Berkshire Hathaway 2023 Annual Letter by Warren Buffett: Notes and Commentary

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Berkshire Hathaway (BRK) released its 2023 Letter to Shareholders (also see full 2023 Annual Report), which Warren Buffett also uses as an educational instrument. As always, I recommend reading it yourself (only 17 pages total this year). I prefer to read the letter first (with no spoilers), then peruse the various newspaper and media commentary, and finally re-read the letter again. Here are my personal highlights and commentary.

Tribute to Charlie Munger. The letter starts with a tribute to the late Charlie Munger, to whom he credits as the “architect” of Berkshire Hathaway, while Buffett was the “general contractor” performing the day-to-day construction work.

…Charlie, in 1965, promptly advised me: “Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.” With much back-sliding I subsequently followed his instructions.

This also serves as a good reminder of a central idea within Berkshire. First, you identify the wonderful businesses, the durable ones that you believe you could buy and then forget about for 10 years. Then, only after that is satisfied, you buy them only if available at a fair price. The hardest part is to maintain this discipline even in boom times.

Berkshire Hathaway shareholders are (still) different. In the same way, Berkshire Hathaway wishes to attract shareholders that believe that Berkshire is one of these wonderful businesses and wish to own their shares permanently, only selling a bit perhaps for spending in retirement or for estate reasons. Often, these Berkshire shareholders end up with far more than they need and make generous charitable contributions. Not a bad way to do things, in my humble opinion. You may have heard about the recent $1 billion donation to a New York medical school (NY Times gift article). Many news articles omitted that those were Berkshire Hathaway shares that were donated (WSJ gift article).

Annual reminder on reported earnings. Buffett reminds us again that, due to current accounting rules, Berkshire must count any changes in the value of their stock holdings in outside companies (Apple, American Express, Coca-Cola, etc.) as “earnings”, which leads to funny things when they reports their profits each year. The rest of the company could be doing great, but if the share values fall, then they have to report a loss. The rest of the company could be struggling, but if the share values rise, then they have to report a profit.

Own American businesses! Buy them, keep them, be patient.

I can’t remember a period since March 11, 1942 – the date of my first stock purchase – that I have not had a majority of my net worth in equities, U.S.-based equities. And so far, so good. The Dow Jones Industrial Average fell below 100 on that fateful day in 1942 when I “pulled the trigger.” I was down about $5 by the time school was out. Soon, things turned around and now that index hovers around 38,000. America has been a terrific country for investors. All they have needed to do is sit quietly, listening to no one.

A carefully-worded warning about dealing with people of questionable moral fiber. You may have read about the drama between Berkshire Hathaway while trying to finalize the purchase of the Pilot Travel Centers truck stop business. As Reuters put it, “Buffett did not mention Pilot in his annual letter to Berkshire shareholders […] but offered an anecdote about the risk of disappointment in acquisitions.” Here’s the anecdote 💀:

We also hope these favored businesses are run by able and trustworthy managers, though that is a more difficult judgment to make, however, and Berkshire has had its share of disappointments.

In 1863, Hugh McCulloch, the first Comptroller of the United States, sent a letter to all national banks. His instructions included this warning: “Never deal with a rascal under the expectation that you can prevent him from cheating you.” Many bankers who thought they could “manage” the rascal problem have learned the wisdom of Mr. McCulloch’s advice – and I have as well. People are not that easy to read. Sincerity and empathy can easily be faked. That is as true now as it was in 1863.

Don’t expect Berkshire to outperform the S&P 500 by a lot in the future, but do expect it to be a fortress in times of crisis. One way they could beat the S&P 500 by a lot is if a market crash occurs and they buy a lot of businesses at low prices.

With that focus, and with our present mix of businesses, Berkshire should do a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent loss of capital. Anything beyond “slightly better,” though, is wishful thinking. This modest aspiration wasn’t the case when Bertie went all-in on Berkshire – but it is now.

Extreme fiscal conservatism is a corporate pledge we make to those who have joined us in ownership of Berkshire. In most years – indeed in most decades – our caution will likely prove to be unneeded behavior – akin to an insurance policy on a fortress-like building thought to be fireproof. But Berkshire does not want to inflict permanent financial damage – quotational shrinkage for extended periods can’t be avoided – on Bertie or any of the individuals who have trusted us with their savings.

Berkshire is built to last.

I aspire to this “fortress” level of financial security for my personal finances. That’s why I’m also okay with holding a decent chunk of cash (Treasury bonds) even though most of the time it’s a performance drag. At the same time, this is also why I’d rather just own a Total US stock market index fund rather than BRK. I think BRK will be fine once Buffett is gone, but I’m not 100% certain.

As for the rest of their fully-owned and partially-owned businesses, nothing really stuck out to me. Buffett is still adding to his life’s work, his “masterpiece”. I just like to watch, not second-guess. He’s still buying OXY and some mystery financial company. Overall, operating earnings are going up, with some parts doing quite well (notably insurance underwriting and income) and some struggling (notably Berkshire Hathaway Energy and BNSF Railroad).

As for BRK shares themselves, these days there is an easy “buy” signal beamed directly by Buffett himself. If BRK is repurchasing a lot of shares, then it’s probably at a fair price to buy (with a tiny portion of my self-directed investments). If they stop repurchasing shares, then so will I.

Past shareholder letter notes.

The 2024 annual shareholder meeting will be in Omaha on Saturday, May 4th. CNBC will most likely livestream it again.

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Consistently Investing $850 a Month x 10 Years = $160,000 (2014-2023)

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Instead of only looking at year-to-date or last year’s return numbers that are often quoted in the media, I always try to also take a longer-term perspective (especially on down years) by looking back over a longer period. How would a steady investor have done over the last decade?

Target date funds. The Vanguard Target Retirement 2045 Fund is an all-in-one fund that is low-cost, globally-diversified, and available both inside many employer retirement plans and to anyone that funds an IRA. It currently holds over $75 billion in assets. When you are younger (up until age 40 for those retiring at 65), this fund holds 90% stocks and 10% bonds. It is a solid default choice in a world of mediocre, overpriced options. This is also a good benchmark for others that use low-cost index funds.

