It’s important to heed Charlie Munger’s warnings on how the “wretched excesses” in stock market and crypto bubbles will lead to unwanted consequences, as he discussed at the 2022 Daily Journal Annual Meeting.
Video Contents:
-Intro More Charlie’s Wisdom At Daily Journal 2022
-Metaverse, Gaming, & Berkshire Buying Activision Blizzard
-Charlie’s Thoughts On Crypto
-Stock Market Bubble “Wretched Excess” Trouble Coming
-Is Ben Graham Style Value Investing Dead?
-Is Costco In A Bubble?
-Apple & Google Big Business Moats
-Passive Index Fund Investing Impact & Consequences
-Charlie’s Advice For Young Investors
-Charlie On Human Psychology: Envy & Unhappiness
-Charlie’s Secret To Happiness
-Conclusion: Be Grateful & Keep Learning
Charlie on Berkshire buying Activision Blizzard:
I’ve got no comment except that I really like Bobby Kotick who’s one of the smartest business executives I know. And I do think gaming is here to stay. But there again I’m an old man, I don’t like a bunch of addicted young males spending 40 hours a week playing games on the TV. It does not strike me as a good result for civilization. I don’t like anything which is so addictive that you practically give up everything else to do it.
Charlie on crypto:
Well I certainly didn’t invest in crypto. I am proud of the fact that I’ve avoided it. It’s like some venereal disease. I just regard it as beneath contempt. Some people think it’s modernity and they welcome a currency that’s so useful in extortions and kidnappings, so on. Tax evasion. And of course the envy is everyone has to create his own new currency. I think that’s crazy too. The Federal Reserve could have a currency if they want one. We’ve got a digital currency already, it’s called a bank account.
Charlie on the consequences of “wretched excesses” in the stock market bubble:
We have a stock market which some people use like a gambling parlor. The transactions are the people who love the gambling parlor aspect and those who want to make long term investments, take care of their old age and so forth. Model that in one market it goes out of control because the stock market becomes an ideal gambling parlor activity.
I don’t think that ought to have been allowed either. If I were the dictator of the world, I would have some kind of tax on short term gains that made the stock market very much less liquid. And drove out this marriage of gambling parlor and legitimate capital development of the country. It’s not a good marriage and I think we need a divorce.
Have a world that makes stocks way less liquid. We would have a stock market that was way less liquid, when I was younger. We don’t need a stock market that is that liquid. What we’re getting is wretched excess and danger for the country. Everybody loves it because it’s like a bunch of people get drunk at a party. They’ve having so much fun getting drunk they don’t think about the consequences.
We don’t need this wretched excess. It has bad consequences. You can argue the wretched excess of the 20s gave us the Great Depression. The Great Depression gave us Hitler. This is serious stuff. But it’s awfully hard.
A lot of people like a drunken brawl. And so far those are the people that are winning. And a lot of people are making money out of our brawl. Eventually there will be considerable trouble because of the wretched excess, that’s the way it’s usually worked in the past. But when it’s going to come and how bad it’s going to be I can’t tell you.
On the question as to whether old school, Ben Graham style valuation methods are dead Charlie said:
They’ll never die. The idea of getting more value than you pay for, that’s what investment is. If you want to be successful, you have to get more value than you pay for. So it’s never going to be obsolete.
You can get a whole body of people that don’t even know what they’re buying, they’re just quotations on the ticker. I don’t think it’s helpful to have. Think of the past, crazy booms and how they worked out. The South Seas Bubble. The bubble in the late 20s, so on so on. We’ve had this since the dawn of capitalism. We’ve had crazy bubbles.
Charlie on whether Costco stock is in a bubble:
Well that’s a very good question. I’ve always believed that nothing was worth an infinite price. Even at an admirable place like Costco could get to a price where you would say that’s too high. But I would argue that if I were investing money for some sovereign wealth or pension fund, at 30-40-50 year time horizon, I would buy Costco at the current price. I think it’s that strong an enterprise and that admirable a place.
