2008 Charles Munger's Wesco Annual Shareholders Meeting was held on Wed, May 7, 2008 from 2 to 5 pm PST at Pasadena Center in Pasadena, CA. Approx. 3000+ people attended the event, 10% of the numbers of people attended 2008 Berkshire Hathaway Annual Shareholders Meeting last Sat, May 3, 2008 where Warren Buffett and Charles Munger entertained their shareholders. This time, only Charles Munger ("Charlie"), 84 (yes this is how old he is now despite his amazing health condition), entertained both Wesco and Berkshire Hathaway shareholders.

I went there around 1:45 pm. During that time, many people were still walking from parking structure to go inside the huge white tent in Pasadena Center compound trying to find good available seats to listen to Charlie Munger's wit and wisdom. It is true that Charles Munger is not as famous as Warren Buffett. But it is false to assume Charlie is not as intelligent if not more than Warren. At 84, Charlie is not young anymore by any normal standards; however, during the event, people quickly noticed and praised how healthy he was. He could still walk straight, talked fast, shoke hands with his shareholders and hold court for hours without any sweat. He is an inspiration to people there.

Here is my summary (if there is any inaccuracy, let me know; also, this is not a transcript) of the Q&A session between Charlie and his shareholders by subject matters:

General:

- 1981 - now in general has been hog-heaven for the investing world.

- Investors should expect annual returns of 4-to-5 percent going forward because many stocks are priced high and bonds are offering meager returns.

- Alternative investment funds have done well so far. Going forward it is going to be difficult and tougher to generate above average return to investors after fees.

- To invest people's money, many money managers offer earthquake-style alpha instead of safe return to investors.

- Don't put too much reliance on momentum which could be self-fulfilling prophecy.

- What causes trend following behaviour? Why people is so enthused to do what everyone else is doing? Answers: greed, envy, aggresive accounting and lack of conservatism.

- Favorite expression: "Include me out."

- Charles Frankel basic idea is system governs the participants..

- Liabilities are 100% sure, whereas Assets are not.

- Enron collapse last time was due to the facts that accounting and law firms were deliberately blind.

- Accounting and law firms should get rid their most dangerous clients every year, just like GE get rid its underperforming employees every year (bottom 10%)

- In corporate, people like to be paid like movie stars. It is unnecessary and terrible for the population since it would create envy and counter-productive effect in human nature.

- Berkshire Hathaway could have been run with 2/20 fees but it is not for ethos purpose. 2/20 fees could be very wonderful to great capital allocator. However, rember ethos (behavious that is moral fashion) and obligation to economic leadeship.

- Modern economy could work with intelligent law and risk transfers regulations.

- Rationality is important and offers immense benefit to the world.

- Inflation: if you have strong competitive advantages and you make 10% of sales, ten your business goes up with higher inflation.

- Deficit: I would push policies that are not in favor of having twin deficits that US has currently.

- Moody shrinking moat: it went along with the crowd too much.

- Terrorism is a serious problem

- If you only have les thatn $2 millions asset to manage, focus on smaller companies.

- Suggestion to federal reserve bank to overcome the current credit crunch: getting through actions (which the fed has done and Munger agreed what Fed did to save Bear Stearns from total collapse) and eliminate options exchanges (the derivative market system is seriously wrong).

- Burlington Northern Santa Fe Corp. (BNI): Berkshire bought this based on replacement cost and demand is still in need.

- Commercial Real Estate future: not so good.

- Having budget and budget committees: not necessary.

- Recommended books: "Influence" by Cialdini. "Yes" by Cialdini.

- Money management is better that many other businesses.

- Oil price in the next 25 years: oil production is going to go down; if it has not peaked yet, it most like will.

- Insurance is a long tail business.

- Brazil is very favorably located now with huge natural resources (e.g.: steel, etc); agricluture in Brazil is fabulous; Brazilian Real is a good bet.

- Health insurance industry got a lot bad press it does not deserve. Not all is bad in the industry.

- Nationalization of healthcare: 50/50 chance in the future.

- Gold price: if it can not go on forever, it will most likely stop later.

- Self confidence is important

- Wesco focus for the next 3-5 years: Stay tune.

- Developing world: the best way to do it is to own global companies that have global exposure to developing world.

- If I were younger, I would take jobs in the right place.

- All investing is value investing.

- Index fund is decent without being led to much to liars.

- Keep learning. Warren and I keeps learning.

- Keep your eyes wide open before marriage and half-shut after marriage.

- New Zealand currency: no comment.

- Time to get a house is when you need one.

Lessons from Berkshire Hathaway:

- Berkshire is structured in a very decentralized fashion with tiny headcounts in its headquarter.

- Low bureaucracy, low cost, low overhead structure.

- Use minimal debt or no debt at all to operate, without needs of liquidity/capital every Monday to operate (referring to Bear Stearns).

- Duty of executives: widen the moat, increase the competitive advantages of the business.

- Apply ethos that comes from engineering: "Margin of Safety"

- We are looking for comapnies with ethos without the need to do handholding.

Derivatives:

- Don't be too complicated. Keep it simple. In complicated thing like derivatives, the high priest may not understand it at all.

- Derivative accounting is going to be the next financial bomb.

- Derivative value on the book usually now has very (read: too) positive assumptions.

- It is bad accounting practice to report profit on derivative trading losses.

- It has no automatic near-term collapse.

- However, someday it may become a mess.

- Derivative market is an insane system that soon could unwind.

- Models and formulas behind derivatives are too complicated; derivate market (options, futures, etc) is so imperfectly regulated, and therefore, yes, it has great danger ahead.

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