The power of consistent, tax-advantaged investing. For the last decade, the maximum allowable annual contribution to a Traditional or Roth IRA has been roughly $5,000 per person. The maximum allowable annual contribution for a 401k, 403b, or TSP plan has been over $10,000 per person. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark. Therefore, I’m going to use $10,000 as a benchmark amount. This round number also makes it easy to multiply the results as needed to match your own situation. Save $5,000 a year? Halve the result. Save $20,000 a year? Double the numbers, and so on.

The real-world payoff from a decade of saving $833 a month. What would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 10 years? With the interactive tools at Morningstar and a Google spreadsheet, we get this:

Investing $10,000 every year ($833 a month, or $384 per bi-weekly paycheck) for the last decade would have resulted in a total balance of approximately $159,000. That’s $100,000 in steady contributions and $59,000 in investment gains.

Early + Steady is better. There is a popular example of the power of compound interest that shows how someone who started saving at age 25, saves and invests for 10 years but then stops and never saves a penny again still beats someone who starts saving at 35 and keeps on saving for 30 years. Acorns provides a nice illustration:

Early + Steady + Longer is even better. The “Rule of 72” shows us that with just 7.2% annual returns, your money will double every decade from now on. After another 10 years, every $100k will be $200k. After another 10 years, that $200k will be $400k. Once you have that initial momentum, it just keeps going.

Now throw in half of your annual salary increases, and you’ll be honestly surprised at what it grows to after 20 years.

Here are my previous “Saving for a decade” posts:

Bottom line. Over time, with consistency and starting early, the yearly investment return swings smooth out. You can truly build serious wealth with something as accessible and boring as automated investments in a IRA/401k plan buying a Vanguard Target Retirement fund (or a simple collection of low-cost index funds).

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Charlie Munger CNBC Final Interview 2023: Highlights & Transcript

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Charlie Munger held his last in-depth interview with CNBC’s Becky Quick in mid-November 2023. The interview was meant for a 1-hour special celebrating Munger’s 100th birthday, but was re-edited to become “Charlie Munger: A Life of Wit and Wisdom”. I don’t have cable TV anymore, but CNBC has thankfully released a full text transcript and will upload the full, uncut video the CNBC Buffett Archives site shortly (update: here is the extended version).

I highlighted a few Munger quotes below along with brief commentary. If you aren’t familiar with the “greatest hits” of Munger wisdom, definitely check out the full transcript or video. I will definitely miss mining through these interviews for the “new to me” gold.

Playing the hand you are dealt.

…I just played the hand I was dealt in order to get as much advantage as I could. And that’s what everybody else does too. They play the hand that was dealt to get as much advantage as they possibly can.

Think about the country/environment you were born, your parents, and your genetically-influenced gifts and challenges. Those are three huge things, and none of us had any choice in any of them. In fact, I’m certain many of you readers have overcome more obstacles than I can imagine. I hope to teach my children about appreciating their blessings, accepting their challenges, and to keep striving while giving grace to others. Heck, I hope to teach myself that too. Work in progress…

Stay in your circle of competence. I definitely believe that you need to enjoy what you’re doing to do it well, but I am also a firm believer in practical considerations.

And so I decided to stay the hell out of businesses where I would compete with people like Eddie Davis, Jr. and Eddie Davis, Sr. in their strong suit.

BECKY QUICK: Knowing your competencies.

CHARLIE MUNGER: Knowing your circle of competency. Right. And that kept me away from those businesses totally.

Maintain a margin of safety.

But really, it’s knowing you can have a very bad day. Do not live your life in such a fashion that a bad day can kill you.

But also be ready to take risks when the odds are in your favor.

But Grandfather Ingham just talked endlessly about the early days and how he’d surmounted all these hardships. And he says that it looks pretty easy, “looking back at it with retrospect, but it was damn hard, I want you to know.” And he said, “And in reviewing my life, what your grandchildren have to realize, it was his version of Robinson Crusoe, he told every grandchild, “Is when they give you a real opportunity, the world’s not gonna do it very often. And you’re only gonna get three or four of these invitations to the pie counter. And when you get your invitation, for God sakes, don’t take a small helping.” He basically said, “Lever up when you’re sure you’re right.” And of course that’s good advice. But be sure you’re right is what makes it hard. How can you be sure you’re right? Well, but you can’t. That’s the point. You can’t do it very often.

“Everyone struggles.”

BECKY QUICK: I mean, Charlie, people probably look at you and think you’re incredibly wealthy, you’ve had all these great opportunities and things that have happened in your life. But you’ve struggled too.

CHARLIE MUNGER: Of course. Everybody struggles. The iron rule of life is everybody struggles.

BECKY QUICK: I try and think back of what the toughest moments might’ve been and how you got through some of those. And, I mean–

CHARLIE MUNGER: Well, we all know how to get through them. The great philosophers of realism are also the great philosophers of what I call soldiering through. If you soldier through, you can get through almost anything. And it’s your only option. You can’t bring back the dead, you can’t cure the dying child. You can’t do all kinds of things. You have to soldier through it. You just somehow you soldier through. If you have to walk through the streets, crying for a few hours a day as part of the soldiering, go ahead and cry away. But you have to – you can’t quit. You can cry all right, but you can’t quit.

BECKY QUICK: You’ve had time in your life when you’ve done that?

CHARLIE MUNGER: Sure. I cried all the time when my first child died. But I knew I couldn’t change the fate. In those days, the fatality with childhood leukemia was 100%.

One of the things you’ll notice is that none of these quotes offer easy advice. It’s all annoyingly difficult stuff like keep plowing ahead, take smart risks, maintain reasonable expectations.

For some reason, I am always reminded of an old beer commercial (wish I could find the clip) where a man talks about raising his kids and finally sending them off to college. He basically says it was a long and hard journey and the other guy in the bar says something like “Well, you should be proud.” And the first guy realizes “Yeah, I should.” Nobody else knows all of your struggles. You don’t have to become a billionaire to be proud of your accomplishments.