Now I’m not saying I would, I can’t bring myself with my habits to pay these big prices. But I never even think about selling a share of Costco just because it’s selling at a high price. If you stop to think about it, I bought at Christmas time a bunch of flannel shirts at Costco that cost $7 each more or less. It was a soft flannel and it was better and so forth. I think I bought pants, Orvis pants, and I paid $7 and they stretch around my waist, and partially water resistant.
Costco will be an absolute titan on the internet, and huge purchasing power on a limited number of stocking units. So I’m not worried about, I’m not saying I’m buying Costco at this price, but I’m certainly not selling any. I think it’s going to be a big powerful company as far ahead as you can see. And I think it deserves its success. I think it has a good culture, and good moral ethos. I wish everything else was working as well as Costco does. Think what a blessing that would be for us all.
On big business moats and antitrust:
I think what’s happened is so important and so tied up with national strength that I’m not trying to weaken the internet companies of the US. I like the fact that we have strong national champions that are big strong companies. I think other nations are proud of their big, strong companies too. I don’t think bigness is bad in the end. I don’t want the whole internet to be dominated by foreign companies, I want big strong American companies that stand well in the world. So I’m not as worried about antitrust aspects about the internet.
In a sense we need a big business, it makes sense to have something like Apple and Google as big as they are and serving as well as they’re doing. I don’t mind Apple or Google being a big company. I want to swim as well as I can against the tides, I’m not trying to predict the tides.
On passive index fund investing:
Oh huge! That’s another thing that’s coming. A new bunch of emperors. All of a sudden we have had this enormous transfer of power to these passive index funds. That is going to change the world, and I don’t know what the consequences are going to be, but I predict it will not be good. I think the world of Larry Fink but I’m not sure I want him to be my emperor.
Charlie’s investing advice for young people:
I don’t think I have a one size fits all investment. Some people are gifted enough hard to value. Other people wise to have more modest ambitions in terms of what choose to deal with. Figure out your level of skill, or your advisor has, and that should enter the equation. To everyone who finds the current investment climate hard and difficult, I would say welcome to adult life.
And you’re thinking the right thing. Of course it is hard. It’s going to be way harder for the group that’s not, that graduated from college now. For them to get rich and stay rich. It’s going to be way harder for them than it was for my generation. Think what it costs to own a house in a desirable neighborhood in a city like Los Angeles. It’s not. And we’ll probably end up with higher income taxes and so on.
I think the investment world is plenty hard and I don’t think. In my lifetime, 98 years, it was the ideal time to own a diversified portfolio of common stocks. Update a little by adding the new ones like the Apples and Alphabets. I’d say the people got maybe 10% or 11% if you did that very intelligent before inflation, and 8-9% after inflation. That was a marvelous return. No other generation ever got returns like that. I don’t think the future is going to give the guy graduating from college this year nearly as easy an investment opportunity. I think it’s going to be way harder.
On what worries Charlie about the economy and stock market, and what makes him optimistic:
Well you have to be optimistic about the competency of our technical civilization. 1922-2022, most of modernity came in that last 100 years. The previous 100 years that got another big chunk up of modernity. Before that things were pretty much the same for 1000s of years. Life was pretty brutal and short. No printing press, air conditioning, modern medicine. … real human needs to get steam engine, steam ship, railroad, farming, plumbing.
The principal problem is that poor people are too fat. Different problem in the fat, in the past edge of starving. Enormous increase living standards, all the huge progress come, People are less happy than when things were way tougher. Simple explanation, the world is not driven by greed, it’s driven by envy. Take 5x better off for granted. Some more now.
I like the people who are against envy, not the people trying to profit from it. Pretentious expenditure of rich, who the hell needs Rolex watch so you can get mugged for it. Yet everyone wants to have a pretentious expenditure. That helps drive demand. Advice for young people is don’t go there. To hell with pretentious expenditure. I don’t think there’s much happiness in it. Drives the dissatisfaction. Steve Pinker of Harvard has said that as things get better, there are more feelings of how fair, and it’s way more hostile. As it gets better, people are less satisfied. That’s weird but that’s what’s happened.
Charlie’s secret to leading a happy life:
Have realistic expectations, which is low expectations.
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