

In summary, understanding inflation is crucial for making informed investment decisions. Consider investments that can keep pace with or exceed inflation to protect your purchasing power over time.

Short Interest and Short Selling

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Short interest provides investors a sense of the degree to which investors are betting on the decline of company’s stock price.

It’s easy for investors to understand that you can make money after buying shares of a stock when the stock price increases (going long).

Traders can also profit from a declining market by using a strategy called shorting stock.

Short selling is when a trader sells shares of a company they do not own, with the hope that the price will fall. Traders make money from short selling if the price of the stock falls and they lose if it rises.

Shorting a stock first involves borrowing the stock you wish to sell at a market-determined interest rate and then selling the borrowed equities to take advantage of a future market decline.

You profit by selling the borrowed stock at a higher price and subsequently buying it back at a lower price if the stock price falls.

The profit consists of the difference between the price at which the trader sold the stock and the price they buy it back at less any borrowing and transaction costs.

To successfully short sell, you need to identify stocks that are likely to decrease in value. Look for companies with weak financials, negative news, or a downtrend in their stock price.

When short selling, market timing is crucial. You want to enter the trade when the stock price is likely to decrease, and exit before it rebounds. Pay attention to technical indicators and price action to make informed decisions.

Why Short Interest Matters

Short interest is the number of shares that have been sold short but have not yet been covered or closed out.

Short interest is important to track because it can act as an indicator of market sentiment towards a particular stock. An increase in short interest can signal that investors have become more bearish, while a decrease in short interest can signal they have become more bullish.

Source:

  1.  https://www.benzinga.com/insights/short-sellers/24/03/38010258/pypl-analyzing-paypal-holdingss-short-interest
  2. https://www.benzinga.com/money/how-to-short-a-stock

Investing and Building Wealth

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“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” – Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter.

Investing is putting money into different securities or investment vehicles, hoping these securities will increase in price and payout profits.

In particular, investing in the stock market involves buying shares of companies that then rise in price. Some companies also pay dividends on their shares at regular intervals.

The end goal of investing is to spread your wealth in different vehicles that grow your money over time.

“Don’t be afraid to overpay for a stock with a history of rewarding shareholders. Winning stocks tend to keep winning if you have a long-term outlook.”  Charlie Munger convinced Warren Buffett that sometimes it’s worth paying a premium for a great business.

A company’s intrinsic value is the present value of all of its future free cash flows (meaning from now until the end of time- all the free cash flows that it will ever generate).

Free cash flow (FCF) is the amount of cash the firm generates from its operations minus the amount of money it reinvested into its operations. Cash flows are “free” because they can be used to pay off debt, buy back shares, pay dividends, or leave in the firm’s bank account.

If you own a private company, this is what you would think of as “real earnings” that you can pay yourself with, given that you don’t have to reinvest those funds into the operation.

”Good things happen to cheap stocks of out-of-favor, industry-leading companies.” ~ Nancy Tengler

The most crucial quantitative evidence of an economic moat is a high return on invested capital (ROIC).

Return on invested capital, or ROIC, is a financial metric that helps understand how efficiently a company generates profits. The less capital it requires to produce earnings, the better.

For example, what does an ROIC of nearly 920% mean? It basically says that a company like Apple can generate massive profits with little investment.

The formula for ROIC is highlighted below. To reinforce, the larger the numerator (NOPAT is the after-tax operating profit) relative to the denominator (which can be defined as fixed assets plus net working capital), the more efficient the company is.

ROIC = NOPAT/Average Invested Capital

ROIC = NOPAT/Average Invested Capital

Investors— both shareholders and creditors— require a certain level of return in exchange for providing a company with the funds it needs to run its business. This is called the weighted average of capital (WACC). A company generates excess returns if its ROIC consistently exceeds its WACC.

For example, imagine little Joey wants to open a lemonade stand. He needs $100 upfront to buy a table, a pitcher, lemons, sugar, ice, and cups. This is invested capital. Joey borrows $50 from Mom and promises to pay her 5% interest ($2.50). Dad has a higher risk tolerance, so he buys $50 of common stock in Joey’s lemonade stand. Dad equity return (this is called the cost of equity).

