you mentioned we're in a big bubble can you elaborate on that and how is this likely to play out when you print money on the scale that modern nations are printing it Japan the United States Europe Etc we're getting into new territory in terms of size there's never been anything quite like what we're doing now and we do know from what's happened in other nations if you TR print too much money it eventually causes terrible trouble and we are closer to terrible trouble than we've been in the past but it may still be a long
way off I certainly hope so when vuler after the 70s took the prime rate to 20% and the government was paying 15% on its government bonds that was a horrible recession lasted a long time caus a lot of Agony I certainly hope we're not going there again I think the conditions that allowed vuler to do that without interference from the politicians were very unusual and I think at 2020 hindsight it was a good thing that he did it I would not predict that our modern politicians will be as willing to permit a new vulker to
get that tough with the economy and bring on that kind of a recession so I think the new troubles are likely to be different from the old troubles you may wish you had a vulker style recession instead of what you're going to get the troubles that come to us could be worse than what vulker was dealing with and harder to fix think of all the Latin americ American countries that print too much money they get strong men and so forth that's what Plato said happened in the early Greek city state democracies one person one vote
a lot of egality and you get demagogues and the demagogues lather of the population and pretty when you don't have your democracy anymore I don't think that was a crazy idea on Plato's part I think that accurately described what happened in Greece way back then and it's happened again and again and again in Latin America we don't want to go there at least I don't we've done something pretty extreme and we don't know how bad the troubles will be whether we're going to be like Japan or something a lot worse and what makes life interesting
is we don't know how it's going to work out I think we do know we're flirting with serious trouble I think we also know that some of our early year fears were overblown Japan is still existing as a Civilized Nation in spite of unbelievable excess by all former standards in terms of money printing think of how seductive it is you have a bunch of interest bearing debts and you pay them off with checking accounts which you're no longer paying interest think of how seductive that is for a bunch of legislators you get rid of the
interest payments and the money supply goes up seems like heaven and of course when things get that seductive they're likely to be overused if you st to think about it my way in life was not predicting little short-term differences between the Russell index and the standard and pors index I don't have any opinion about which index is better at any given time I never even think about it I'm always just looking for something that's good enough to put Munger money in and I figure that I want to swim as well as I can against the
tides I'm not trying to predict the tides if you're going to invest in stocks for the long term or real estate of course there going to be periods when there's a lot of Agony and other periods when there's a boom and I think you just have to learn to live through them and chipling said treat those two imposters just the same you have to deal with daylight and night does that bother you very much no sometimes it's night and sometimes it's daylight sometimes it's a boom sometimes it's a bust I believe in doing as well
as you can and keep going as long as they let you what impact has passive investing had on stock valuations oh huge that's another thing that's coming we have a new bunch of Emperors and they're the people who vote the shares in the index funds maybe we can make Larry fank and the people at Vanguard pope all of a sudden we've had this enormous transfer of voting power to these passive index funds that is going to change the world and I don't know what the consequences are going to be but I predict it will not
be good we have a hugely strong economy and a hugely strong technical civilization and that's not going away and the knowledge and so forth and you can't believe what a modern Factory looks like when you feel fill it with robots and that's coming more and more and more and it's coming to China too for that matter and so those Trends are inevitable and I think it does create adjustment problems if you have a fine unionized job and they replace you with a robot you've got a difficult problem if you got a company like Kodak and
they invent something new that obsoletes your product you have a problem too and you solve that by dying a lot of people don't like that solution because all those problems are real and because it's so tempting to get rid of your debt by just giving a guy a non-interest bearing checking account where you used to have to pay him interest every month not only do we have a serious problem but the solution to it that is the easiest for the politicians and for the Federal Reserve too for that matter is just to print more money
and solve the temporary problems that way and that of course is going to have some long-term dangers and we know what happened in Germany when the wear Republic just kept printing money the whole thing blew up and that was a contributor to the rise of Hitler so all this stuff is dangerous and serious and we don't want to have a bunch of politicians just doing whatever is easy on the theory that it didn't hurt us last time so we can double it and do it one more time and then we double it again and so
forth we know what happens on that Everlasting doubling doubling doubling you will have a very different government if you keep doing that enough you're flirting with danger somewhere unless there's some discipline in the process but I don't regard Japan as in some terrible danger having they they've done a huge amount of this and gotten by with it I don't think we'll be as good at handling our problems as Japan is if taxes were not an issue what are your thoughts on going to cash today and waiting for better opportunities to deploy that cash over the
next 12 months is it a sensible idea in your mind in my whole adult life I've never hoarded cash waiting for better conditions I've just invested in the best thing I could find and I don't think I'm going to change now and the Daily Journal used up its cash now Berkshire has excess cash quite a bit of excess cash but it's not doing that because it thinks it knows how to Time Investments he just can't find anything it can stand bying so we don't have a solution to your problem we're just coping with it as