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RIP Charlie Munger: Thank You For Sharing Your Wit and Wisdom

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Many investors around the world were saddened to hear that Charles T. Munger passed away on November 28th, 2023, only about a month before he would have turned 100 years old. Most people discovered him through his long friendship and business partnership with Warren Buffett, and many of us enjoyed the fact that he was more bluntly honest, more revealing at times, and overall a great compliment to Buffett.

For the certain type of self-motivated person, his message simply resonated. Lifelong learning. Frugality and delayed gratification. Putting up with adversity and not complaining. Spending your time as you want. There will be many tributes, and here I’ll simply share some of my favorite Munger quotes over the years. Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger (cover of new edition above) is another great repository of his past speeches and wisdom.

His desire for independence starting at a young age. From Damn Right! A Biography of Charlie Munger (my review):

When Charlie’s grandparents read and reread Robinson Crusoe to him, they planted a notion in his head. “He wanted to be rich so he could be completely independent, like Crusoe on his island, and not have to do what anybody else said.”

I had a considerable passion to get rich. Not because I wanted Ferraris – I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t where I got that notion from, but I had it.

Working and saving hard early on to start your snowball. Charlie Munger was financially independent at age 38 in 1962.

The first 13 years I practiced law, my income [from practicing law] was $300,000 total. At the end of that 13 years, what did I have? A house. Two cars. And $300,000 of liquid assets. Everyone else’d have spent that slender income, not invested it shrewdly, and so forth.

I just think it was, to me, it was as natural as breathing, and of course I knew how compound interest worked! I knew when I saved $10 I was really saving $100 or $1,000 [because of the future growth of the $10], and it just took a little wait. And when I quit law practice it was because I wanted to work for myself instead of my clients, because I knew I could do better than they did.

Work for yourself an hour each day. Like the schoolteacher I just read about that now makes $10,000 a month creating worksheets and selling them to other teachers, Charlie looked beyond his current working situation. From The Snowball:

Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.

The first $100,000 is the most difficult:

Munger has said that accumulating the first $100,000 from a standing start, with no seed money, is the most difficult part of building wealth. Making the first million was the next big hurdle. To do that a person must consistently underspend his income. Getting wealthy, he explains, is like rolling a snowball. It helps to start on top of a long hill—start early and try to roll that snowball for a very long time. It helps to live a long life.

If you do it right, you only have to get rich once.

The beauty of it is: you only have to get rich once. You don’t have to climb this mountain four times. You just have to do it once.

Lifelong, continuous learning. From a commencement speech within Poor Charlie’s Almanack:

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines. They go to bed every night a little wiser than they were that morning.”

On living a happy life and surrounding yourself with good people.

You want to have reasonable expectations and take life’s results good and bad as they happen with a certain amount of stoicism. There’ll never be any shortage of good people in the world. All you got to do is seek them out and get as many of them as possible into your life. Keep the rest the hell out.

Simply avoid certain things. From How To Make Your Life Completely Miserable:

Let me use a little inversion now. What will really fail in life? What do you want to avoid? Such an easy answer: sloth and unreliability. If you’re unreliable it doesn’t matter what your virtues are. Doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.

He has also advised keeping an extremely wide chasm between you and gambling, alcohol, and drug addiction. Why even mess around with things that could destroy your life completely?

Optimism for the future. He may sound cranky a lot, especially when he was a loud critic of crypto during it’s boom, but his overall message was of one of optimism. From the book University of Berkshire Hathaway:

However, Munger beamed that Berkshire’s best days of contributing to civilization are ahead. He noted that mankind is getting close to solving the technical problem of our time -solar power. Cheap, clean, storable power will change the world. Munger said, “As I get closer and closer to my death, I get more cheerful about the future I won’t see.”

[…] Munger may have surprised the crowd with a list of things he is quite optimistic about: The main problems of civilization are technical and solvable, all with energy, with huge benefits for civilization. Berkshire’s culture will continue to work for years to come. He likes to see people rising rapidly from poverty, and that is happening in China and India.

More sources of Charlie Munger wisdom:

Thank you, Mr. Munger. Learning from your wisdom and example has materially improved my own life (and indirectly that of my family) in many different ways.

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Charlie Munger Acquired Podcast Interview w/ Transcript (October 2023)

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The Acquired Podcast has new episode with Charlie Munger. As usual Charlie was candid and dropped some truth bombs, although we never quite get to hear what he really thinks about venture capital… 🤐 If you scroll down on the page, you’ll also find a full transcript of the interview.

Here are a few selected highlights (slightly edited by me at times to match the audio):

The extra-wide parking spaces at Costco! I always felt they were a competitive edge.

Ben: What was it about Costco that made you realize this is one of those few moments in a lifetime?

Charlie: They really did sell cheaper than anybody else in America and they did it in big, efficient stores. All the parking spaces were 10 feet wide instead of eight or nine feet or whatever they normally are. They did it all right and they had a lot of parking spaces. They kept out of their stores, all these people didn’t do big volumes, and they gave special benefits to the people who did come to the stores in the way of reward points [via the Executive membership 2% back].

Rational people don’t risk what they have and need for what they don’t have and don’t need.

David: But your relationship with Warren?

Charlie: We were both somewhat similar. We both wanted to keep our families safe and take a good job for our investors and so on. We had similar attitudes.

David: Did it change over the decades?

Charlie: No. Warren still cares more about the safety of his Berkshire shareholders than he cares about anything else. If we used a little bit more leverage throughout, we’d have three times as much now, and it wouldn’t have been that much more risk either. We never wanted to give them the least a chance of screwing up our basic shelter position.

The three things.

Person: Charlie, if you started with Warren today and you were both 30 years old, do you think you guys would build anything close to what Berkshire is today?

Charlie: The answer to that is no, we wouldn’t. We had… everybody that had unusually good results… almost everything has three things: They’re very intelligent, they worked very hard, and they were very lucky. It takes all three to get them on this list of the super successful. How can you arrange to have just […] good luck? The answer is you can start early and keep trying for a long time, and maybe you’ll get one or two.

Climb the mountain once.

Andrew: I don’t think you’re saying there are no opportunities whatsoever. I think you’re just saying low expectations and fewer bonanzas.

