Khrom Capital. Markel Notes. Office hours with Buffett, Loeb's Letter to Sony, and more!

Things you need to know. If you're short on time, start with these. Eric Khrom, from Khrom Capital, just released his 2013 Q1 Letter. Ben Claremon's Markel Breakfast Notes

Got a little more time? Good. Check out these goodies.  Office hours with Warren Buffett Daniel Loeb's letter to Sony Some never before seen thoughts from Charlie Munger The Buffett Formula — How to get smarter

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Some new thoughts from Charlie Munger

I'm a huge fan of Charlie Munger.  

So when I come across some new bit of his thinking that I hadn't seen before, I gobble it up.

While researching a post for Farnam Street, I uncovered Michael Eisner's book, Working Together: Why Great Partnerships Succeed.

The book has a pretty interesting chapter on the Buffett/Munger partnership and some stuff that I'd never seen before.

Munger hated the entertainment business. 

Meanwhile, Berkshire Hathaway was the controlling shareholder in Cap Cities, and in that we made half of the deal with Disney stock, I realized quickly Berkshire would become one of our largest shareholders. That was great news for our company, but I knew Charlie hated the entertainment business. I had heard many times in conversations with him over the years in Los Angeles how he hated “the waste,” “the lack of stable management,” “the insane fees paid to talent,” and a business run by “one’s gut rather than one’s mind.”

Munger on Rails

In my conversation with Warren, he told me about one time when he called up Charlie with an idea, saying they should buy stock in the Pittsburgh and West Virginia Railway. The response was less than enthusiastic. "Well, I don't like railroads," Charlie started. "I don't like businesses with a lot of labor content. I particularly don't like when they're unionized. I don't like capital-intense businesses. I particularly don't like eastern railroads. But if you are telling me that you've researched this thing from A to Z, that you'll follow it twenty times a week and you'll keep track of it and take full responsibility for it.then I'll just shut my eyes and say no."

Munger on playing the secondary role

“That’s one of the beauties of the partnership,” says Charlie. “I am in so many activities where I am the dominant personality. Most people do not ‘fit into’ that mode—they can only operate in that mode. Yet I am particularly willing to play the secondary role. Warren’s a more able man in doing what we’re doing, so it’s the appropriate response. There are some times you should be first, some times you should be second, and some times you should be third.”

Munger on BYD

“Charlie thinks exactly like I do,” says Warren, “but he puts things through a tougher filter than I do. There are only two things he’s ever liked better than I liked that we’ve done. One was the tool company Iscar. I loved it—but when Charlie falls in love with something, forget about it. Also, there’s a deal with a Chinese car company, BYD, we did recently. I wasn’t so sure about it. Charlie tells me the Chinese guy running the company, Wang Chuanfu, is the Henry Ford of China. I’m still not jumping. Then he says he’s the Thomas Edison of China. Still no. Then, the Bill Gates of China. Nope. Then, his trump card. He’s the Warren Buffett of China!”

Improving himself

“I have always wanted to improve what I do, even if it reduces my income in any given year. And I always set aside time so I can play my own self-amusement and improvement game.”

Classic Munger

Several years ago, Charlie Munger was testifying at an arbitration hearing, and getting grilled about a recent board meeting. He claimed he didn’t recall what the lawyer was asking him about. “Mr. Munger,” the lawyer said, “you are reputed to have a very good memory. Are you really telling me you don’t remember it?” “Well,” Charlie is said t have responded, “I only listen when I’m the one talking.”

Why did Mohnish Pabrai recommend The Shipping Man?

It’s worth paying attention when a popular value investor such as Mohnish Pabrai recommends you read a fiction novel.

And that’s just what he did.

The Shipping Man is about, well, you guessed it: shipping.
And what’s interesting is that Mohnish has a history of successfully investing in shipping, having profitably invested in Genco Shipping and Frontline. So he knows the industry fairly well.

It starts off as my kind of book.

“The Greek laughed. “There are only three ways to get an advantage over your competitors in this business.”

“What are they?” Robert asked.

