Is Charlie Munger Right about Elon Musk?

Is Charlie Munger Right about Elon Musk? February 15, 2020

Ninety-six year old Charlie Munger is the Vice-chairman of Berkshire Hathaway Inc. and the close, long-time friend of its Chairman Warren Buffet. These two guys are supposedly America’s best stock pickers for at least the past fifty years. Wednesday, Munger was asked what he thought about 48-year old Elon Musk. We’ll get to Munger’s answer, later. First, let’s take a brief look at Elon Musk.

Although Elon Musk was born in South Africa, he was not born with a gold spoon in his mouth. At the tender age of seventeen, he decided he must go elsewhere if he was to succeed in life as he dreamed. So, he migrated to Canada because he could not get into the USA. He attended various schools and worked odd jobs. He eventually made his way to the U.S. and achieved a bachelors degree at the famed Wharton Business School at the University of Pennsylvania. Musk then enrolled in Stanford in pursuit of a PhD in applied physics and material sciences. But he withdrew two days later, deciding that he wanted to pursue a business career. Actually, he has done both.

In 1997, Elon and his brother Kimbal founded a software company named Zip2. They sold it two years later to the computer company Compaq for $340 million. Not bad for only two years work and the beginning of a career.

In 1999, Elon created an online banking firm named The next year it merged with Confinity, which became PayPal. In 2002, they sold it to eBay for $1.5 billion. That same year Musk founded an aerospace company named SpaceX.  In 2004, Musk became a multiple owner and CEO of Tesla Inc., an electric automobile manufacturer. Tesla also became an energy company when it acquired SolarCity, which manufactures solar panels.

Tesla has been on an upward tear since June and is the talk of Wall Street because its stock price has nearly quadrupled since then. Tesla and Apple are the most shorted stocks (bet against) in the world. So, Tesla is an extremely controversial company. It’s because Tesla is leading the automotive industry to go from the combustion engine that burns gasoline, which pollutes the atmosphere, to battery-operated vehicles which result in a much less polluted atmosphere.

It has been a very uphill battle for Tesla. Musk admitted last year that Tesla was close to bankruptcy in 2018. But the company just reported its first two successive quarters of profitability. That is mostly what has shot the stock price up. But it’s also because Tesla just finished building a gigafactory in China, and it’s starting to build another in Germany.

Other top auto manufacturers are following suit in building their own electric vehicles. But Tesla is estimated to be at least two years ahead of them in battery technology, which is the main issue. Some have likened the projected transfer from combustion engine vehicles to electric vehicles to the industrial revolution. As an owner of Tesla stock for a few years now, I believe at least that Tesla is causing a significant revolution in the automobile industry.

For the past few years, SpaceX has been NASA’s main transport to the International Space Station. And Musk’s favorite dream of all is that SpaceX is working towards sending astronauts to Mars by the mid-2030s, which is a NASA goal as well.

Elon Musk’s net worth is now almost $40 billion, putting him among the top 30 richest people in the world. And he being acknowledged for his innovation. In 2016, Forbes magazine listed Musk as 21st on its list of the World’s Most Powerful People. And in 2019, Forbes listed Musk 1st on its list of the World’s Most Innovative Leaders. Musk can be a controversial figure in his own right. But at least just about everyone acknowledges, including President Trump recently, that Elon Musk is a “genius.” But I don’t think Trump has said yet that Elon is “a stable genius” like him.

So, what did Charlie Munger say about Elon Musk at the Wednesday shareholders meeting of the Los Angeles-based Daily Journal newspaper, of which he is a board member? “My thoughts are two,” Munger said of Musk. “I would never buy it,” referring to Tesla stock, “and I would never sell it short,” meaning invest against it.

Munger then added, “I have a third comment. Never underestimate the man who overestimates himself. I think Elon Musk is peculiar, and he may overestimate himself, but he may not be wrong all the time.”

This is not the only time Charlie Munger has spoken out rather critically of Elon Musk. At the 2019 shareholders meeting of the Daily Journal, Munger said of Musk, “I want the guy to who understands his limitations instead of the guy who doesn’t. On the other hand, I’ve learned something terribly important in life. . . . These weird guys who overestimate themselves occasionally knock it right out of the park.” What! Musk has been knocking it out of the park just about every time. But with a car company, it takes longer than some software company.

Munger continued at that time about Musk, “I don’t want my personal life to be” surrounded by “a bunch of guys who are living a state of delusion, who happen occasionally to win big. I want the prudent person.”

I’ve been following Elon Musk’s career for a few years now. What has he said that indicates he overestimates himself? And when has he been wrong in the business world so much of the time? Musk just keeps proving himself more and more than just about anyone predicts about his innovative ideas.

Sure, Elon says things sometimes that are undiplomatic. And he got himself in trouble with the SEC about claiming he had investors to take Tesla private at $420 per Tesla share. He overstepped the truth, there, by thinking the sovereign wealth fund of Saudi Arabia was his committed investor. The SEC slapped Musk’s wrist by fining him $20 million (small potatoes for Musk) and removing him from Tesla’s board for three years. Yet last week, Tesla’s stock went to $968 per share only 18 months after Musk popped off about that $420 per share commitment.

And Elon Musk calling the swimming diver, Vern Unsworth, who saved those kids in the Thailand cave a “pedo-guy” got me so upset with him that it caused me to immediately sell some of my Tesla stock the next day. Yet Musk recently won the lawsuit for defamation of character that Mr. Unsworth brought against him for that remark. (The media had under reported that Unsworth previously had unjustly and verbally attacked Musk, which no doubt elicited Musk’s remark.)

I’m not endorsing Elon Musk’s lifestyle or anything like that. I’m just saying that the guy is really changing our world’s physical environment for the better, and he should be recognized for it. And he sure is going with his ideas where no man has gone before.


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