Charlie: The beauty of it is: you only have to get rich once. You don’t have to climb this mountain four times. You just have to do it once.

It was a great interview, and prompted me to add these other Acquired Podcast episodes to my playlist:

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Parallels Between Running and Personal Finance Advice: Listen, Experiment, Self-Assess, Adapt

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I’ve recently taken up the hobby of running (very slowly) and have been making my way through the available Libby eBooks for both tips and inspiration. Running advice feels similar to personal finance advice in many ways. There are some broad concepts that seem to have secured broad agreement, but dig deeper and there are endless different variations within those areas. There is a mountain of advice available from veteran gurus, rockstar professionals, and amateur enthusiasts.

Here are some good quotes from the book 50/50: Secrets I Learned Running 50 Marathons in 50 Days by Dean Karnazes. His books are more on the inspirational side, as he obviously just loves endurance running and there is less arguing about exact training schedules or nutritional tracking down to the electrolyte. He doesn’t appear to sell his own trademarked method, which means he can take a step back.

Most important to just start and listen.

If I could offer only one piece of advice to runners, it would be this: “Listen to everyone, follow no one.” That’s because each runner is unique, so there’s no single training system, shoe, or breakfast that is equally effective for every athlete. I always encourage other runners to experiment during training and find what works best for them.

Personal finance parallels: The fact that you are interested in learning more is more important than which book you read first. Sure, there are some semi-dangerous quacks out there, but if you keep reading a cross section of the most commonly recommended books, then you should soon gather enough information to discover the general themes. The best book is the book that gets you to take action.

Discover your own unique strengths.

Each runner is unique. There is no single formula for running success that works equally well for everyone. Some runners are naturally speedy and struggle to build endurance; others are the opposite. Some runners are injury-resistant, others are injury-prone. Some runners recover quickly from hard workouts while others take longer.

Personal finance parallels: Some people happen to be talented at skills that are very highly-compensated at this moment in time. Some people are great at sales. Some are clever risk-takers that find opportunities with high upside and tolerable downside. Some are conservative but can focus for long periods of time. Some people are good at not needing to spend much money to be happy. Some people are just better at tolerating corporate bureaucracies.

Take action and prioritize your own specific goals.

“You can have anything you want, you just can’t have everything you want.”

Experiment, expect some surprises, and adapt.

To continually improve as a runner, try to really tune in to how your body responds to training and continuously evolve your training methods accordingly. When you’re a beginner, the best you can do is follow one-size-fits-all training guidelines obtained from a coach, a book, or a more experienced runner. As you do so, however, you are sure to discover that they don’t always meet all your individual needs. Eventually, these general methods will need to be modified and tweaked to better fit your personal goals and approach. As Charles Darwin has written, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”

Personal finance parallels: There will always be a fascination with the idea of “early retirement in your 30s” or “millionaire by age XX”, but the real world is much messier. Your business does great. Your business fails. You have a kid (or more). You experience a health scare. Your parents or other relatives need assistance. My life doesn’t translate well to an inspirational book, but I know that paying attention to my finances has made my life better by allowing me to spend more quality (relaxed) time with my family. The game changes, and you have to keep adapting.

I hope that going down the path of running will provide a sense of personal fulfillment and enjoyment, on top of any health benefits. That’s how I feel about personal finance as well. I hope that people know that going down the path of learning about and improving their personal finance practices can help provide a happier, calmer, and more fulfilled life, not just more money.

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Berkshire Hathaway 2022 Annual Shareholder Letter by Warren Buffett Notes

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Berkshire Hathaway (BRK) released its 2022 Letter to Shareholders, which is how Warren Buffett updates his fellow shareholders annually on the status of the business. Direct ownership of Berkshire Hathaway shares was one of my first “self-directed” investments (above index fund holdings) for both educational and profit purposes. The reason that people like me always mention Warren Buffett is not because he is smart, but because he is an excellent teacher that cuts through the fog of complex subjects. He writes this letter with his sister in mind. This year’s letter is only 9 pages long, so I recommend reading it for yourself.

This year, the letter covered a lot of familiar ground. That’s the thing about investing and personal finance though, most of it is just sticking with a few simple yet critical ideas for years and years. Build the habit to act honorably and rationally every day, and keep avoiding risks where you can lose everything. Here are my personal highlights.

Berkshire shareholders are different.

We believe Berkshire’s individual holders largely to be of the once-a-saver, always-a-saver variety. Though these people live well, they eventually dispense most of their funds to philanthropic organizations. These, in turn, redistribute the funds by expenditures intended to improve the lives of a great many people who are unrelated to the original benefactor. Sometimes, the results have been spectacular.

Berkshire owns both businesses in their entirety and pieces through publicly-traded stock shares. They take the long-term view with both:

Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.

As investors, don’t cut the flowers and water the weeds. Hold onto those flowers. This applies to index fund investing as well. If you buy the entire haystack, you are guaranteed to own the needles (flowers).

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

The pillars: continuous saving, the power of compounding, avoiding catastrophic failures, and the American Tailwind.

Thus began our journey to 2023, a bumpy road involving a combination of continuous savings by our owners (that is, by their retaining earnings), the power of compounding, our avoidance of major mistakes and – most important of all – the American Tailwind. America would have done fine without Berkshire. The reverse is not true.

More on the importance of risk management and having skin in the game. What do you do? “I own a boatload of cash and a wide array of businesses.” Sounds perfect. 😁

As for the future, Berkshire will always hold a boatload of cash and U.S. Treasury bills along with a wide array of businesses. We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses. Our CEO will always be the Chief Risk Officer – a task it is irresponsible to delegate. Additionally, our future CEOs will have a significant part of their net worth in Berkshire shares, bought with their own money.

Don’t count on Berkshire being broken apart or starting to distribute dividends anytime soon:

And yes, our shareholders will continue to save and prosper by retaining earnings.

At Berkshire, there will be no finish line.

The letter ends with a bunch of wise quotes from Charlie Munger. Here’s just one.

There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.

Past shareholder letter notes.