“Pay less for your ships, pay less to operate them or pay less for your capital. In a commodity business like shiping, the only thing that really matters is price.”

It’s not often you find investing wisdom in a fiction book.

The basic premise of the novel is pretty simple. Robert Fairchild watches the Baltic Dry Index plunge 97%, registering an all time high and 25-year low within the span of 6 months. He gets excited. He gets drunk and ends up buying a ship and receiving an education.

The book is full of interersting nuggets. Let's look at a few, shall we.

Consider this one on information:

“... another problem is that everyone has the same information, which means there is no hidden value; there is only the market. If the market goes up, you win. If the market goes down, you lose. and the moment you think there is no risk, that is the same moment you have failed to recgonize the risk. At least the market doesn’t lie.“

Or this one on expertise:

“Robert Fairchild knew full well that he wasn’t an expert on shipping, but expertise, like everything in life, was relative. At that moment, all he needed was to know a little bit more about bunkers than John Harris and the other investors funneling out of the New York Yacht Club — which he did.”

And this advice: Never sell when things are bad.

“You know something, Robert, you should never sell when things are bad. You should only sell when things are good. This is what I tried to explain to Alex. When you want to cry really you should buy,” Coco said with his characteristically elegant simplicity. “When it comes to shipping, investors only lose money when they lose patience.”

Let’s end with this philosophical snippet:

“There will always be many good reasons not to do things in life, but people who achieve the great things are the ones who believe in themselves and find reasons to do things even when sometimes they do things that are not so smart.”

While I feel like I know a lot more about shipping after reading The Shipping Man, this is where my shipping education starts and not where it ends.

And no, I won't be buying a ship anytime soon.

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Charlie Munger Unfiltered

When Charlie talks, I listen. You should too.

So when he decided to give an exclusive interview to Becky Quick the day before the Berkshire Hathaway shareholders meeting, I was all ears. And Charlie didn't disappoint.

Here are his thoughts on a wide range of subjects.

Cyprus

What Cyprus demonstrates is an old truth. You can't trust bankers to govern themselves. A banker who's allowed to borrow money at x, and loan it out at x y, they'll just go crazy and do too much of it if the civilization doesn't have rules that prevent it. What happened in Cyprus is very similar to what happened in Iceland. It was stark raving mad in both cases. And the bankers, they'd be doing even more if the thing hadn't blown up. I do not think you can trust bankers to control themselves. They're like heroin addicts.

On the functioning of Washington

I think we should have more bipartisan cooperation, less theology based hatred between the two parties. I can remember when we helped rebuild Europe on a bipartisan basis, that's my kind of situation. That's the kind of thing I admire. That is not what you see now. They want to score points against one another to a very extreme degree and very few people are thinking about cooperating to make the thing better. We wouldn't have our constitution if the politicians at the constitutional convention behaved like they do now. They compromised. Look at how wonderful the result was. … Both parties would say the sequester is very regrettable but they would each say it's the other parties fault. 

The economy

I've never made the least effort to predict short-term swings in macroeconomics. When things are awful, I predict that some day they will be better. When things are wonderful, I predict some day they will be awful. But apart from those general feelings, I never try and predict. I think it's a waste of time. 

Are things awful?

No, but I think they are sub-optimal. There are a lot of people who are sort of on the sidelines who are so discouraged they've quit trying. … I don't try to profit from predictions of  short term swings in the economy. 

Investing Berkshire's Money

No. In Berkshire we're trying to swim well against the tide, or with the tide even. We're indifferent, whether the tide is running for us or against us, we just keep swimming. And as long as we're swimming a little better than the tide, we think we'll average out just fine. That makes us not spend much time thinking about the tide. 

The rest of my notes fromt this interview will be published tomorrow morning in an exclusive email to subscribers. If you're not on the list, you can sign up for free.

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If you have the time, you can watch the entire interview

Changes.These might impact you.

Hi, I'm Share Parrish, the guy behind this blog and the popular Farnam Street blog.

I wanted to update you on some changes that might impact you. 

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