Charlie Munger answered questions for two hours today at the 2021 Daily Journal Annual Meeting. The topics ranged from the current investing environment to worldly wisdom, and there was something to learn for everyone. Three insights stood out in particular:
Q4 2020 hedge fund letters, conferences and more
Insights From Charlie Munger At The 2021 Daily Journal Annual Meeting
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Current Stock Market Speculation/GameStop/Robinhood/Reddit
Charlie Munger’s view: “These kind of things [referring to recent speculation in GameStop’s stock] happen when a whole bunch of people use the public stock markets instead of betting on horse races. […]I think that you should make money by selling people things that are good for them. When you have these brokerage houses luring people to gamble in the markets and then skimming off the top that is not good. This must end badly, but I don't know when. […]Nobody should believe that Robinhood's trades are free. It's a dishonorable way to talk.”
My thoughts: We are experiencing an extreme mania in areas of the market encouraged by brokers and social media “influencers.” Just pause and think for a second: why would any self-respecting serious investor go out and post stock advice/tips on social media to a broad audience? And what does people telling each other to have “diamond hands” and to “hold the line” have to do with investing? An old proverb comes to mind: “Those who know do not speak and those who speak do not know.” And if you are really investing rather than blindly gambling (or worse, running an illegal stock market pool), then why does it make any difference to your investment conclusion what some random anonymous person on an internet forum is doing with respect to the stock in which you are invested?
I have little doubt that looking back on this a few years from now we will rate rank amateurs dumping their savings/stimulus checks/who knows what other funds into the abyss of market speculation up there with other manias of the last couple of centuries. The likely feeling looking back will be of bewilderment and pity for the thousands of regular folks who came under its influence. As Charlie said, however, when it will end nobody knows.
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Value Investing in the Current Environment
Charlie Munger’s view: “I don't think we have a bubble in Treasury securities, I just don't think they are a good investment and I have not been buying any at these rates. […] I don't think it's crazy that good companies are trading at higher P/E ratios when we have low interest rates. […] All intelligent investing is value investing the way I define it, which is getting more for your money than you pay. Some people look for value in strong companies and others look for it among weak companies.”
My thoughts: The whole “does value investing still work” debate has been getting a bit worn. People who really understand value investing understand that of course it still works, just that the areas where opportunities are shift around. They also understand that value investing is really about a thoughtful comparison of price with an intrinsic value derived from careful fundamental analysis of the business, the management team and the balance sheet. Anything else is just speculation.
That being said, value investing can be applied to a wide range of companies, depending on your own circle of competence. The reason for all these recent doubts have more to do with the exuberant stock market action of the last few years than with fundamental change in that reality. When bubble-like behavior in parts of the stock market dies down, as it always does, the inquiry will shift again to the much more useful question of how should you, given your strengths, weaknesses and circumstances, practice investing.
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On Learning
Charlie Munger’s view: “People have a theory that any good hardworking person can be a great investor. I think they can be a pretty good investor and avoid certain pitfalls but they can't necessarily be a great investors. […]I had the right temperament [for learning]. And when someone gave me a good idea, I quickly adopted it and used it all my life. It's hard to teach. To some extent you either have it or you don't. […] What advice would I give to someone trying to stay within their circle of competence but who is finding it being rapidly shrunk by new technology? You fix what can be fixed and what can't be fixed you endure.”
My thoughts: People have different capacity for learning. Ingrained traits, likes stubbornness, ego and many others get in the way. Warren Buffett has done so well in large part because he learned and evolved, decade after decade. Many lesser investors have become “kings of a small hill” – they learned an approach that worked for a time but never evolved it and lost some of their excellence when their approach became less successful due to the changing environment.
One of the best resources on and examples of learning that I know of is Josh Waitzkin’s “The Art of Learning.” Josh has achieved the International Master title in chess at a young age… and then proceeded to train and become a Tai Chi champion. Either of those two accomplishments is hard enough, but for one person to do both suggests that they are on to something and that we should pay attention to their method.
And finally, for the “half” that the title of this article promised, which is perhaps more valuable than all of the rest:
Charlie Munger: “The first rule of a happy life is low expectations. If you have expectations that are too high you will have a miserable life. When you have reverses you need to just cope and not stew yourself into unnecessary misery. […] Most people are born with a ‘happy stat,’ and they wouldn't be much happier almost no matter what their outcome in life would have been.”
My thoughts: To borrow Charlie’s phrase that he is so well-known for: I have nothing to add.
Note: All quotes from Charlie Munger are based on my notes and best recollections from listening to Charlie speak, and are likely to contain small errors which I hope do not change his intended meaning.
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Article by Gary Mishuris, Behavioral Value Investor