Buffett created a concept called owner earnings. It is a measure of the firm’s potential free cash flows if it weren’t reinvesting them:

Owner Earnings = Earnings + Depreciation & Amortization + Other Non-Cash Charges – Maintenance Capital Expenditures

Attaining prosperity and financial freedom and building wealth through investing in the stock market for the long term is fundamental.

References:

  1. https://www.forbes.com/sites/qai/2022/01/19/financial-freedom-in-2022-investing-in-stock-market-ideas
  2. http://www.comusinvestment.com/blog/growth-returns-on-capital-and-business-valuation
  3. https://einvestingforbeginners.com/buffetts-return-on-invested-capital-formula-daah/

Berkshire-Hathaway vs. S&P 500

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“An investment of $10,000 in Berkshire Hathaway stock in 1965 would have grown to approximately $355 million by 2022.” ~ Nasdaq

In 2022, Berkshire Hathaway outperformed the market, gaining 4% versus the S&P 500’s 19% drop.

Since Buffett took over in 1965, Berkshire Hathaway has beaten the market 39 out of 58 years. It has underperformed the market the other 19 years.

Since 1964, Berkshire Hathaway stock returns has outperformed the S&P 500 by a significant margin.

According to a report by Nasdaq, an investment of $10,000 in Berkshire Hathaway stock in 1965 would have grown to approximately $355 million by 2022, a compounded annual gain of 19.8%.

In contrast, an investment of $10,000 in the S&P 500 over the same period would have grown to approximately $2.3 million, a compounded annual gain of 9.9%.

Since that time, Berkshire Hathaway stock has gained more than 153 times the S&P 500’s gains over the same time period — good enough to give you roughly $355 million based on a $10,000 investment. That translates to a compounded annual gain of 19.8%, or nearly double the S&P 500’s 9.9% compound annual gain.

It’s worth noting that the above figures are based on past performance and do not guarantee future results.

Additionally, investing in individual stocks can be risky and requires careful consideration of one’s financial goals and risk tolerance.

Warren Buffett, Berkshire-Hathaway’s Chairman and CEO, is an advocate of buying stock in businesses that will last.

References:

  1. https://www.nasdaq.com/articles/you-wont-believe-how-much-more-warren-buffett-has-made-than-the-market-since-1965

Google’s “Owner’s Manual for Shareholders.”

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“Our goal is to develop services that significantly improve the lives of as many people as possible. In pursuing this goal, we may do things that we believe have a positive impact on the world, even if the near term financial returns are not obvious.” ~ Google founders  Sergey Brin and Larry Page

The founders, Sergey Brin, 31, and Larry Page, 32, launched Google in September 1998 in a friend’s garage in Menlo Park, Calif., naming the company after the mathematical term “googol,” which stands for a 1 followed by 100 zeros. They met in 1995 when they were doctoral students in computer science at Stanford. Both were enthralled with information retrieval and artificial intelligence. The two collaborated in 1996 on a search engine called BackRub, Google’s precursor, which gained notoriety on campus for its ability to analyze the “back links” pointing to a given Web site.

In 2004, Google generated 95 percent of its revenue from advertising. Advertisers buy keywords that launch tiny text ads alongside search results each time someone types those words into Google’s search box and clicks “Google Search.” Advertisers pay the amount they bid for the terms, but only if someone clicks their ads.

In 2004, Google founders  Sergey Brin and Larry Page issued a letter to investors called an “Owner’s Manual for Shareholders.” The seven-page letter was an organizational manifesto crafted by the co-founders to map out Google’s credo as a public company.The letter outlines the company’s goals, warning investors that as a public company, Google will not follow the usual path.

The letter outlines everything from the triumvirate leadership between the co-founders and CEO Eric Schmidt to its promise not to be “evil” by sacrificing its ideals for short-term financial gains. It promises more spending on employee perks such as free meals, a separate voting structure for executives, and avoidance of making financial predictions for Wall Street. Instead, the company will focus on long-term priorities that do not have an immediate effect on earnings.

“If opportunities arise that might cause us to sacrifice short-term results but are in the best long-term interest of our shareholders, we will take those opportunities,” the letter read. “We will have the fortitude to do this. We would request that our shareholders take the long-term view.”

The pair have created a corporate environment that fosters individual creative pursuits while pampering employees with free meals and regular beer bashes.

