Munger confirms he still regards EBITDA as a criminal measure. His argument is concrete: take a big truck company, strip depreciation on the trucks out of earnings, and you are simply lying about what the business earns, because the trucks wear out. Asked what he thought while watching the metric rise with Malone, TCI and Liberty, he says he never liked John Malone's extreme manipulations and does not want to be known as a great manipulator, noting Malone paid less income tax than anybody by pushing everything to the extreme. The hosts compare EBITDA to community-adjusted earnings.

Depreciation on wearing assets is a real cost, so excluding it misstates earnings
Munger reaffirms the criminal framing rather than softening it
He separates tax-driven structuring from honest reporting
He explicitly does not want a reputation as a manipulator
The hosts place EBITDA alongside WeWork's community-adjusted EBITDA as era-defining fudges

“You got a big truck company and take the depreciation out of the trucks out of the earnings, you're really lying about the earnings.”
Charlie Munger · 1:00:30

“Well, I've never liked John Malone's extreme manipulations.”
Charlie Munger · 1:00:30

#accounting#ebitda#john-malone#financial-reporting

Hot Take· 3

Hot Take05:30

Sports betting, day trading and why Munger would tax the whole crowd out

Asked whether the flood of sports betting advertising is good for America, Munger answers flatly that it is not, any more than dog tracks or casinos are, they are simply popular. He extends the same judgement to retail stock trading, which he says is organised so that people who know nothing about the companies gamble on price moves. His proposed remedy is a punitive tax on short-term gains with no offset for losses, explicitly to drive the participants out of the business. The distinction he draws is between being the house and being the punter.

Gambling businesses are popular, not good; popularity is not a defence
Retail trading is structured as price speculation, not company ownership
Munger would tax short-term gains with no loss offset at all
Buffett was a patron of the racetrack, never a gambler, because he wanted the odds in his favour

“Warren wanted the odds in his favor, not somebody else.”
Charlie Munger · 06:00

“If I were running the world, I would have a tax on short-term gains with no offset for losses and anything.”
Charlie Munger · 06:30

#gambling#speculation#regulation#retail-investing

Hot Take20:30

Venture capital is very poorly done, and the fees attract the wrong people

Asked whether venture capital fulfils its role in society, Munger says it is very poorly done. He grants it is a legitimate business if you back the right people, help them and know the tricks of the game without interfering so much they resent you, but says the ordinary rule is that operators end up hating their venture capitalists and do not believe they are partners. His structural complaint is fees: ex-bankers raising a billion dollars, charging two points plus a split, making handsome livings while endowments do not get a good return. Endowments are now pushing back by co-investing pari passu, halving effective fees.

Munger's verdict on the industry as practised is that it is very poorly done
The workable version is helping founders without smothering them
Fee-driven managers can pretend to results more easily than achieve them, so the model attracts the wrong people
Endowments now demand pari passu co-investment, cutting fees roughly in half
Munger notes those managers feel had, misled and foolish in front of their trustees

“You don't want to make money by screwing your investors. And that's what a lot of venture capitalists do.”
Charlie Munger · 24:00

“And of course it's more easy to pretend that you can get good results than it is actually get them.”
Charlie Munger · 24:30

#venture-capital#fees#endowments#incentives

Hot Take39:30

Munger carries no fire insurance, and why insurance rewards patience

Asked whether insurance would still be the vehicle if he were starting again, Munger says it depends on temperament and that it takes a very patient person to get rich in insurance, because it takes forever to get anything and forever to push everyone aside. On the buying side he is blunt: once you can self-insure you should, because the premium pays your share of the stupidity of every claimant who drinks too much or lets the place burn, plus the insurer's entire overhead. He carries no fire insurance anywhere, and auto only because it is legally required.