The 2024 annual shareholder meeting will be in Omaha on Saturday, May 4th. CNBC will most likely livestream it again.

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Charlie Munger Daily Journal Annual Meeting 2023 Video, Transcript, and Highlights

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Charlie Munger is now 99 years old and still answering blind questions on the fly at the 2023 Daily Journal Annual Shareholder Meeting. CNBC has posted the full 2+ hour interview with Becky Quick on YouTube. You’ll miss out on his snarky tone, but you may prefer to read the transcript, kindly provided at Steady Compounding (looks to be computer-generated… psst – the name is Rick Guerin!).

Munger remains refreshing in that he doesn’t filter everything into bland nothingness. He’s not afraid to offend with his opinions. I’ve included a few of my personal highlights below.

Only 5% of money managers have the skill required to consistently beat the index averages after costs.

And if you want an example of how denial is affecting things, take the world of investment management. How many managers are going to beat the indexes? All costs considered, I would say maybe 5% could consistently meet the averages.

Everybody else is living in the state of extreme denial. They’re used to charging big fees and so forth for stuff that isn’t doing their clients any good. It’s a deep moral depravity. If some widow comes to you with $500,000 and you charge her 1 point a year for, and you could put her in the indexes, but you need the 1 point. And so people just charge somewhat a considerable fee for worthless advice. And the whole profession is full of that kind of denial. It’s everywhere.

Crypto is (still) crap.

…when you’re dealing with something as awful as crypto sh*t, it’s just unspeakable. It’s an absolute horror. And I’m ashamed of my country that so many people believe in this kind of crap and the government allows it to exist is totally, absolutely crazy, stupid gambling with enormous house odds for the people on the other side.

And they cheat — in addition to cheating and like betting, it’s just crazy. So that is something. There’s only one correct answer for intelligent people there, just totally avoid it and avoid all the people that are promoting it.

Charles Munger is a billionaire, but rarely ever gambles in a casino or at a sports book. In terms of percent of net worth, Munger has bet the equivalent of the average person betting less than 5 bucks in their entire life.

Q: How do you feel about the gambling that took place at the Super Bowl and surrounding that and the legalized gambling taking place in this country at this point?

A: Well, it’s not as bad as crypto s***. I don’t think there’s much harm in betting a modest amount you can afford on a Super Bowl game. That strikes me as a pretty — thing if you do it with a friend and not with a bookie. So I don’t have the same feeling — I obviously don’t think you should have a gambling impulse around betting against odds. If you take all the money that I have bet against odds in my whole life, I don’t think it’s more than a few thousand dollars.

I’m all in favor betting with the odds.

Big picture thoughts on the future long-term performance of Berkshire and stocks in general:

Everybody that bought Berkshire and held it for 20 years has done well. I think that will be true for those who buy at the current price. I don’t think it will be as good in the future as it was in the past, but it will be okay considering how poorly everything else is going to do. Because the valuations start higher now and because government is so hostile to business.

I would say it will fluctuate naturally between administrations and so on. But I think basically, the culture of the world will become more and more anti-business in the big democracies. And I think taxes will go up, not down. So I think the investment world is going to get harder for everybody. And — but it’s been almost too easy in the past for the investment class. It’s natural that it would have a period of getting harder. I don’t worry about it much because I’m going to be dead.

The Daily Journal’s employee 401(k) plan has only one investment option: index funds.

…look at the Daily Journal Corporation. We just put in a 401(k) plan. What are the investment options for the people at work? Zero. It’s all index funds.

What percentage of American 401(k)s have our plan, index funds required? About zero. Am I right or am I wrong? Of course, I’m right. It’s a logical thing to do.

If you can afford to self-insure, you should do so. Insurance protects you against catastrophe, but there many extra costs built into the premiums (fraud, commissions, etc). Medical insurance is an exception because the insurance-negotiated cost is often much lower than the direct-consumer-pay cost.

In my own life, I’m a big self-insured and so is Warren. It’s ridiculous for me to carry fire insurance on my house because I could easily rebuild a house if burned down. So why would I want to bother fooling around with the claims process and all kinds of things.

So if insurance — you should insure against things you can’t afford to pay for yourself. But if you can afford to take the bumps, so unusual expense coming along doesn’t really hurt you that much. Why would you want to fool around with some insurance company. If your house burned down, I would just write a check and rebuild it. And all intelligent people do that way. I don’t say all, but — maybe I should say, all intelligent people should do it my way.

There should be way more self-insurance in life. There’s a lot of waste. You’re paying when you buy insurance for the other fellows frauds, and there’s a lot of fraud in life. And you can afford to take the risk yourself and not fool around with claims and this and that and commissions and time. Of course, you self insure, it’s simpler and so forth.

Think of what I’ve saved in my life. I narrowed it. I don’t care. I never carried — never. I think once — but with one exception, I never carried collision insurance on a car. And once I got rich, I stopped carrying fire insurance on houses. I just self insure.

Past years:

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Steady Investing Returns: $833 a Month x 10 Years = $145,000 (2013-2022)

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Instead of only looking at year-to-date or last year’s return numbers that are often quoted in the media, I also like to take a longer-term perspective (especially on down years). How would a steady investor have done over the last decade?

Target date funds. The Vanguard Target Retirement 2045 Fund is an all-in-one fund that is low-cost, globally-diversified, and available both inside many employer retirement plans and to anyone that funds an IRA. When you are young (up until age 40 for those retiring at 65), this fund holds 90% stocks and 10% bonds. It is a solid default choice in a world of mediocre, overpriced options. This is also a good benchmark for others that use low-cost index funds.

The power of consistent, tax-advantaged investing. For the last decade, the maximum allowable annual contribution to a Traditional or Roth IRA has been roughly $5,000 per person. The maximum allowable annual contribution for a 401k, 403b, or TSP plan has been over $10,000 per person. If you have a household income of $67,000, then $10,000 is right at the 15% savings rate mark. Therefore, I’m going to use $10,000 as a benchmark amount. This round number also makes it easy to multiply the results as needed to match your own situation. Save $5,000 a year? Halve the result. Save $20,000 a year? Double the numbers, and so on.

