Buffett's Sidekick Munger

The Wall Street Journal recently published a decent article on Buffett's long-time business partner, Charlie Munger.

It talks about the differences between the two (e.g., one is laconic while the other is loquacious), some of the deals that Buffett made because of Munger (including the latest one), and what they expect for the economy going forward. Here's an excerpt:

The men share a view that the U.S. financial system will change, and criticize past excesses. "People were horribly overpaid for just pouring on leverage," Mr. Munger said. The two investors have repeatedly warned about the systemic risks posed by the abuse of leverage and derivatives.

Mr. Munger thinks regulators may significantly curb the amount of leverage, or borrowed money, that banks can use. That will drive down pay at Wall Street firms, since traders won't be able to make as many big, leveraged bets. This could benefit Berkshire, with its cash hoard of $24.3 billion at the end of 2008. "There's going to be new rules in the game," he said. "For someone like us, that's going to be very interesting."

Near Transcipt of Berkshire Meeting

Read a near-transcipt of the most recent Berkshire Hathaway meeting at Omaha.com.

Here, for your enjoyment, are two excerpts on BYD, the Chinese auto company we mentioned Warren Buffett investing in earlier:

BYD Chinese company is not early stage venture capital company, Munger says. It is a big maker of batteries, for example. Then finally, not satisfied with a couple of miracles it is now in automobile business. With zero start point and very little capital he built best selling model in China. That was against joint ventures in China. Munger says it is a damned miracle, not a speculative activity.

Munger says engineering graduates are being hired at BYD who were at top of their classes. He says it is a remarkable compilation of talent. Munger says lithium batteries are needed in every utility company in America and using power of the sun will need batteries.

Berkshire has invested in BYD and Munger says it is not a crazy venture. Munger says that car to be seen in the Qwest Center Omaha, the company makes almost every part in that car.

Munger says it is a privilege to have Berkshire associated with a company that is trying to do so much. Munger says it is a small company but its ambitions are big. Munger says he will be amazed if great things don't happen.

...

Berkshire is asked about Chinese companies. Buffett says he didn't know he'd be invested in BYD some years back, nor did he know he would have invested in Petro China.

Buffett says in some ways Berkshire will be restricted by ownership limitations, such as in insurance. But Buffett says it is hard to imagine not doing more in China in coming years because it is a huge market.

Buffett says a Chinese officially recently was upset with the Treasury bonds they hold because the value is dropping. Buffett says he believes the Chinese official is right. Buffett says it is a problem, though not the biggest problem in the world.

Munger says he would exactly what China is doing. Munger says China has one of the best financial managing systems in the world. He says China will be very hard to compete with all over the world, and that is exactly the right policy for China. Munger says that is exactly the right policy and he greatly admires the Chinese.

Asking yourself where you can buy some BYD? You're not the only one. Since news of Buffett's investment, the H shares--which are sold on the Hong Kong Stock Exchange--have gone from around 8 per share to around 20.

The stock symbol for BYD on the exchange is 1211. Here is a quote from Google Finance.

Buffett's Investing in the Auto Industry?

Isn't that a lot like investing in the airline industry--something that Buffett (and Einhorn) have considered anything but wise?

Turns out Buffett is investing in the auto industry, albeit one in a country where there is less and less government control (as opposed to the opposite elsewhere).

A recent article from the International Business Times gives some information on BYD--and what attracted Munger (then Buffett) to the company:

...The firm was founded in 1995, and is headed by Wang Chuan-Fu, a man described as a "combination of Thomas Edison and (former General Electric Chairman) Jack Welch- something like Edison in solving technical problems, and something like Welch in getting done what he needs to do," notes Buffet’s business partner Charlie Munger in the article Fortune Magazine. It was Munger who first the idea to invest in the firm.

BYD began with $300,000 that Wang raised from relatives as a manufacturer of rechargeable batteries. By 2000, the company became one of the world's largest producers of cell phone batteries, selling its product to Motorola, Nokia, Sony Ericsson and Samsung. In 2003, BYD acquired a Chinese state-owned car company and began to build cars. By making affordable electric cars, BYD has outpaced much larger rivals such as Toyota's Prius and Chevrolet's Chevy Volt.

Buffett first offered to purchase 25 percent of BYD but Wang rejected the offering which Buffett took as a "good sign."

"I don't know a thing about cell phones or batteries," Buffett admits, "And I don't know how cars work," but he points out: "Charlie Munger and Dave Sokol are smart guys, and they do understand it. And there's no question that what's been accomplished since 1995 at BYD is extraordinary," Fortune reports.

Munger of course was the one who brought See's Candy to Buffett's attention. Will BYD be a cash flow machine like that? It could. While Warren Buffett won't be able to do what he wants with that cash, given that he lacks full control, I bet he'd still be happy. And so would Berkshire shareholders.