Saturday, June 24, 2017

Charles Munger explains how idiot Al Gore made a lot of money

Charles Munger, a famous investor, the generous $65m sponsor of new housing at KITP Santa Barbara, and the #2 in Warren Buffett's company made some interesting comments in February that were only noticed by news organizations such as CNBC yesterday.

Munger has described the weird story how someone like Al Gore could have become a near-half-billionaire.

Here is Munger's recipe for someone to become this filthy rich:
  1. Don't be very smart. (Munger gives some anecdotal evidence showing why Gore's intelligence is subpar.)
  2. Be an idiot.
  3. Like most idiots, obsessively believe some delusion. In the case of Al Gore, it is (no, it's not the ManBearPig) the idea that we shouldn't put CO2 in the air.
  4. Find a partner who is not an idiot but who can actually do something well.
  5. Establish an investment company. Theirs is called Generation Investment Management.
  6. Persuade your partner to be constrained by your delusions.
  7. Hope that even with these constraints, your partner (a good value investor) actually picks some good companies.
  8. Collect $15 billion from investors.
  9. Be lucky.
  10. Earn a fraction of the clients' profits, hundreds of millions dollars.
It sounds like an unusual strategy. Why did it work?

Well, as far as I understand it, Munger wasn't really interested in that particular idiot, or any particular idiot, for that matter. His technical point was that the service sector, assuming some doable yet intelligent selection of the companies, has been producing nice returns. Microsoft was among the companies that made the profit for Gore's fund.

The story is funny because after Al Gore "figured out" that CO2 is destroying the planet, he needed some help from some "extremely smart" people (meaning smarter than himself) who told him that e.g. programmers don't emit too much CO2. Needless to say, the growth of companies such as Microsoft had very little to do with the emission of CO2. It's about these companies' hi-tech status. Also, I would point out that Gore and partner were lucky enough to start the fund a few years after the dotcom bubble burst.

These futuristic companies are arguably more volatile. Because their value is derived from a predicted meteoric growth in the future, small adjustments of the ideas about the future may make them drop rapidly, too. That is the event that they have luckily avoided so far. At any rate, this true story is a good example proving that the profits may sometimes heavily diverge away from someone's skills and intelligence.

I guess that this accidental success of Al Gore must be sort of annoying for a guy like Charles Munger who is way smarter and who has done very clever things for over half a century to end up... "just" with $1.2 billion, 3 or 4 times the idiot's net worth.

No comments:

Post a Comment