I've described why is Burkshire not picking up or adding any new companies to its profile of course kudos to the team and picking up Apple shares a couple of years back that's paying off for sure the reason we're not buying this is we can't buy anything at prices we're willing to pay it's just that simple other people are bidding the price up and a lot of the buying is not by people who really plan to own them a lot of it is feed driven buying private Equity buys things so they can have more fees by
having more things under management of course it's a lot easier buy something you use somebody else's money we're using our own money at least that's the way we think of it I've always always believes that nothing was worth an infinite price even an admirable place like Costco could get to a price where you would say that's too high but I would argue that if I were investing money for some Sovereign wealth fund or some pension fund and a 30 40 50e time Horizon I would buy Costco at the current price I think it's that strong
in Enterprise and that admirable a place by the way it's not a tragedy that Burkshire some Surplus money they're not investing we look more responsible with the extra wealth and we are more responsible with the extra wealth the sholders who are worried about the future because it looks complicated and difficult and their Hazard I want to say to them what my old torch professor said to me Charlie he'd say Charlie tell me what your problem is and I'll try and make it more difficult for you and he did me a favor by treating me that
way and I'm just repeating his favor to you when you're thinking the thoughts you're doing at least you're thinking in the right direction you're worried about the right things all you people that are worried about the inflation and the future of the Republic and so forth inflation is a very serious subject you can argue it's the way democracies die when democracy dies in Latin America inflation is a big part of it so it's a huge danger once you've got a populace that learns to can vote itself money if you overdo it too much you ruin
your civilization a lot of course it's a big long range danger if you look at the Roman Republic even after they went to a Empire with an absolute ruler they inflated the currency steadily for hundreds of years and eventually the whole damn Roman Empire collapsed so it's the biggest long run danger we have probably apart from nuclear war I think the safe assumption for an investor is that over the next 100 years the currency is going to zero that's my working hypothesis a very dangerous environment what brought in Hitler was the combin of the Yar
inflation where they utterly destroyed the savings of the middle class in Germany followed by the Great Depression it was a one two punch and Hitler came in Crazy demagogue with 40% of the votes and pretty soon we had a dictator hellbent for World War so the history is not pleasant and Germany was a very Advanced and Civilized Nation the Germany that Hitler took over I always say that the interesting thing about that was little Albert Einstein a little Jewish boy got his entire primary education with the insistence of the Catholic church in Germany now that
is a very Civilized Nation so if you let your nation deteriorate too much what you get is a Hitler we've proved it of course in a modern democracy in the age of canes you're going to get big government reaction the reaction this time was bigger than it's ever been before in the history of the United States they just threw money at the problem and and they were probably right to fear what was going to happen and to be quite liberal and throwing money at it but they probably overdid it a little they threw so much
money so fast that it's hard for the restaurants to get people to do the work but I don't criticize it it's hard to make these decisions Under Pressure well you have to be optimistic about the competency of our technical civilization But there again it's an interesting thing if you take the last 100 years most of modernity came in in that 100 years and in the previous 100 years that got another big chunk of modernity and before that things were pretty much the same for the previous thousands of years life was pretty brutal and short and
limited and what have you no printing press no air conditioning no modern medicine no I don't think we're going to get things that were in what I call the real human needs think of what it meant to get say first you got the steam engine the steam ship the railroad and a little bit of improvement of farming and a little bit of improvement in Plumbing that's what you got the 100 years that ended in 1922 the next 100 years gave us widely distributed electricity modern medicine the automobile the airplane the records the movies the air
conditioning in the South and I think what a blessing it was if you wanted three children you had to have six three died in an infancy that was our ancestors think of the agony of watching half your children die it's amazing how much achievement there's been in civilization in these last 200 years and most of it in the last 100 years now the trouble with it is is is that the basic needs are pretty well filled in the United States the principal problem of the poor people is they're too fat that is a very different
place from what happened the past they were on the edge of starving and what happens is it's really interesting is with all this enormous increase in living standards and freedom and diminishment of racial inequities and all the huge progress that has come people are less happy about the State of Affairs than they were when things were way tougher and that has a very simple explanation the world is not driven by greed it's driven by Envy and the fact that everybody's five times better off than they used to be they take it for granted all they
think about is somebody else has having more now and it's not fair that he should have it than they don't that's the reason that God came down and told Moses that you couldn't envy your neighbor's wife or even his donkey I mean even the the old Jews were having trouble with envy and so it's built into the nature of things it's weird for somebody my age because I was in the middle of the Great Depression when the hardship was unbelievable I was safer walking around Omaha in the evening than I am in my own neighborhood
in Los Angeles after all this great wealth and so forth so and I I have no way of doing anything about it I can't change the fact that a lot of people are very unhappy and feel very abused after everything's improved by about 600% because there's still somebody else who has more think of the pretentious expenditures of the rich who in the hell needs a real Rolex watch so you can get mugged for it you know I mean yet everybody wants to have a pretentious expenditure and that helps Drive demand in our modern capitalist Society