The real-world payoff from a decade of saving $833 a month. What would have happened if you put $10,000 a year into the Vanguard Target Retirement 2045 Fund, every year, for the past 10 years? With the interactive tools at Morningstar and a Google spreadsheet, we get this:

Investing $10,000 every year ($833 a month, or $384 per bi-weekly paycheck) for the last decade would have resulted in a total balance of $145,000. That’s $100,000 in steady contributions and $45,000 in investment gains.

It gets even better over time. There is a popular example of the power of compound interest that shows how someone who started saving at age 25, saves and invests for 10 years but then stops and never saves a penny again still beats someone who starts saving at 35 and keeps on saving for 30 years. Acorns provides a nice illustration:

The “Rule of 72” shows us that with just 7.2% annual returns, your money will double every decade from now on. After another 10 years, every $100k will be $200k. After another 10 years, that $200k will be $400k. Once you have that initial momentum, it just keeps going.

Here are my previous “saving for a decade” posts:

Bottom line. Saving now can be hard, especially when you see your investment balances drop. But over time, with consistency and starting early, things smooth out. You can truly build serious wealth with something as accessible and boring as an IRA/401k plan and a Vanguard Target Retirement fund (or a simple collection of low-cost index funds).

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Reading List: Timeless Financial Wisdom From 100 to 2,000 Years Ago

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Morgan Housel has an excellent post about Cumulative vs. Cyclical Knowledge, which points out how humans don’t seem to be able to solve behavioral financial problems like living below your means, asset bubbles, overuse of leverage, and more. In a nutshell:

Reading old finance articles makes you feel like the ancient past was no different than today – the opposite feeling you get reading old medical commentary.

The article lists several quotes from 100+ year-old sources – but not always full sources – so I felt the need to track them down to create a “timeless advice reading list”. Some have already been mentioned here previously, others have not. Book links are Amazon affiliate links (may need to visit this post at mymoneyblog.com to see them), although the really old books are free on Kindle due to copyright expiration.

The Quest of the Simple Life by William J. Dawson is a book from 1907 that talks about escaping the grind and spending less money to create a simpler life (sound familiar?). My review and highlights: The Quest of the Simple Life: Escaping The Work Grind in 1907 vs. Today. Here is a sample quote on the cost of “keeping up appearances”:

Money may be bought at too dear a rate. The average citizen, if he did but know it, is always buying money too dear. He earns, let us say, four hundred pounds a year; but the larger proportion of this sum goes in what is called ‘keeping up appearances.’ He must live in a house at a certain rental; by the time that his rates and taxes are paid he finds one-eighth of his income at least has gone to provide a shelter for his head. A cottage, at ten pounds a year, would have served him better, and would have been equally commodious. He must needs send his children to some private ‘academy’ for education, getting only bad education and high charges for his pains; a village board-school at twopence a week would have offered undeniable advantages. He must wear the black coat and top-hat sacred to the clerking tribe; a tweed suit and cap are more comfortable, and half the price. At all points he is the slave of convention, and he pays a price for his convention out of all proportion to its value. At a moderate estimate half the daily expenditure of London is a sacrifice to the convention or imposture of respectability.

The Snows in Kilimanjaro by Ernest Hemingway. There is a famous exchange between F. Scott Fitzgerald and Ernest Hemingway where Fitzgerald is quoted as saying “The rich are different from you and me” and Hemingway is quoted as responding with “Yes, they have more money.” The following passage from this book is the original source, but read about the full story behind this legend here.

The rich were dull and they drank too much, or they played too much backgammon. They were dull and they were repetitious. He remembered poor Scott Fitzgerald and his romantic awe of them and how he had started a story once that began, ‘The very rich are different from you and me.’ And how some one had said to Scott, Yes, they have more money. But that was not humorous to Scott. He thought they were a special glamorous race and when he found they weren’t it wrecked him as much as any other thing that wrecked him.

The Great Depression: A Diary by Benjamin Roth. Benjamin Roth was a lawyer in Youngstown, Ohio during the Great Depression and kept a regular diary of his impressions during the era. The diary was required reading for his son who also became a lawyer at the firm he started, in order to understand what their clients went through. My full review here.

In normal times the average professional man makes just a living and lives up to the limit of his income because he must dress well, etc. In times of depression he not only fails to make a living but has no surplus capital to buy stocks and real estate. I see now how important it is for the professional man to build up a surplus in normal times. […] His practice suffers and he has no chance of rising above the level of the ordinary practitioner who lives from day to day and from hand to mouth.

Bubble in the Sun by Christopher Knowlton. A narrative history of the massive Florida real estate boom in the 1920s (not the 2000s!) and how it helped trigger the Great Depression (not the Great Financial Crisis!). Repeating cycles indeed. Even now, how can “Buy Now, Pay Later” be considered a new invention when it’s simply more consumer debt?

From 1919 to 1929, both forms of personal debt – mortgages and installment credit – soared. The volume of home mortgages more than tripled, and the amount of outstanding installment debt more than doubled. Other kinds of credit became widely available, such as that offered through credit finance companies and department stores.

Seneca: A Life by Emily Wilson. (Listing is weird, the US version might be The Greatest Empire: A Life of Seneca by Emily Wilson.) This should be an interesting biography for many FIRE devotees, as Seneca was both a Stoic philosopher and someone who amassed a huge amount of wealth doing questionable things. Oh, and he died nearly 2,000 years ago.

The life and works of Seneca pose a number of fascinating challenges. How can we reconcile the bloody tragedies with the prose works advocating a life of Stoic tranquility? How are we to balance Seneca the man of principle, who counseled a life of calm and simplicity, with Seneca the man of the moment, who amassed a vast personal fortune in the service of an emperor seen by many, at the time and afterwards, as an insane tyrant?

From this Emily Wilson Guardian article:

We might then label Seneca a hypocrite, since he failed to be ethically rich by his own criteria. But most of us, including those who would call themselves middle class rather than fat cats, would have to say the same, if we were fully honest with ourselves. We buy things we don’t need. We get caught up in consumerist desire and lose track of what we might really want in life.

