Charlie Munger - “even crazier” than the dotcom boom

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Married2aSwabian
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Married2aSwabian »

Looks like around 6% of Berkshire holdings are in Apple. If you look at Bershire Hathaway stock, currently trading at just $418,676 a share, they’ve done alright over the past decades. For sure they’ve missed out on some of the tech boom of past few years … the downside risk when a correction comes will also be less. I guess when you’re in your 90s, you’re less apt to invest in tech sector. At some point, those guys will need to step down.

After reading “The Snowball” about ten years ago, I can tell you Buffett knows his shit when it comes to investing. The “float” of cash available to an insurance company (GEICO) was the primary way he was able to start investing in other businesses. His knack for identifying, buying and growing businesses with a strategic advantage is uncanny. An unregulated toll bridge is given as Buffett’s ideal business and inflation hedge … you build the bridge in old dollars and increase tolls to keep up with inflation…also, not much competition until people start flying personal helicopters. Or working remotely due to a pandemic!

7Wannabe5
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by 7Wannabe5 »

Sometimes you spend $49.99 on a fruit tree and when it arrives in the mail maybe it just looks like a dead stick, but if it's good stock you'll be harvesting a lot of apples in maybe 7 years.
When it comes to so-called market timing there are only two sorts of people: those who can't do it, and those who know they can't do it. It's safer and more profitable to be in the latter camp.
- Terry Smith, "Investing for Growth"

Scott 2
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Scott 2 »

If you believe Munger, what are you going to do about? If you don't, what are you going to do about it?

IMO sound bytes like these rile investors to generate clicks, but don't offer actionable information. The news is Munger confirmed a perspective we could already infer he holds. If that changes your investments, there is likely a problem.

I like White Belt's post. That is a great example of considering your strategy, rather than reacting to sound bytes.

zbigi
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by zbigi »

ducknald_don wrote:
Sun Dec 05, 2021 4:36 am
Didn't they make a big investment in Apple.
I think they did only after Apple changed its main value proposition from technology/innovation to brand/fashion. Buffet himself is a big believer in strong brands (and much less so in technology), so that makes sense.

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by jacob »

Clarification.

The position in Apple was not Buffett's initiative. It was initiated by one of his two portfolio managers (Weschler) and likely heirs who have increasingly taken over day to day allocation. The thesis is that Apple has created a walled garden lock-in with a subscription model. People having all their iThings in Apple's cloud (music, pictures, ...) makes it hard to leave or stop buying new Apple things. Also, the P/E was low when they initiated. Google has also come up for the same reason but the P/E is too high.

For a similar but smaller insurance company that also invests the float for extra leverage, see Alleghany.

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Bankai
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Bankai »

Buffett and Munger were giants in their time, but it looks like that time has passed a while back. Since the bottom of the 2000-2004 bear market, they lagged Nasdaq by some 2,400%... even if Nasdaq dropped by 80% tomorrow (good luck with that!), you'd still be well ahead compared to investing in BRK.

It's also worth remembering that Buffett's and Munger's success was mainly due to 1) staying in the game for 8 decades and 2) free float from their insurance operations, i.e. free money to invest.
As I write this Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s.

Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he’s been a phenomenal investor for three-quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him.

Consider a little thought experiment.

Buffett began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.¹⁶

What if he was a more normal person, spending his teens and 20s exploring the world and finding his passion, and by age 30 his net worth was, say, $25,000?

And let’s say he still went on to earn the extraordinary annual investment returns he’s been able to generate (22% annually), but quit investing and retired at age 60 to play golf and spend time with his grandkids.

What would a rough estimate of his net worth be today?

Not $84.5 billion.

$11.9 million.

99.9% less than his actual net worth.
Morgan Housel, The Psychology of Money

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by jacob »

The only reasonably fair cumulative/graph comparison is peak-to-peak or through-to-through. Through-to-peak favors risk-on growth stocks. Peak-to-through favors risk-off value stocks. It's all too easy to pick one (or a data set) to create a strawman. To see what I mean, redo the graph starting from the dotcom peak in March 2000. Repeat twice ... peak-through from Mar2000 to Mar2009(*) and peak-"peak" from Mar2000 to Now (although we can't be sure Now is the peak).

(*) Nasdaq lost ~75% of its price during that decade (not accounting for dividends) ... so never say never.

Free float is just financial engineering as part of the business model just like leveraging a business with debt which is basically "float from a bank" instead. For example companies with higher long term debt to equity will do better in upcycles and worse in downcycles. Giant conglomerates and big industrials often create their own financing arm. GE was notorious for that except in their case it eventually backfired. If you go searching for corporate CDs you'll see who is playing this game. CAT, DE, utility companies, banks, ...

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Bankai
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Bankai »

I can only go 20 years back on the websites I know, and B&M indeed look slightly better when starting in 2002, but still massive 1,050% behind Nasdaq.

As to free float, it's true that other companies can do similar, but the vast majority wasn't able to in B&M's golden decades and had to instead borrow during high-interest rates. It's telling that B&M's outperformance stopped just around the time when interest rates went close to 0% hence equaling the playing field (everyone else was now also able to borrow for close to nothing).

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by WFJ »

One of the easiest ways to spot excesses is to measure the percentage of the current price is due to leverage. All financial bubbles are caused by leverage; Asian debt crisis (Thai/Korean debt) Dot Com (Y2K), Mortgage (no underwriting) and now Crypto/NFT (nobody knows the amount and source of leverage) and why it is most likely bigger than the past bubbles. DEFI is by definition is opaque and nobody is able to determine the system leverage and will most likely be unstable in the future. The bubbles last until someone takes the debt punch bowl away and not due to value investors banging their pots and pans.