Here are several Google’s promises and processes as outlined in the owner’s manual:

Managing Wall Street: “Many companies are under pressure to keep their earnings in line with analysts’ forecasts. Therefore, they often accept smaller, but predictable, earnings rather than larger and more unpredictable returns. Sergey and I feel this is harmful, and we intend to steer in the opposite direction.”

Risk vs. reward: “As the ratio of reward to risk increases, we will accept projects further outside our normal areas, especially when the initial investment is small. We encourage our employees, in addition to their regular projects, to spend 20 percent of their time working on what they think will most benefit Google. Most risky projects fizzle, often teaching us something. Others succeed and become attractive businesses.”

Executive decision-making: “To facilitate timely decisions, Eric, Sergey and I meet daily to update each other on the business and to focus our collaborative thinking on the most important and immediate issues. Decisions are often made by one of us, with the others being briefed later. This works because we have tremendous trust and respect for each other and we generally think alike.”

Dual class voting: “While this structure is unusual for technology companies, it is common in the media business and has had a profound importance there. The New York Times Company, the Washington Post Company and Dow Jones, the publisher of The Wall Street Journal, all have similar dual class ownership structures. Media observers frequently point out that dual class ownership has allowed these companies to concentrate on their core, long-term interest in serious news coverage, despite fluctuations in quarterly results.

Googlers: “We provide many unusual benefits for our employees, including meals free of charge, doctors and washing machines. We are careful to consider the long-term advantages to the company of these benefits. Expect us to add benefits rather than pare them down over time.”

Kumbaya: “We aspire to make Google an institution that makes the world a better place. And now, we are in the process of establishing the Google Foundation. We intend to contribute significant resources to the foundation, including employee time and approximately 1 percent of Google’s equity and profits in some form.”

“As a private company, we have concentrated on the long term, and this has served us well. As a public company, we will do the same,” the letter states.

“In our opinion, outside pressures too often tempt companies to sacrifice long-term opportunities to meet quarterly market expectations. Sometimes, this pressure has caused companies to manipulate financial results in order to ‘make their quarter.’ In Warren Buffett’s words, ‘We won’t smooth quarterly or annual results: If earnings figures are lumpy when they reach headquarters, they will be lumpy when they reach you.'”

References:

  1. https://abc.xyz/investor/founders-letters/ipo-letter/
  2. https://www.cnet.com/tech/tech-industry/google-files-for-unusual-2-7-billion-ipo/
  3. https://www.cnet.com/tech/tech-industry/co-founders-release-google-owners-manual/
  4. https://blog.google/

Microsoft’s Stock Market Value Higher Than Apple’s

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Microsoft’s stock market value closed higher than Apple’s for the first time since 2021, making it the world’s most valuable company based on market capitalization.

While both technology companies were part of the so-called Magnificent 7’s powerful rally in 2023, their fortunes have diverged year. Microsoft has risen 3.3%, while Apple has dropped 3.4%.

Microsoft has incorporated OpenAI’s technology across its suite of productivity software, a move that helped spark a rebound in its cloud-computing business.

Apple, meanwhile, has been grappling with tepid demand, including for the iPhone, its cash cow. Demand in China, a major market, has slumped as the country’s economy makes a slow recovery from the COVID-19 pandemic and a resurgent Huawei erodes its market share.

Both tech stocks look relatively expensive in terms of price to their expected earnings, a common method of valuing publicly listed companies.

Apple is trading at a forward PE of 28, well above its average of 19 over the past 10 years. Microsoft is trading around 32 times forward earnings, above its 10-year average of 24.

Source: Noel Randewich,  Microsoft edges out Apple as world’s most valuable company, Reuters, January 12, 2024. https://www.yahoo.com/tech/microsoft-edges-apple-worlds-most-232740340.html

U.S. Investors Avoid Investing in China

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China’s economy is in trouble.

China’s President Xi, speaking with forked tongue to the gullible, attempts to both revive an economy struggling to arrest a slide in the property sector by wooing Western capital, while also attempting to strengthen national security as military and trade tensions rise with the US. Even Chinese leader Xi Jinping has acknowledged the many challenges the country’s economy faced in calendar year 2023.

Western ompanies and investors have been caught in the middle, with executives hearing warm words from top Chinese officials only to then see authorities crackdown on consultancy firms, expand a vague anti-spy law and restrict access to data.

