Charlie Munger at Redlands/ESRI - Apartments, Win-Win, Philanthropy & Bag of Tricks

Charlie explains how he met Avi, a 17-year-old who never went to college but had high IQ and mild ADD. Munger told him he'd succeed without college. When Avi had difficult client, Munger said buy apartments for me - first ones were in Redlands at end of Alabama. Philosophy: immediately improve properties, spent $600K on trees first year.

Avi waives all standard apartment lease requirements (guarantees, down payments) for any ESRI employee. Charlie jokes Avi doesn't deserve credit because it's just smart business - ESRI is stable employer that keeps hiring.

Charlie's philosophy: best way to get what you want in life is to deserve what you want. Applied to business, means really taking care of customers. ESRI's success proves this principle - wouldn't have succeeded without exceptional customer care.

Charlie and Warren's investment philosophy: want business so good an idiot could run it successfully, then have wonderful person actually running it. Friend's law practice motto: 'If it won't stand a little mismanagement it's not much of a business.' Like businesses that can stand lots of mismanagement but don't get it.

Charlie took on chairman role at non-profit hospital with weak competitive position. Wanted to expose himself to disappointments of real world. Lasted 40 years of mixed agony and pleasure - agony never went away. Lesson: if business is tough enough, it has a way of staying tough.

Win-win is only formula that really works on and on. Requires sensitivity to other side's thinking and needs. Examples: Mayo Clinic operating room (whole group trusts each other), Costco (win-win with customers, suppliers, employees), Peter Kaufman (perfect business except prices).

Europe doesn't have American-style philanthropy except Holland, where 35% of land is under sea level and they had to cooperate fighting North Sea. Similarly, American pioneers facing hardship together created culture of helping each other. Charlie's charitable involvement has been big part of his better life.

McNamara told Chinese getting World Bank money that the free enterprise ideas would help them more than the money itself. Adding free enterprise to Chinese communism transformed 800 million people from $300/person GDP (subsistence agriculture) to $10,000/person with big middle class. Ideas proved more valuable than money.

Charlie calls Lee Kuan Yew probably the greatest nation builder who ever lived. Surrounded by hostile Muslims, every country refused military help except Israel. He accepted Israeli help and told everyone they were Mexicans. His mantra: 'Figure out what works and do it.'

Charlie observed roguish people who started giving money to show off, and 20 years later they actually became real philanthropists. You become what you pretend to be to considerable extent. There's something to be said for hypocrisy - always try to pretend to be a little better than you are.

Charlie almost never buys books anymore - perfect strangers send him books and he's amazed how well they read him. Reading and arithmetic let you absorb information on your own schedule, unlike listening to speaker. For self-education there's nothing like reading - enormous advantage.

Specialization is safest way up - surgeons know more about less and gets rewarded. Charlie never liked it, loved picking up new ideas, decided to make living ranging over whole field. Does NOT recommend to others - safe way is to know a lot about something.

If you learn your own language and basic math of life, you can take enormous territory - don't need much else. Charlie hasn't looked at calculus problem in 70+ years since Caltech (was a whiz, now totally gone). But language and basic arithmetic never goes away if you keep honing it.

More important than what they teach in college is learning the method of learning. When Harvard Law School couldn't explain Reverend Moon brainwashing, Charlie figured it out himself - they assembled psychological tricks and pounded people all at once under stress until brain snaps. Habit of figuring things out for yourself helps enormously.

Politics today: people hate each other more, can cut hatred with knife on both sides. Two things do enormous damage to bearer: resentment and hatred. Hitler worked on resentment to get power. When you hate that much it blinds your cognition. Can be disappointed in political opponent without hating them.

Charlie had easiest time any generation ever had: born white male bourgeois household 1924 Omaha. Never was better time - diseases cured, prosperity, improvement. Hydrogen bomb accidentally gave 60 years major peace (father's generation had constant wars). Future will be tougher for those born in 2021.