Insurance rewards patience above almost any other trait
Premiums fund other policyholders' bad behaviour plus the insurer's overhead
Self-insure once your balance sheet can absorb the loss
Munger carries no fire insurance at all
He carries auto insurance only because the law requires it

“And it takes a very patient person to get rich in insurance.”
Charlie Munger · 40:00

“I carry no fire insurance anywhere.”
Charlie Munger · 40:30

#insurance#risk#self-insurance#temperament

Explainer· 2

Explainer06:30

The Renaissance trade, and the leverage Munger would never run

Munger sketches what he understood to be the original quant edge: sifting historical data and finding that up-up and down-down closing sequences were more common than reversals, because man is a natural trend follower. The programme bought on the first up day and sold before the end of the second, day after day. He adds that the easiest modern version is front-running what index funds must buy. His objection is not the signal but the structure: ever thinner profits on ever larger volume, sustained only by peak intraday leverage.

The original edge was a simple statistical regularity in consecutive closing prices
Munger roots the regularity in human psychology, not market structure
Front-running mandatory index fund buying is the easy trade today
Smaller profits on more volume forces increasing leverage to hold returns
Munger says the leverage risk is one he would not personally run

“Well, of course, Renaissance is probably the first algorithm. It was so simple.”
Charlie Munger · 06:30

“So, they're making smaller and smaller profits on more and more volume, which gives them this big peak leverage risk, which I would not run…”
Charlie Munger · 08:00

#quant#algorithms#leverage#index-funds

Explainer28:00

Why Walmart watched Costco take the wealthy suburbs for decades

Munger's explanation is habit rather than capability. Walmart had learned to acquire real estate for almost nothing in small towns where land was worthless, so its occupancy costs were effectively zero, and it knew how to run big division stores. Paying up for prime locations in wealthy suburbs offended that formula. Costco specialised in exactly those locations where rich people lived, and Walmart let it happen year after year. Munger generalises the failure: the play space was occupied by an old idea, which he calls everybody's trouble.

Walmart's near-zero occupancy cost was a formula, and formulas resist new ideas
Paying up for good suburban locations felt wrong given that history
Costco deliberately targeted affluent areas
Munger calls the inability to accept a new idea everybody's trouble
He rates the outcome a terrible mistake

“They were too wedded by the ideas they already had. That's everybody's trouble.”
Charlie Munger · 28:00

“And Costco just specialized in the good locations where the rich people lived.”
Charlie Munger · 28:30

#walmart#costco#competition#incumbency

Story· 5

Story08:00

How Munger found Sol Price and took the Costco board seat

Munger recounts first hearing about Price Club from Rod Hills, who told him he had to come down and meet Sol Price. He drove down, walked the store and talked with Price, who he describes as a very intelligent man who had been an ordinary lawyer until he was thirty-nine. Munger bought Price Club stock in the open market with no special favour. Later Jim Sinegal asked Buffett to join the Costco board looking for someone with a financial reputation; Buffett declined and suggested Charlie, partly on the grounds of shorter plane rides.

Rod Hills made the introduction to Sol Price
Munger did his own store visit before forming a view
He bought Price Club stock in the market with no insider allocation
Sinegal wanted a director with financial credibility; Buffett passed the seat to Munger

“So, I drove down and look went through his store and talked with Sol.”
Charlie Munger · 08:30

“Well, Sinegal asked Warren to become a director of Costco. He was looking for somebody with a financial reputation.”
Charlie Munger · 09:30

#costco#price-club#board-seats#origin-story

Story10:00

Buffett is afraid of retail, and the Baltimore store they reversed

Munger explains that Berkshire never tried to buy Costco because Buffett is afraid of retail: practically everything once mighty in retail is gone, Sears Roebuck and the big department stores included. He counters the assumption that Diversified Retailing was a bad experience by describing the mechanics. They bought a small Baltimore department store chain and realised the mistake as the ink dried, then deliberately took the hit and looked foolish rather than go broke. The freed cash, plus covenant-free debt already raised, went into their own beaten-down stocks during a recession and tripled.