The Chinese economy has experienced higher unemployment, a downturn in manufacturing, reduce domestic GDP growth, political unrest, and a crashing real estate market, stated Gary Locke, former U.S. Ambassador to China. There exist lack of investor confidence and uncertainty in Chinese economy.

The country’s shift toward “a more totalitarian environment” has resulted in growing anxiety about being in China among foreign investors, according to Zak Dychtwald, founder of Shanghai-based trend research company Young China Group.

Western business people contemplating trips to China mist be crconcerned and exercise caution about the risks of unwarranted detention and becoming a political hostage similar to what has happened to U.S. citizens traveling to Russia, Venezuela, Iran and North Korea.

Reference:

  1. https://www.msn.com/en-us/money/other/xi-s-mixed-messages-leave-whiplashed-investors-wary-of-china/ar-AA1moQjP

Coffee Can Investing Strategy (Finding 100 Bagger)

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“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”  ― Warren Buffett

Coffee Can Investment Strategy involves buying and holding a portfolio of high-quality companies for the long-term, typically ten years or more. The strategy is based on the premise that investing in the right high-quality companies will result in significant capital appreciation over time.

The concept was popularized in India by Saurabh Mukherjea in his book “ Coffee Can Investing:  The Low-Risk Route to Stupendous Wealth”.

In this strategy, investors pick a group of high-quality companies with a proven track record of generating consistent profits, revenue growth and return on invested capital (ROIC). The chosen equity stocks are held for an extended period irrespective of market conditions or short term volatility.

This strategy allows investors to avoid the temptation of selling their equity holdings during short-term market volatility. It protect the investor from their own bad decision and investing behavior.

You only need one of the Coffee Can companies to hit and become a 100 bagger.

But, how to look at a small cap company and know that they have a runway.

Look at the ownership and use your imagination to determine if a company can have organic growth and expand into other markets.

At the end of 10 years, you will have some stocks that have not grown, others that have lost value, and two to four outperformers. Those outperformers will provide a high return on investment.

It refers to companies that have generated a Return on Invested Capital (ROIC) of over 15% every year with the Coffee Can Investing approach. This makes the approach a low-risk route to making stupendous wealth.

Coffee Can Portfolio is mostly concerned with stock quality. As an investor, you must choose a quality stock, which signifies a fundamentally strong company. Here are some points to build a Coffee Can Portfolio.

  1. The company should have been in existence for at least 10 years.
  2. The revenue growth should be at least 10% year per year.
  3. ROIC of at least 15% for 10 years
  4. Market capitalization should be more than $500 million USD
  5. The company should have good brand value.
  6. The company should have a competitive edge.
  7. Founder or CEO has skin in the game focused on driving value in the business. Executive management is strong. 

For instance, let’s take an example of a toothpaste company. If a toothpaste company’s prices are increased, will people stop brushing? The answer is “NO.” Similarly, this strategy neither works on quantity nor growth; it works on quality investing.

References:

  1. https://groww.in/blog/the-coffee-can-portfolio

Buffet’s Owner’s Earnings

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Owner earnings (OE) is a valuation method detailed by Warren Buffett in Berkshire Hathaway’s annual report in 1986. He stated that the value of a company is simply the total of the net cash flows (owner earnings) expected to occur over the life of the business, minus any reinvestment of earnings.

Owners’ earnings, also known as cash flow for owners, remains one of the more accurate measures of how much money we can make from an investment and helps calculate intrinsic value.

The formula for owners’ earnings is as follows:

OE = Net income + Non-cash charges – Maintenance Capex +/- Changes in working capital Where the below:

  • Non-cash = depreciation, amortization, impairment + other charges
  • Maintenance Capex = Cash a company spends to maintain normal biz operations.
  • Changes in working capital = adding the items under “Change in operating assets and liabilities” from the CF statement.

We will use a combination of cash flow statements to find the numbers.

To simplify some of this maintenance, the capex is an imprecise number that Buffett didn’t define precisely.

Many suggest different calculation methods; we will use the CF number to simplify.