Continuously invested in American equities 70 years - averages up 40x in adult life. Real return was 7-8% after inflation. Chances that person investing today gets 7-8% growth with no big wars for 70 years: almost zero. But no reason to despair - we're all going to die anyway, can stand little depression.

Charlie continuously invested in American equities but Berkshire stock has declined 50% three times. Doesn't bother him much - natural consequence of adult life. Kipling's poem 'If': treat success and failure as two impostors just the same. Sometimes goes for you, sometimes against, all same game.

Warren and Charlie are very much the way they were born - both a bit nerdish, not huge successes as young boys, but both loved humor and understanding how things worked. If you don't have humor you can't get it - you're born with it. Same with shyness - can conquer a little but basically live with nature you were given.

Charlie's success came from bag of tricks learned early. Weather forecaster: figured out two ways to kill pilots (icing, running out of gas) to avoid them. Grandfather: 'stay near the shore.' Algebra: invert to solve problems. ROTC: one shot over, one under, then kapow - used that trick all his life for sizing decisions.

Client hired leading appraiser who valued Edison easement at $125K using 2D comparable sales. Charlie told him appraiser must think in 3 dimensions - utility towers freeze the grade and damage development plans for hilly land. Fired appraiser, hired one who could think, got $600K dealing with engineers who understood 3D.

Warren and Charlie together so long one grunt speaks volumes. Anadarko deal: Permian Basin is America's best oil reserve, 8% dividend from talented people including production engineer CEO. No brainer at 96% certainty. Weaker thinkers do more due diligence - people mentally insecure shouldn't be in decision-making.

Charlie's teaching technique: find people with sprouting in them and fertilize them greatly. Warren puts it more pithily: 'We make silk purses out of silk ears.' Can't turn any young person into success - either they get it almost instantly or never. Lot of people are natural non-sprouters, victimized by their own rules.

One of great tricks: actually go through your best loved ideas to weed them out. Example: Charlie left dying actuary friend in place out of love. The reinsurance contracts he signed in last 2-3 weeks were awful. Was a mistake - never doubled it again. Hard to come down on close friend.

Friend couldn't sell incredible 1,800-acre Doheny ranch with 2 miles ocean frontage because Santa Barbara NIMBYism blocks rezoning. Charlie gave university $70M to buy it - university not subject to rezoning. Transformed $70M into $1B of value in about 2 seconds with little horse sense. Will be faculty/grad student housing.

Regents approved Charlie's plan: 5,000 undergrads on 5 acres, best housing in world. He gives 20%, they borrow rest at 3%. 10-story square building, top floor is town in sky with great views, ship architecture for middle floors. Precast concrete first 7 floors, Butler steel top floor (like Costco stores). Every trick already done elsewhere - just assembled bag of tools.

How can great universities in most important state and country (UCLA, Berkeley) with Nobel Prizes be stupid enough to run out of land? Answer: bureaucracies. Somebody has to be adult in room. Grandfather thought it sinful to be dumber than you had to be - forgivable not to know, but having easily removable ignorance in your head is really stupid.

Building code takes only 20 extra square feet to give student private sleeping area. Charlie asks: can you think of anything dumber than building 200-year housing forcing unrelated people to live together and throw up on each other to save 20 square feet? Gave every student own room - Regents woman said would have been heaven.

See's Candy: $35M price with $10M surplus cash, making $4M/year, iconic brand. At end were $100K apart and Warren being tough on price. Almost didn't buy it - just squeaked through. Made wonderful decision because just barely smart enough to make no-brainer. Lesson: we all start stupid, hard to stay sensible. Berkshire would be wreck if run by them as they were at start.

Wouldn't have all the Coca-Cola stock without buying See's - huge consequences. Partner Rick Guerin (petroleum engineer) told them: 'You guys are wrong, this is wonderful company, you're being too chancy, there aren't many companies like this.' He changed their minds. That's how they were smart enough to buy See's: barely.

Warren's famous remark that Charlie loves: always take the high road because it's less crowded.