Buffett's objection to retail is survival risk, not economics in a given year
The Baltimore chain was recognised as a mistake almost immediately
Munger chose looking foolish over going broke
The profit came from redeploying the cash into cheap stocks, not from retailing
The episode fed into the early success of Blue Chip Stamps

“He's afraid of retail. Practically everything that was once mighty in retail is gone.”
Charlie Munger · 10:00

“As the ink dried on the closing papers, we realized we'd made a terrible mistake.”
Charlie Munger · 10:30

#retail#berkshire#capital-allocation#reversing-mistakes

Story26:00

Home Depot and Floor & Decor copied Costco, playbook included

Munger names copying the Costco model into a new vertical as one of the easiest large opportunities he has seen. The group around Home Depot took the model into home improvement and made an enormous amount of money; Bernie Marcus visited Sol Price before starting, and Price was happy to share. Floor & Decor is the current imitator, running the model in flooring. Munger's warning about the copies is that they keep bolting on miscellaneous categories, and that the miscellaneous is what eventually kills you.

The Costco model is transplantable into a single vertical
Bernie Marcus visited Sol Price before founding Home Depot and copied everything
Sol Price shared the playbook freely
Floor & Decor is the current imitator in flooring
Adding miscellaneous categories is the failure mode of every copy

“It was a direct copy of Costco.”
26:30

“It's the miscellaneous stuff that'll eventually kill you, though.”
Charlie Munger · 27:00

#costco#home-depot#business-models#imitation

Story30:30

The Japanese trading house trade: a two-or-three-times-a-century idea

Munger describes Berkshire's Japanese trading company positions as a no-brainer available only to Berkshire. Japanese interest rates ran at half a percent a year for ten years, while entrenched old trading companies holding cheap copper mines and rubber plantations paid five percent dividends. Borrowing ten years forward against those yields produced a huge cash flow with no investment and no ongoing thought required. The half percent looked attractive to everyone, but only Berkshire's credit could actually obtain it, and getting ten billion dollars invested required patiently picking away at small pieces.

Half a percent borrowing cost against roughly five percent dividend yields
The underlying companies were entrenched with hard assets
The rate was visible to all but only Berkshire's credit could access it
Deployment took a very long time in small pieces
Munger's frequency estimate is one or two such ideas per century

“The interest rates in Japan were half a percent per year for 10 years.”
Charlie Munger · 30:30

“So you had a huge flow of cash with no investment, no thought, no anything.”
Charlie Munger · 31:00

#berkshire#japan#carry-trade#capital-access

Story52:30

BYD, the founder who can copy any part by hand, and how he compares to Elon Musk

Munger describes BYD as a miracle driven by one person: a PhD engineer with a very high IQ working seventy hours a week who can look at somebody else's auto part in the morning and know how to make it. He calls that combination of natural engineer and get-it-done production executive a rare amount of talent in one place. Berkshire's roughly 270 million dollar position became worth billions, but Munger is uneasy: he says he is hanging on while the company lurches around the track, and that its aggression makes him nervous. They tried to talk the founder out of buying a bankrupt car business; he ignored them and it worked.

Munger frames BYD as effectively a venture-style bet on one operator
The founder's edge is reverse-engineering parts and getting production done
Munger openly says the aggression makes him nervous and is dangerous
They advised against entering the car business and were ignored
He rates the BYD founder better than Musk at actually making things

“BYD was a miracle. But that guy works 70 hours a week and has a very high IQ.”
Charlie Munger · 30:00

“The guy at BYD is better at actually making things than than Elon is.”
Charlie Munger · 57:00

#byd#founders#manufacturing#electric-vehicles

Q&A· 1

Q&A16:00

Fifty years with Buffett: divide the work, like each other, and stay safe

Asked for partnership advice after five decades with Buffett, Munger refuses a single formula. What helps is liking one another and enjoying the work; what makes long partnerships durable is that one person is good at one thing and the other at something else, so the work divides naturally and each enjoys their half. He cites Costco's Jeff Brotman and Jim Sinegal, including the internal struggle when Sinegal insisted on being CEO despite Brotman having founded it. On their own record he concedes more leverage would have tripled the result without much more risk, but they never wanted any chance of damaging shareholders.

