Investing legend Charlie Munger will tell you. Us call of the day comes from the billionaire vice chairman of Berkshire Hathaway BRK.A,
who offered investment insights via an Acquired podcast over dinner at his Los Angeles home. The interview was published on October 29.
Warren Buffett’s right-hand man acknowledged the tough hunt for good investments as he discussed bets on Costco, Apple, Japanese trading companies and more. “There was a lot of low-hanging fruit in the early days of our operation. There’s no low-hanging fruit that’s easy right now,” he said.
He later reiterated that position, saying the “low-hanging fruit for the idiot is not gone, but it is very small,” when asked how Berkshire selected its largest holding company, Apple AAPL.
back in 2016.
“Everyone needs a significant participation in the twelve companies that are doing better than everyone else and you need at least two or three, and if you have that mindset, Apple is a logical candidate to be on the list,” he said.
And how did they choose the iPhone maker from the selection of Big Tech companies? “We couldn’t find anything else. It became cheap: ten times the profit.”
Munger was asked why he thought all the Big Tech dominants – Apple, Microsoft MSFT,
etc. – have become so concentrated in markets, pensions and 401k plans. “It was natural… that’s what human nature and competition causes… ultimately, with this venture capital craziness, if they’ve all gone stupid, that’s a natural outcome.”
And when asked for advice on finding those good bets, he said, “When you know you have an edge, you should bet heavily.”
Munger weighed in on Costco COST,
which Berkshire sold in 2020, although the billionaire still owns it and has said he would never sell one.
‘Well, they really sold cheaper than anyone else in America and they did it in big, efficient stores… the parking lots were 10 feet wide instead of 8 feet wide or whatever they normally are… they kept all these people from their stores that didn’t do high volume. They gave special benefits to the people who did come to the stores in the form of reward points. It all worked,” he says.
He said Walmart WMT,
has made a big mistake versus Costco over the years, mainly by being “too attached to the ideas they already had” and not being able to accept new ideas. Walmart was stuck with a formula of going to small towns where real estate wasn’t worth much and keeping housing costs low.
“So it offended them to go against the rich suburbs and have to pay for good locations, and Costco just specialized in the good locations where the rich people live. and Walmart made them do it year after year and it was a terrible mistake,” he said. Munger added that he likes Costco for the next decade, and that buying now at current prices may work, but “it’s going to be tough.”
He was also asked whether the automotive industry and electric vehicles are more investable because of the disruption. “Maybe for one or two electric cars [makers] who are really good at it, but certainly no one else. It’s too hard,” he said.
Munger praised Chinese EV maker, BYD 002594,
which Berkshire possesses as ‘a miracle, but that man works 70 hours a week and has a very high IQ. He can do things you can’t, he can look at someone else’s car part and figure out how to make that thing. You can not do that.” While I won’t mention names, I assume he’s talking about BYD’s chairman Wang Chuanfu, who goes from rags to riches.
Munger also discussed his distaste for so-called “style companies,” such as Nike NKE,
Although he praised luxury manufacturers such as Hermès RMS,
adding, “I suppose if you offered me Hermès at a cheap enough price, I’d buy it.” What makes these types of companies sustainable is that they “have a brand that people have so much trust in,” he said.
He also discussed Berkshire’s much-discussed investments in five Japanese trading companies, Mitsubishi 8058,
and Sumitomo 8053,
This stake was raised by Berkshire this summer.
Munger called the investment a “no-brainer.” Like, if you’re as smart as Warren Buffett, you might get an idea like that two or three times a century. Interest rates in Japan were half a percent a year for ten years and these trading companies were actually deeply entrenched old companies… so you could borrow all the money ten years ahead and you could buy the shares and the shares paid a 5% dividend so there is a huge flow of money without investments, without thinking, without anything. How often do you do that?”
But he added that it was difficult to build stakes in it, and that Berkshire “had to be very patient and take away little pieces at a time.” It took forever to get $10 billion in investment, but it was like God opened a box and poured money into it. It was incredibly easy to make money.”
Munger also weighed in on his sour taste for venture capital, saying it seems like “gambling” these days because some deals “become so hot and you have to make decisions so quickly.” He also said that many venture capital funds today make money by “screwing” their investors.
He briefly discussed China, where he said the economy “has better prospects over the next 20 years than almost any other major economy.” First, China’s leading companies are stronger and better than virtually all the others” and cheaper, he added.
However, among Asian companies, TSMC is 2330
isn’t one he would want to keep because it doesn’t really have its own “brand” like Apple, the legendary investor said. Listen to the entire podcast here.
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Stock futures ES00,
are flat, with government bond yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y falling and the dollar DXY lower. The Bank of Japan said it would maintain its 10-year JGB bond yield BX:TMBMKJP-10Y at 0%, but with plans to be more flexible. Raw prices CL.1,
have increased modestly.
Read: Global gold purchases by central banks reach a record high during the first nine months of the year
Data showed wages rose 1.2% in the third quarter, and S&P Case-Shiller data showed home prices in top cities rose for the sixth straight month. The Conference Board’s consumer sentiment survey is still due at 10 a.m
Shares are rising at a hefty profit margin as price increases helped boost sales. JetBlue JBLU,
Share prices are plummeting after the discounter warned of a bigger loss because the third quarter fell short. Amgen AMGN,
is in profit, while Anheuser-Busch BUD,
rose after slightly better earnings and a new $1 billion share buyback plan. Results from First Solar FSLR,
and Caesars Entertainment CZR,
after the closing.
Pinterest pin codes,
Shares are up 17% after the social media company beat expectations with a revenue and profit increase.
Silicon carbide group Wolfspeed WOLF,
is up 14% after forecasting a smaller-than-expected loss. Lattice semiconductor LSCC,
fell 15% after weak sales forecasts. Looking forward to the next chip biggie, AMD AMD,
report after market close.
Ahead of earnings later this week, Apple AAPL,
debuted new processors and MacBook Pros.
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Chart of the day
Outperformance of US stocks over a decade may have reached the end of the road, says a Goldman Sachs team. Peter Oppenheimer, chief global equity strategist, said Wall Street stocks have “underperformed for a long time in the past,” and that underperformance could be expected in the coming decade.
Oppenheimer acknowledges that “the US remains at the forefront of technological innovation” but that the market is highly concentrated in a few large companies and “increased competition from other asset classes in the current high interest rate environment could deter US households from to complement their already existing assets. high share ownership,” the Goldman note said.
Here’s a chart Goldman offers:
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