The world lost one of its greatest investing minds, Charlie Munger, on November 28th, 2023. For the uninitiated, Charlie Munger was Warren Buffett’s right-hand man at Berkshire Hathaway and one of the most successful investors ever. In reference to Munger’s razor-sharp mind, Buffett would oftentimes say that what took him paragraphs to explain, Charlie could sum up in a sentence. The list of quotes and insight from Charlie are so numerous that we have included a list of them at the end of our letter to keep our message concise. On a similar note, if you need new ideas for books, the rereleased “Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger” is a fantastic option. That being said, pretty much anything written by Charlie would be a worthwhile read.
Why do we bring up Charlie you might ask? Is it to inspire a life of capitalism and charity from a 99-year-old that famously said, “Early on, write your desired obituary, and then behave accordingly”. Or could it be that he inspired lifelong learning with his statement “I think that a life properly lived is just learn, learn, learn all the time.” It certainly could be. However, the many statements about investing and macro themes are the most topical to us and the ones we most enjoy. For instance, when asked about the macro stats he regularly monitors, Charlie quipped, “None. I find that what I see on the companies we monitor pretty much informs me of what is happening at the macro level.” The patience to hold good investments and let them compound or hold cash until an opportunity presents itself was one of his, and by extension Berkshire Hathaway’s, unassailable strengths. Buffet and Munger were certainly aware of macro risks as one could tell by their comments, but they were not macro driven in their investing. One could say that their strategy was to find good companies and hold onto them while they compound returns, allowing the macro noise to play out while trending in an upward direction. A strategy they might humbly proclaim as simple but far harder to patiently follow. Especially in an environment where momentum trades, crypto crazes, and meme stocks, for instance, can curry the favor of the financial media for short but mercurial arcs. Behaviorally, it is normal to fear missing out on a “winning” trade, but as Munger was prone to say, “The big money is not in the buying or selling but the waiting.”
To say that our investing style is influenced by these gentlemen is probably an understatement. We have said for many years that we respect fund managers that have the conviction to hold cash and buy and hold for the long term. Of course, cash can certainly help with macro concerns and can also help with volatility and valuation concerns when stocks reach irrational levels. Low expenses and strong organizational stewardship are other areas exemplified by Berkshire and funds we use. Of course, a tax-efficient exchange-traded fund is also something we are not afraid to use when we design a portfolio to meet our clients’ financial planning goals and objectives. This year provides a prime example of that. While macro currents have swirled, rattled, and befuddled investors, we have earned positive returns in many assets. Additionally, these returns in conservative fixed income and equities were buoyed by last year’s returns that were better than the indices.
We note these items not to brag but to highlight our conservative strategy and how it allows one to steadily compound returns. As Munger stated “The world is full of foolish gamblers, and they will not do as well as the patient investor.” Of course, years like 2023 can also allow one to invest areas others are overlooking. We have mentioned small and mid-capitalization stocks, international stocks and real estate stocks before, and they continue to be cheap versus large cap stocks. Our conservative strategy does allow us to dip into these areas and you will continue to see that but don’t let all the scary “Macro” talk scare you away from good companies. Munger and Buffett didn’t let it impact them when they bought a Chinese battery manufacturer in 2008 and small cap Japanese financial firms in 2020 for example. Truly, if one falls back on Charlie’s statements when the macro boogeyman enters your conversations you will probably be better off in the long run. If you keep his mantra in mind, then you will hopefully be able to buy good companies at a greatprice or great companies at a good price and do pretty well for yourself. We, for one, value this thought process and try to practice it daily.
Mungerism’s aside, we do think 2023 was a good year in spite of all the macro noise and geopolitical concerns. The old saying goes that bears are smart, but bulls make you money. There is always something to worry about, but 2023 showed that staying invested in a long-term plan paid off, even though Bloomberg’s forecast in October 2022 was 100% chance of a recession. As we have mentioned before, recessions are inevitable, but determining the timing, depth, and length of a recession is very difficult. Oftentimes, by the time the publications declare a recession, we are on our way out of it, and you may have missed the market bounce. It is a human tendency to crave macro forecasts and we understand that. To that end, if inflation and interest rates abate in an election year with minimal geopolitical flare-ups, then 2024 could be another good year for investments. Regardless, a conservative portfolio that currently has fixed income earning more than 4.5% in yield, with very little risk, should help investors work through the majority of their concerns and stick with their plan, in our mind. To echo Charlie Munger, we would reiterate that when it comes to long term strategies, “You deal
with reliable people, and you do what you are supposed to do” and “All these simple rules work so well to make your life better.” On that note, please reach out to your financial planner if it is time to review your long-term strategy.
P.S. – Please enjoy the following Charlie Munger quotes:
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. “
“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and boy does that help — particularly when you have a long run ahead of you.”
“Mimicking the herd invites regression to the mean” (merely average performance).
“Another thing, of course, is life will have terrible blows, horrible blows, unfair blows. Doesn’t matter. And some people recover, and others don’t. And there I think the attitude of Epictetus is the best. He thought that every mischance in life was an opportunity to behave well. Every mischance in life was an opportunity to learn something and your duty was not to be submerged in self pity, but to utilize the terrible blow in a constructive fashion. That is a very good idea.”
“What makes capitalism work is the fact that if you’re an able-bodied young person, if you refuse to work, you suffer a fair amount of agony, and because of that agony, the whole economic system works... You take away that hardship and say, ‘You can stay home and get more than if you come in to work,’ that’s quite disruptive to an economic system like ours.”
“Capitalism without failure is like religion without hell.”
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