Using $MSFT as our guinea pig for the year ending 2022. Below are the numbers taken from the financials:

  • Net income = $72,738
  • Non-cash = $16,260
  • Capex = ($23,866)
  • Changes in working capital = $446

Plugging in the numbers for $MSFT, we get:

Owners Earnings = $72,738+$16,260-$23,866+$446 = $65,578

Per share = $65,578 / 7,496 = 8.74

When compared to current P/FCF equals 8.70

Use these criteria to eliminate 95% of stocks:

Revenue growth 12%
Shares outstanding <2%
Net debt to FCF below 5x
Free cash flow growth +15%
Return on Invested capital +15%
Earnings per share growth +15%

12 companies that qualify:

 

Lessons from Charlie Munger

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Lessons from Charlie Munger’s latest podcast interview: I have added some context to the interview to help you better understand the stories Munger shared.

1. On retail investors gambling in the stock market,

“They don’t know anything about the companies or anything. They just gamble on going up and down in price. If I were running the world, I would have a tax on short-term gains with no offset for losses on anything, and I would just drive this whole car of people out of business.”

2. Why algorithmic-driven trading firms like Renaissance technology are taking excessive risk

“The easiest trade is to front run what you know, what the average is, what the index funds have to buy, and you know what it is. Exactly. They all know that. And they get their returns year after year by taking the leverage, the midday leverage, up higher and higher and higher and higher. So, they’re making smaller and smaller profits on more and more volume, which gives them this big peak leverage risk, which I would not run myself. And that’s the only way they make these big returns, is to have this huge leverage that would make you crazy if you were already rich.”

3. How Warren and Charlie changed their mind quickly with Diversified Retailing after they realized it was too competitive (and how they made a ton of money after changing their mind) Some context: On January 30, 1966, Buffett, Munger, and Gottesman formed a holding company, Diversified Retailing Company, Inc., to “acquire diversified businesses, especially in the retail field.” Buffett and Munger then went to the Maryland National Bank and asked for a loan to make the purchase. The lending officer looked at them goggle-eyed and exclaimed,

“Six million dollars for little old Hochschild-Kohn?”  Even after hearing this, Buffett and Munger—characteristically—did not question their judgment and ran screaming out the door.

“We thought we were buying a second-class department store at a third-class price” is how Buffett describes little old Hochschild-Kohn.

“We made nothing but money at Diversified. We didn’t exactly make it in retailing, but we made a lot of money. What happened was very simple. We bought this little department store chain in Baltimore. Big mistake. Too competitive. We realized we’d made a terrible mistake as the ink dried on the closing papers. So, we decided just to reverse it and take the hits to look foolish rather than go broke. You just told us how to get us out of this. By then, we’d already financed half of it on covenant-free debt. And they had all this extra cash, and our stocks got down to selling at enormous (discounts). In the middle of one of those recessions, we just bought, bought and bought and bought, and all that money went right into those stocks, and of course, we tripled it.”

4. How wonderful early years gave them a good head start. “Yeah, we bought a little savings and loan company for maybe $20 million. And when we left that thing, we had taken out of our little $20 million investment over $2 billion in marketable securities, which went into Nebraska insurance companies as part of their bedrock capital. So, we had some wonderful early years, which everybody needs. It is a wonderful early year.“

5. Charlie Munger’s Costco thesis – They sold cheaper than anyone else in America – Big, efficient stores – Huge parking spaces – Gave special benefits to people who come to the store in the way of reward points – Make suppliers wait (for payment) until they’ve been paid What made Costco so successful?

“Well, it takes a lot of good execution to do it. You have to set out to do it and then do it enthusiastically every day, every week, every year for 40 years. It’s not so damned easy. So, do you think success is the magic of the business model and culture? Yes. Culture plus model. Yes, absolutely. And very reliable, hardworking, determined execution for 40 years.“

Why did it take Costco decades to open its first store in China?

“The first store they tried to open in China, somebody wanted a $30,000 bribe Chinese culture, and they just wouldn’t pay it. And that made such a bad impression on Jim Senegal. He wouldn’t even talk about going into China for about 30 years after that.”

6. Advice for investors on finding great investments A caveat from me: While Munger advocates heavy concentration (and leverage), most investors still need his IQ or emotional control with volatility.

“You may find it five years after you bought it. Knowing these things may work into it, or your understanding may improve, but when you know you have an edge, you should bet heavily. You know, you’re right. And most people don’t teach that in business school. It’s unbelievable. Of course, you got to bet heavily on your best bets.”