my advice to the young people is don't go there the hell with the pretentious expenditure I don't think there's much happiness in it but it does Drive the civilization we actually have it drives the dissatisfaction how will this all play out and what's the best advice you have for individual investors to optimally deal with the negative impact of inflation other than owning quality equities well it may be that you have to choose the least bad of a bunch of options that frequently happens in human decision making and the mongers have Berkshire stock Costco stock Chinese
stock suu a little bit of Daily Journal stock and a bunch of apartment houses do I think that's perfect no do I think it's okay yes I think the great lesson from the mongers is you don't need all this damn diversification that's plenty of you're lucky if you've got four good assets I think the finance professors and the sell the idea that perfect diversification is professional investment if you're trying to do better than average you're lucky if you have four things to buy and to ask for 20 is really asking for egg in your beer
it's very few people have enough brains to get 20 good Investments it's going to be way harder for the group that graduating from college now for them to get rich and stay rich and so forth going to be way harder for them than was for my generation think what it cost to own a house in a desirable neighborhood in a city like Los Angeles I think we'll probably end up with higher income taxes too and so on no I I think the investment world is plenty hard and I don't think the in my lifetime 98
years it was the ideal time to own a diversified portfolio of Common Stocks that updated a little by adding the new ones that came in like the apples and the alphabets and so forth and I'd say the people got maybe 10 or 11% if you did that very intelligently before inflation and maybe 9% after inflation that was a marvelous return no other generation in the history of the world ever got returns like that and I don't think the future is going to give the guy graduating from college this year nearly that easy an investment opportunity
I think it's going to be way harder some people are gifted enough that they can invest in hard to Value difficult things other people people I think would be very wise to have more modest Ambitions in terms of what they choose to deal with so I think you have to figure out your level of skill or the level of skill your adviser has and that should enter the equation but to everyone who finds the current investment climate hard and difficult and somewhat confusing I would say welcome to adult life the index funds of the S&P
is like 75% of the market so I don't think the exact problem you're talking about is going to be a big problem you're talking about the SCP index but is there a point where index funds theoretically can't work a course if everybody bought nothing but index funds the whole world wouldn't work as people expect there's also the problem one of the reasons you buy a big index like the S&P is because if you buy a small index and it gets popular you have a it's a self-defeating situation when they nifty50 were the rage JP Morgan
talked to everybody into buying just 50 stocks and they didn't care what the price was they just bought those 50 stocks and of course in due time their own buying forced those 50 stocks up to 60 times earnings whereupon it broke and everything went down by about 2/3 quite fast in other words you if you get too much fishness in one sector or in one narrow index of course you can get catastrophic changes like they had with the nifty50 in that former era I don't see that happening when the index is 3/4 of the whole
Market the problem is the whole thing can't work perfectly forever but it'll work for a long time the indexes have caused just absolute agony among intelligent investment professionals because basically 95% of the people have almost no chance of of beating it over time and yet lot of the people expect if they have some money they can hire somebody who will let them beat the indexes and of course the honest sensible people know they're selling something they can't quite deliver and that has to be Agony most you will handle that with denial they think it be
better next year they just don't want to think about it and I understand that I don't think about my own death either but it's a terrible problem beating those indexes and it's a problem that investment professionals didn't happen in the past and what's happening of course is that the prices for managing really big sums of money are going down down down 20 basis points and so on the people who Rose in Investment Management didn't do it by getting paid 20 basis points but that's where we're going I think in terms of people who manage big
portfolios of of say American equities in the equivalent of the S&P so it's a huge huge problem and it makes your generation of money managers have way more difficulties than it causes a lot of worry and fretfulness and I think the people who are worried and fretful are absolutely right I would hate to manage a trillion dollars in the big stocks and try and beat the indexes I don't think I could do it in fact if you look at birkshire take out 100 decisions which is like two a year the success of perer came from
two decisions a year over 50 years we're hardly great we may have beaten the indexes but we didn't do it by having big portfolios of Securities and having subdivisions managing the drugs and subdivisions no the indexes are a hell of a problem for you people but you know why should shouldn't life be hard it's what had to happen what happened now if you take these people doing some of those early trading by computer algorithms that worked then somebody else would come into the same thing with the same algorithm and play the same game and of
course the returns went down well that's what's happening in the whole field is the returns you're really going to get are being pushed down by the progress of the Suns the first rule of a happy life is low expectations that's one you can easily arrange and if you have unrealistic expectations you're going to be miserable all your life and I was good at having low expectations and that helped me also if when you get reverses if you just suck it in and cope that helps if you don't just fretfully stew yourself into a lot of
misery then if there are certain behavioral rules some of them you know Rose blumin had quite an effect on Berk culture and she had such a she created a business with like 500 depression dollars that became a huge business you know what her motos were always tell the truth and never lie to anybody about anything and those are pretty good rules and they're pretty simple and a lot of the good rules of Life are like that they're just very simple and do it right the first time lein that's a really good rule
