What was Charlie Munger's view on 'regulatory arbitrage'? Did he ever engage in borderline strategies?

Charlie Munger's View on "Regulatory Arbitrage"

Hey, that's an interesting question! I often follow Munger's investment wisdom too. As Warren Buffett's right-hand man, he co-manages Berkshire Hathaway. Munger is famously blunt and emphasizes business ethics and long-term thinking. Let’s first briefly explain what "regulatory arbitrage" is, then discuss his perspective.

What Is Regulatory Arbitrage?

Simply put, it’s profiting from regulatory differences across regions or industries. For example, companies might relocate operations to loosely regulated areas to bypass strict tax laws or environmental rules, boosting profits. While it may seem clever, it’s essentially gaming the system—like exploiting loopholes. Ordinary folks might admire such tactics, but Munger disagrees.

Munger’s Stance

Munger strongly opposes regulatory arbitrage. He views it as short-term speculation—risky and unethical—rather than true intelligent investing. In Poor Charlie’s Almanack and his speeches, he consistently stresses doing "the right thing" over chasing clever tricks. He’s warned: "If you keep playing with fire at the edge of regulations, you’ll eventually get burned." Munger believes sustainable businesses should be built on real value, not policy gaps. For instance, when he and Buffett invest in insurers, they legally leverage "float" to amplify capital but avoid cross-border tax dodging. Why? It clashes with their philosophy: "We’d rather make less money and sleep well."

He’s also criticized Wall Street for such practices, arguing they often lead to crises like the 2008 financial meltdown. Munger’s view: Regulatory arbitrage might bring short-term wealth, but it erodes trust and damages both society and one’s reputation long-term. Instead, he champions the "moat" theory—investing in companies with durable competitive advantages, not regulatory loopholes.

Did He Ever Engage in Such Strategies?

To my knowledge, Munger never participated in these edge tactics. His lifelong investing style has been conservative and ethics-driven. From his early law career to managing Berkshire, he and Buffett avoided such maneuvers. Berkshire never dabbles in complex derivatives or regulatory games; instead, it acquires quality assets like Coca-Cola or Apple and holds them for decades. Munger himself said he’d "rather miss an opportunity than risk stepping into morally gray areas." Read his biographies or interviews—he’s more a philosopher, reminding us that investing isn’t gambling and shortcuts are dangerous.

In short, Munger’s integrity made him a legend in investing. If you want to learn from him, dive into his books—they’re full of down-to-earth wisdom. Feel free to ask more questions!