There is no single formula for a durable partnership
Natural division of labour by complementary strengths is the recurring pattern
Brotman and Sinegal divided Costco, after a contested board fight over the CEO title
Munger admits more leverage would have tripled Berkshire without much more risk
Shareholder safety was the binding constraint they never relaxed

“Well, it helps if you like one another and enjoy working together.”
Charlie Munger · 18:30

“A lot of partnerships that work well for a long time happen cuz one's good at one thing and one's good at another.”
Charlie Munger · 19:00

#partnership#buffett#leverage#division-of-labour

Takeaway· 3

Takeaway41:00

Everybody needs participation in the twelve companies that beat the rest

Munger reframes the Apple decision as list-making followed by sizing. Everyone, he says, needs meaningful participation in the roughly twelve companies that do far better than everybody else, and you need at least two or three of them. With that mindset Apple was a logical candidate, and making the list is not hard, hence the acronyms. The hard part, the hosts press, is picking one and committing. Munger's answer is deflationary: they could not find anything else, and it got cheap at about ten times earnings when they bought it around 2015.

Start from the premise that you must own some of the extreme winners
Assembling the candidate list is easy and widely done
Selection came down to having nothing better to do with the money
Price was the trigger: roughly ten times earnings
Munger corrects the framing, the initial commitment was ten billion, not hundreds

“What everybody has learned is that everybody needs some significant participation in the 12 companies that do better than everybody else.”
Charlie Munger · 41:00

“It got down to about 10 times earnings when we bought it.”
Charlie Munger · 42:00

#apple#berkshire#power-law#concentration

Takeaway43:30

Munger's China case, the 18 percent, and why he prefers Apple to TSMC

Munger states his China position in two parts: the Chinese economy has better prospects for the next twenty years than almost any other big economy, and the leading Chinese companies are stronger and better than leading companies almost anywhere while trading much cheaper. That combination makes him willing to carry China risk in the family portfolio, at whatever level the Munger family has worked out, around eighteen percent. He is explicit that the size is not a scientific question. Asked about TSMC given geopolitics, he says he does not like it as well as something with a real consumer brand of its own, such as Apple.

Two-part case: twenty-year economic prospects plus cheaper, stronger leading companies
Position sizing is described as unscientific and family-agreed, around eighteen percent
Munger accepts China risk explicitly rather than pretending it away
He prefers a business with its own consumer brand to TSMC

“Number two the leading companies of China are stronger and better than practically any other leading companies anywhere.”
Charlie Munger · 44:00

“So, naturally, I'm willing to have some China risk in the Munger portfolio.”
Charlie Munger · 44:00

#china#geopolitics#tsmc#portfolio-construction

Takeaway46:30

It was never easy, it is harder now, and you only have to get rich once

Pressed on whether the world is out of good ideas relative to the capital chasing them, Munger rejects the nostalgia: it was never easy, and if thoroughly understood it was never easy, it is just harder now. He expects low expectations and fewer bonanzas rather than no opportunities. The consolation he offers is structural: you only have to get rich once, you do not have to climb the mountain four times. He pairs it with a reputational instruction, to pay attention to how you handle the people you deal with so you have a good reputation when you are old.

The easy past is largely retrospective illusion
Expect fewer bonanzas rather than zero opportunities
The low-hanging fruit for the idiot is not gone, but it is very small
One success is sufficient; the game does not need repeating
Reputation with the people you deal with is the second half of the advice

“It was never easy. If thoroughly understood, it was never easy and it's harder now.”
Charlie Munger · 48:00

“you only have to get rich once. You don't have to climb this mountain four times. You just have to do it once.”
Charlie Munger · 48:30

#expectations#opportunity#reputation#life-advice

Frameworks in this episode

Bet Heavily on Rare Edges

The Costco Model

The Pricing Power Test

Insights & moments

⚡Myth Buster· 1

EBITDA is lying about the earnings, and Munger on John Malone's manipulations

◆Hot Take· 3