7. Why did he and Warren become partners, “Both kind of similar, and we both wanted to keep our families safe and do a good job for our investors and so on. We had similar attitudes. His advice for an enduring partnership is, “Well, it helps if you like one another and enjoy working together. But I don’t use any one formula. Many partnerships that work well for a long time happen because one’s good at one thing and good at another. They just naturally divided, and each one likes what he’s doing.”

8. Munger feels that Berkshire could’ve taken on more leverage. “Warren still cares more about the safety of his Berkshire shareholders than anything else. If we used a little more leverage throughout, we’d have three times as much now, and it wouldn’t have been that much more risky either.”

9. Munger’s thoughts on VC: “It’s challenging to invest money well, and I think it’s almost impossible to do time after time in venture capital. Some deals get so hot, and you have to decide quickly. You’re all just sort of gambling. [VC] is a very legitimate business if you do it right. If you want to give the right people the power and nurture them, help them. You know a lot about the game’s tricks, so you can help them run their business yet not interfere with them so much. They hate you. By and large, having bumped into many people in businesses with venture capital financing, I would say the ordinary rule is the people in the business doing the work; they, more often than not, hate the venture capitalists. They don’t feel their partner trying to help them because they’re only taking care of themselves and don’t like them.”

10. How could VCs be better? “[At Berkshire], they know we’re not trying to discard them to the highest bid. See, if some asshole investment banker offers us 20 times earnings for some lousy business we don’t sell. If it’s a problem business we’ve never been able to fix, we’ll sell it. But if it’s a halfway decent business, we never sell anything. And that gives us this reputation of staying with things that help us. You don’t want to make money by screwing your investors, and that’s what many venture capitalists do.”

11. Why Warren’s investment in Japan was a no-brainer: “If you’re as smart as Warren Buffett, maybe two or three times a century, you get an idea like that. The interest rates in Japan were half a percent per year for ten years. These trading companies were entrenched old companies, and they had all these cheap copper mines and rubber foundations so that you could borrow all the money for ten years ahead and buy the stocks, which paid 5% dividends. So, there’s a huge cash flow with no investment, thought, or anything. How often do you do that? You’ll be lucky if you get one or two a century. We could do that [because of Berkshire credit]. Nobody else could.”

12. Why he loves companies with a strong brand—the ability to raise prices: “Well, it’s hard for us not to love brands since we were lucky enough to buy the Sees candy for $20 million as our first acquisition, and we found out fairly quickly that we could raise the price every year by 10%, and nobody cared. We didn’t make the volumes go up or anything like that; we just increased the profits. So, we’ve been raising the price by 10% annually for all these 40 years. It’s been a very satisfactory company. We didn’t acquire any new capital. That was what was so good about it. Very little new capital.“

13. What it takes to build Berkshire from scratch today – Intelligence – Work very hard – Be very lucky

14. His view on China: “My position in China has been that the Chinese economy has better prospects over the next 20 years than almost any other big economy. That’s number one. Number two, the leading companies of China are stronger and better than any other leading companies anywhere, and they’re available at a much cheaper price. So naturally, I’m willing to have some China risk in the Munger portfolio. How much is China risk? Well, that’s not a scientific subject. But I don’t mind. Whatever it is, 18% or something.”

15. What about BYD that captivated Munger?

“Guy (Wang Chuanfu) was a genius. He was at a Ph.D. in engineering, and he could look at somebody’s part, make that part, look at the morning, and look at it in the afternoon. He could make it. I’d never seen anybody like that. He could do anything. He is a natural engineer and gets it-done type production executive. And that’s a big thing. It’s a big lot of talent to have in one place. It’s advantageous. They’ve solved all these problems on these electric cars and the motors and the acceleration, braking, and so on.” Comparing Elon with Wang Chuanfu, “Well, he’s a fanatic that knows how actually to make things with his hands, so he has to he’s closer to ground zero. In other words, the guy at BYD is better at making things than Elon.”

16. Advice about building families “Well, of course, you’ve got to get along with everybody. You have got to help them through their tough times, and they help you, and so forth. But I think it’s not as hard as it is. Looks. I think half of the marriages in America work pretty damn well. And will it work just as well if both of them had to marry somebody else? And you’ve got to have trust with your spouse when it comes to things like the education of the children and so forth.“

Source:  https://x.com/SteadyCompound/status/1718861611904241789