Another bubble that is 10+ years in is the academic debt bubble, as long as the Fed provides student loans, the bubble will persist. The entire student debt is not significantly different from all the crypto assets combined to give you an idea of the scope of some bubbles.

NFTs allow one to use a static asset to borrow a lot of crypto against an asset that is not mark to market. The rules of crypto leverage are also not disclosed and has been rumored to be 10x1 to 100+x1. Without the knowledge of the rules of margin used in Crypto, it is impossible to determine how and when it will collapse.

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by jacob »

@Bankai - Same graph with QQQ and BRK starting in Mar2000 :o "How do you like them apples?" Overall, just be careful. Starting points change the math a lot. For individual investors all that really matters is the price and when people bought in and when they got out.---Not whatever craziness brought about whatever price.

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ZIRP has allowed all (whoever wanted to) corporations to lever up regardless of whether they are profitable. Many companies are now swimming w/o their pants on. If you think Nasdaq is a great "investment" consider the Goldman Sachs "negative earnings index". It's doing even better. Cynicism is boundless. We're still waiting for the tide to go out. Maybe it never will. Albeit ultimately it's gonna matter for the economy that a lot of decisions were made based on uneconomic assumptions.

WFJ
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by WFJ »

ZIRP will eventually cut both ways, and ironically usually in a very symmetrical manner.

One of my favorite analogies explaining excess debt and lack of crash is measuring what happens when one jumps off a 2-story building. One can observe that jumping off a 2-story building will result in a splat in a few seconds. What is currently occurring is like someone who jumped off a 10-story building screaming "See, it's been a few seconds and I haven't gone splat! This time it's different!" but it's not in the end. My humble prediction is this will end when all rent/student loan moratoriums and direct payments end, with some lag (3-9 months).

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Bankai
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Bankai »

Jacob - OK, so in retrospect, buying in, say, 98/99/00/01, BRK was a better option. If buying at any point since 2002, Nasdaq resulted in a higher total return.

OP - if worried about an incoming market crash or high valuations in US, here are some options to consider:

1) do nothing and hope the party will last long enough for you to build enough cushion in good years to withstand the next inevitable 30/40/50% decline
2) sell stocks and move to 'safe' assets - with inflation the highest in decades and interest rates at ~0%, this means volunteering as a victim of the current financial repression regime and funding gov's deficit directly through incurring a guaranteed real-terms loss
3) sell what you believe is expensive (i.e. US stocks) and buy what you believe is cheap (value stocks or UK/Japan/EM indexes), you just need to be aware this means going active and timing the market, both of which are more likely to lead to underperformance
4) move to a global tracker. since you own them all, no need to second guess which countries/value or growth/ small or large caps, etc. will outperform. just sit and relax - even a potential lost decade in US stocks will likely be compensated by gains in other markets (most everything outperformed sp500 during the noughties)

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by chenda »

Why would anyone not want to be in global tracker instead of a national tracker?

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Bankai
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Bankai »

One reason could be recency bias, for example since US stock market outperformed massively RoW/global tracker over the last decade, US investors might believe that this recent outperformance will continue. The opposite could also be a factor, for example since UK stock market underperformed most everything over the last decade, UK investor might believe that 'revertion to the mean' will arrive to the rescue and UK will outperform going forward.

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by chenda »

Yes I suppose its a form of trying to time the market, but as you say the global tracker should in theory compensate losses in one region with gains in another.

Does anyone know how the permanent portfolio has been doing?

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Salathor »

chenda wrote:
Sun Dec 05, 2021 5:17 pm
Why would anyone not want to be in global tracker instead of a national tracker?
You could have serious doubts about developing countries' financial systems. I'm mostly libertarian-ish, but even I have come to appreciate a lot of the SEC's work (not everything, of course, but transparent and honest markets are invaluable). I'm not at all interested in investing in mainland China (or even very many HK) companies--not because I don't think that they can make money, but because I honestly don't have any clue whether any of the numbers published are at all accurate.

See luckin' coffee, the entire idea of Chinese VIEs for American investment, etc.

I stick mostly to US and Developed stocks, with very little developing (and most of that is legacy stuff that I'm not adding to).

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by chenda »

Good point, I believe vanguard offer a developed world tracker (I assuming mostly Europe and the US) which is probably sufficiently global and would avoid the emerging market risks.

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Ego
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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by Ego »

Investosis. viewtopic.php?t=12124

crypto as investment <<<<<<<<<<<<<<<----->>>>>>>>>>>>>>>crypto as tool

A mind constantly thinking in terms of investments is incapable of seeing anything on the spectrum except the extreme.

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by WFJ »

If someone wants a good indicator for how long US can outperform the rest of the world in equity investments, look at how the US has fared relative to the rest of the world in Olympic medals, Nobel prizes, patents. The PE or other factors of performance are a result of better unmeasurable conditions and until these conditions change, the outperformance of the US will persist.

I've been 100% US equity since 2009, when international markets tanked despite the only reason for GFC was a small minority of US mortgage holders failing to pay rent. I will ride the US wave until the US faulters in the Olympics, Nobel prizes, patents, which would indicate the unmeasurable variables have started to revert to the mean. The Roman Empire was the best place to live for 1400+ years as an example of the persistence of performance differences in societies.

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Re: Charlie Munger - “even crazier” than the dotcom boom

Post by chenda »

WFJ wrote:
Wed Dec 08, 2021 7:19 pm
If someone wants a good indicator for how long US can outperform the rest of the world in equity investments, look at how the US has fared relative to the rest of the world in Olympic medals, Nobel prizes, patents.
Those are not exceptionally high compared to other first world societies in per capita terms.

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