“The more things change, the more they stay the same” – Bon Jovi.

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How to Live on 24 Hours a Day: Published 100+ Years Ago, Still Practical Advice Today

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Either Jonathan Clements or Jason Zweig (both long-time, award-winning personal finance columnists) once wrote that personal finance writing was all about finding the 1,000th different way to discuss the same five basic concepts. Early in the book How to Live on 24 Hours a Day by Arnold Bennett, first published in 1908, is the following mention of their professional ancestors:

Newspapers are full of articles explaining how to live on such-and-such a sum, and these articles provoke a correspondence whose violence proves the interest they excite. Recently, in a daily organ, a battle raged round the question whether a woman can exist nicely in the country on £85 a year.

100 years later, we have the exact same debates. 100 years later, financial freedom is still whether you control how you spend your time. Work is still trading your life energy (time) for money, and financial freedom means creating a different source of money so you can stop trading your life energy (time) away. We are all given 24 hours a day.

You wake up in the morning, and lo! your purse is magically filled with twenty-four hours of the unmanufactured tissue of the universe of your life! It is yours. It is the most precious of possessions.

For remark! No one can take it from you. It is unstealable. And no one receives either more or less than you receive.

This may also sound familiar:

Which of us is not saying to himself—which of us has not been saying to himself all his life: “I shall alter that when I have a little more time”?

I assumed that this would be a philosophical book, but was pleasantly surprised at the amount of practical and actionable advice inside. Please read the book for the full and original message; I am crudely paraphrasing below.

Notice that you want more out of life. I call this the “itch”. The “itch” is what makes people seek out and devour information about financial freedom.

If we further analyse our vague, uneasy aspiration, we shall, I think, see that it springs from a fixed idea that we ought to do something in addition to those things which we are loyally and morally obliged to do. We are obliged, by various codes written and unwritten, to maintain ourselves and our families (if any) in health and comfort, to pay our debts, to save, to increase our prosperity by increasing our efficiency. A task sufficiently difficult! A task which very few of us achieve! A task often beyond our skill! Yet, if we succeed in it, as we sometimes do, we are not satisfied; the skeleton is still with us.

And such is, indeed, the fact. The wish to accomplish something outside their formal programme is common to all men who in the course of evolution have risen past a certain level.

Realize that even with a full-time job, you DO have control over part of your day. Most of us will spend at least a couple decades working 8-9 hours a day, 5 days a week while building up those other income sources. However, even if you spend 10 hours a day working/commuting and 8 hours a day sleeping/eating/grooming, that still leaves 6 hours where you are free to do millions of different things. (Caregivers of young children and/or other family members: I know.) The point is, if you consciously spend even a fraction of that time on an invigorating activity, you can feel better about your entire life.

If my typical man wishes to live fully and completely he must, in his mind, arrange a day within a day. And this inner day, a Chinese box in a larger Chinese box, must begin at 6 p.m. and end at 10 a.m. It is a day of sixteen hours; and during all these sixteen hours he has nothing whatever to do but cultivate his body and his soul and his fellow men. During those sixteen hours he is free; he is not a wage-earner; he is not preoccupied with monetary cares; he is just as good as a man with a private income.

If a man makes two-thirds of his existence subservient to one-third, for which admittedly he has no absolutely feverish zest, how can he hope to live fully and completely? He cannot.

Spend 30 minutes each weekday morning doing meditation and/or mindfulness training. Either wake up a bit earlier, or use your commute. Training your mind is a worthwhile activity and strengthens it like a muscle. You will be more patient and focused with your co-workers, your kids, and yourself.

People say: “One can’t help one’s thoughts.” But one can. The control of the thinking machine is perfectly possible. And since nothing whatever happens to us outside our own brain; since nothing hurts us or gives us” pleasure except within the brain, the supreme importance of being able to control what goes on in that mysterious brain is patent. Hence, it seems to me, the first business of the day should be to put the mind through its paces […]

When you leave your house, concentrate your mind on a subject (no matter what, to begin with). You will not have gone ten yards before your mind has skipped away under your very eyes and is larking round the corner with another subject. Bring it back by the scruff of the neck. Ere you have reached the station you will have brought it back about forty times. Do not despair. Continue. Keep it up. You will succeed. […]

I do not care what you concentrate on, so long as you concentrate. It is the mere disciplining of the thinking machine that counts. But still, you may as well kill two birds with one stone, and concentrate on something useful. I suggest—it is only a suggestion—a little chapter of Marcus Aurelius or Epictetus.

Set aside 90 minutes per evening, three weeknights a week. During this time, you must find something that challenges your curiosity and makes you excited! If you pick the right activity, it will give you energy, not make you more tired. You might learn to rock climb, play tennis, rehearse for a community theater role, ballroom dance, read poetry, anything. You must consciously choose this activity and persevere with it for 3 months. It’s hard to break old habits, so that is why it is only for every other day.

But remember, at the start, those ninety nocturnal minutes thrice a week must be the most important minutes in the ten thousand and eighty. They must be sacred, quite as sacred as a dramatic rehearsal or a tennis match. Instead of saying, “Sorry I can’t see you, old chap, but I have to run off to the tennis club,” you must say, “…but I have to work.” This, I admit, is intensely difficult to say. Tennis is so much more urgent than the immortal soul.

On your commute home, spend some time reflecting. What are the principles that you chose to live by? Are your actions aligned with those principles? If not, how can we fix that?

What leads to the permanent sorrowfulness of burglars is that their principles are contrary to burglary. If they genuinely believed in the moral excellence of burglary, penal servitude would simply mean so many happy years for them; all martyrs are happy, because their conduct and their principles agree.

We do not reflect. I mean that we do not reflect upon genuinely important things; upon the problem of our happiness, upon the main direction in which we are going, upon what life is giving to us, upon the share which reason has (or has not) in determining our actions, and upon the relation between our principles and our conduct.

