The quotes were originally posted on 25iq. This article covers Munger's quotes on topics that begin with the letter D.
DEBT:
“We have monetized houses in this country in a way that's never occurred before. Ask Joe how he bought a new Cadillac [and he'll say] from borrowing on his house. We are awash in capital. [Being] awash is leading to very terrible behavior by credit cards and subprime lenders -a very dirty business, luring people into a disadvantageous position. It's a new way of getting serfs, and it's a dirty business. We have financial institutions, including those with big names, extending high-cost credit to the least able people. I find a lot of it revolting. Just because it's a free market doesn't mean it's honorable.”
“Of course I'm troubled by huge consumer debt levels – we've pushed consumer credit very hard in the US. Eventually, if it keeps growing, it will stop growing. As Herb Stein said, “If something cannot go on forever, it will stop.” When it stops, it may be unpleasant. Other than Herb Stein's quote, I have no comment. But the things that trouble you are troubling me.
DECISIONS:
“If you took out our 15 best ideas, most of you wouldn't be here.”
DECLINING PRICES:
“Over many decades, our usual practice is that if [the stock of] something we like goes down, we buy more and more. Sometimes something happens, you realize you're wrong, and you get out. But if you develop correct confidence in your judgment, buy more and take advantage of stock prices.”
DEFICITS:
“Generally speaking, it can¹t be good to be running a big current account deficit and a big fiscal deficit and have them both growing. You would be thinking the end there would be a comeuppance.” “[But] it isn't as though all the other options look wonderful compared to the US. It gives me some feeling that what I regard as fiscal misbehavior on our part could go on some time without paying the price.”
“We started from such a strong position. It's not as if the alternatives are all so great. I can understand why people would rather invest in the U.S. Do you want to be in Europe, where 12-13% of people are unemployed and most 28-year-olds are living at home and being paid by state to do it? Or be in Brazil or Venezuela with the political instability that you fear? It's not totally irrational that people still like the U.S., despite its faults. Whatever misbehavior there is could go on quite a long time without a price being paid.”
DEFERRED GRATIFICATION:
“Almost all good businesses engage in ‘pain today, gain tomorrow' activities.”
DENIAL:
“If people tell you what you really don't want to hear what's unpleasant—there's an almost automatic reaction of antipathy. You have to train yourself out of it.”
“If you turn on the television, you'll find the mothers of the most obvious criminals that man could ever diagnose, and they all think their sons are innocent. That's simple psychological denial. The reality is too painful to bear, so you just distort it until it's bearable. We all do that to some extent, and it's a common psychological misjudgment that causes terrible problems.”
DERIVITIVES:
“Everyone caved, adopted loose [accounting] standards, and created exotic derivatives linked to theoretical models. As a result, all kinds of earnings, blessed by accountants, are not really being earned. When you reach for the money, it melts away. It was never there. It [accounting for derivatives] is just disgusting. It is a sewer, and if I'm right, there will be hell to pay in due course. All of you will have to prepare to deal with a blow-up of derivative books.
“No CEO examining books today understands what the hell is going on.”
“The stupid and dishonest accountants allowed the genie of totally inappropriate accounting to descend on derivatives books. And once this has happened – people get status, etc. – it's impossible to get it back into the bottle.
“People don't think about the consequences of the consequences. People start by trying to hedge against interest rate changes, which is very difficult and complicated. Then, the hedges made the results [reported profits] lumpy. So then they use new derivatives to smooth this. Well, now you've morphed into lying. This turns into a Mad Hatter's Party. This happens to vast, sophisticated corporations. Somebody has to step in and say, “We're not going to do it — it's just too hard… Derivatives are full of clauses that say if one party's credit gets downgraded, then they have to put up collateral. It's like margin – you can go broke. In attempting to protect themselves, they've introduced instability. Nobody seems to have recognition of what a disaster of a system they've created. It's a demented system.
To say accounting for derivatives is America is a sewer is an insult to sewage.”
DIRECTORS:
“Generally speaking, if you're counting on outside directors to act [forcefully to protect your interests as a shareholder, then you're crazy]. As a general rule in America, boards act only if there's been a severe disgrace. My friend Joe was asked to be on the board of Northwestern Bell and he jokes that “it was the last thing they ever asked me.” [Laughter] I think you get better directors when you get directors who don't need the money. When it's half your income and all your retirement, you're not likely to be very independent. But when you have money and an existing reputation that you don't want to lose, then you'll act more independently.”
“If mutual fund directors are independent, then I'm the lead character in the Bolshoi Ballet.” [Laughter]
“A director who gets $150,000 per year from a company and needs the money is not independent.”
“I think it would be a great improvement if there were no D&O insurance. The counter-argument is that no-one with any money would serve on a board. But I think net net you'd be better off.”
DISASTERS:
“We don't think because it's never happened that it won't. There's no actuarial science, it's rough judgment. We just try to be conservative.”
“Years ago, portfolio insurance was popular. People were selling it as a highly sophisticated way for large institutions to manage money and mitigate risk, and they earned a lot selling it. Then on Oct. 19, 1987, a relatively small amount of money that had been invested in portfolio insurance led to a one-day 22% drop. Each of the individuals who invested in portfolio insurance was intelligent, but in aggregate, they created a doomsday machine. I think the odds of something like this are magnified today compared to the 1980s. I don't know who will yell “fire,” but when it happens, I'm sure the currency markets will play a role in the race for the door.”
DISCLIPLINE:
“We have this investment discipline of waiting for a fat pitch. If I was offered the chance to go into business where people would measure me against benchmarks, force me to be fully invested, crawl around looking over my shoulder, etc., I would hate it. I would regard it as putting me into shackles.”
DISCOUNTED CASH FLOW:
“Warren talks about these discounted cash flows. I've never seen him do one.” [“It's true,” replied Buffett. “If (the value of a company)doesn't just scream out at you, it's too close.”]
DIVERSIFICATION:
“The Berkshire-style investors tend to be less diversified than other people. The academics have done a terrible disservice to intelligent investors by glorifying the idea of diversification. Because I just think the whole concept is literally almost insane. It emphasizes feeling good about not having your investment results depart very much from average investment results. But why would you get on the bandwagon like that if somebody didn't make you with a whip and a gun?
“The idea of excessive diversification is madness.”
DIVIDENDS:
“The total amount paid out in dividends is roughly equal to the amount lost in trading and investment advice, so net dividends to shareholders are zero. This is a very peculiar way to run a republic.”
DOWNTURNS:
“If you, like me, lived through 1973-74 or even the early 1990s… There was a waiting list to get OUT of the country club — that's when you know things are tough. If you live long enough, you'll see it.”
“It is an unfortunate fact that great and foolish excess can come into prices of common stocks in the aggregate. They are valued partly like bonds, based on roughly rational projections of use value in producing future cash. But they are also valued partly like Rembrandt paintings, purchased mostly because their prices have gone up, so far.”