Bottom line. Give it some modern edits, a snazzy book cover, and a powerful media blitz, and the 1908 short book How to Live on 24 Hours a Day by Arnold Bennett could be a modern bestseller. Don’t wait until retirement to scratch those itches. By carefully changing how you spend specifically selected hours a week and consciously choosing activities that excite, strengthen, and invigorate you, you can improve your entire life today. (The book doesn’t touch your weekends.) As the copyright has expired, you can read it for free via Project Gutenberg (or search on Libby). A final spicy quote:

If you are not prepared for discouragements and disillusions; if you will not be content with a small result for a big effort, then do not begin. Lie down again and resume the uneasy doze which you call your existence.

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2022 Berkshire Hathaway Annual Shareholder Meeting Video, Transcript, and Notes

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Here are my notes on the 2022 Berkshire Hathaway Annual Shareholder Meeting. This year, CNBC has the rights to record and host the full video and transcripts (morning session, afternoon session) and they did a nice job with syncing the text and sound. I enjoyed listening to it like a podcast first and then reading through the text a second time around. There are many financial media articles with highlights, but here are my personal takeaways and notes.

Berkshire Hathaway is their life’s work and legacy. It’s fascinating to see how they have tried their best to build it to last forever. I recently listened to an outdoor podcast called Dirtbag Diaries where a 78-year-old man suffering from late-stage Parkinson’s disease still completed a 10-day whitewater rafting trip in the Canadian wilderness. Some folks just have more life energy than life time left, and wring out every last bit. Inspiring.

Warren Buffett is 91 and Charlie Munger is 98. These guys could be relaxing. They know the end is near, but they still have energy and are doing what they love. They built Berkshire bit by bit and the shareholders that they will leave behind are close family and friends that trust them. BRK is their legacy, and they have carefully crafted it to keep growing for those shareholders long past their lifetimes.

But most — a great many of them just say, you know, “We’ve saved this money. And we trust you and Charlie.” And that’s a great motivator, this trust.

“And, you know, take care of it and I’m not going to learn accounting and try to read all those statements or anything of the sort.”

You know, if I went broke, it wouldn’t really make any difference. It’d keep doing what I do. I’d figure out a way to read a paper and watch a little TV (Laughter) and think about things and talk to Charlie.

But the idea of losing, permanently, other people’s money — people who trust us — really, really — that’s just a future I don’t want to have.

So, the one thing I can tell you about Berkshire — although I can’t predict what our earnings will be, and I can’t predict what the stock will do, and I can’t — we don’t know. We don’t know what the economy will do and all of that sort of thing.

But we do know that we wake up every morning and we want to be safer, in terms of your eventual investment.

Now, whether you make the most money or anything, we do not want you to get a terrible result because you’ve decided to become our partner. And that’s a pledge you can live by.

They aren’t done yet, either. As long as they are able, they will keep adding pieces. They spent $40 billion is just three weeks, and are probably still buying stuff as I type this. The media usually only focuses their attention on certain purchases, but you can track their 13F filings to see exactly they bought and sold. Sites like Dataroma parse them for you, but if you plan on copycat investing be warned that the data is delayed and also Buffett is not always buy and hold forever. He’s not always right, and when Buffett realizes this, he can also sell quickly. Being late after he buys and late after he sells can be a very bad combo.

Berkshire Hathaway share repurchase timing gives some hints. They also bought back a few more BRK shares in January to March 2022 ($3 billion), but none in April 2022 once the price rose. This should give you a hint as to what Buffett thinks is a “good deal” on BRK shares. He wouldn’t buy back shares unless they were safely below his estimate of intrinsic value. You may see those 2021 and early 2022 prices again…

Cash is like oxygen. We should all keep adequate cash reserves in 100% liquid and safe places. Home equity lines of credit can (and have been) frozen quickly. Credit card limits can be reduced. We should know by now that crazy stuff happens quickly.

When 2008 and 2009 — the national panic came along — we didn’t own anybody’s commercial paper. You know, we didn’t have money market funds. We have Treasury bills. And, as I may get into it a little later, I’ll explain to you why.

We would — we believe in having cash.

And there have been a few times in history, and there will be more times in history, where if you don’t have it, you know, you don’t get to play the next day. I mean, it’s just —

It’s like oxygen, you know? It’s there all the time. But if it disappears for a few minutes, it’s all over.

Gambling and investing are getting mixed up yet again. Sports gambling is growing. Short-dated options trading is growing. Crypto has many shady pockets. Remember that casino owners make reliable profits while feeding the gamblers with hope. Which side do you want to be on? Buffett noticed this as a 21-year-old newlywed visitor to Las Vegas:

They’d gone to great lengths to come out to do something that was mathematically unintelligent, and they knew it was unintelligent.

And, I mean, they couldn’t do it fast enough, in terms of rolling the dice, you know, and trying to determine whether they were hot or whatever they may be.

And I looked around at that group. And everybody there knew that they were doing something that was mathematically dumb, and they’d come thousands of miles to do it, and they were —

And I said to my wife, I said, you know, I’m going to get rich.

How to beat inflation? Invest in your own human capital.

But the best thing you can do is to be exceptionally good at something. If you’re the best doctor in town, if you’re the best lawyer in town, if you’re the best whatever it may be, no matter whether people are paying you with a zillion dollars or paying with — they’re going to give you some of what they produce in exchange for what you deliver.

And if you’re the one they pick out to do any particular activity, sing, or play baseball, or be their lawyer, whatever it may be, whatever abilities you have can’t be taken away from you, they can’t actually be inflated away from you.

Somebody else will give you some of the wheat they produce, or the cotton, or whatever it may be, and they will trade you for the skill you have.

So, the best investment by far is anything that develops yourself. And, again, it’s not taxed. (Applause) So that’s what I would do.

Find the intersection of something that interests you, something you have a talent for, and something that pays the bills.

CHARLIE MUNGER: Well — if you stop to think about it, there are two things that neither one of us has ever succeeded at: One, we’ve never succeeded at anything that didn’t interest us, right?

WARREN BUFFETT: Right.

CHARLIE MUNGER: And we’ve never succeeded at anything that was really hard where we didn’t have much aptitude for it.

WARREN BUFFETT: Yeah. And we’ve been doing whatever we pleased for 60 years.

CHARLIE MUNGER: Yeah, we did.

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