Munger interview WSJ 4/17/20

[Buckeye]

This thread is funny. Basically the gist of the of article is that you have one the best/sharpest business leaders/investors in the world saying “Nobody in America’s ever seen anything like this. This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.” Then you have a few anonymous posters on an internet forum trying to convince us that they know exactly what’s going to happen and what should be done with Berkshire’s money. :o To those posters I say, let us know when Jason Zweig calls to interview you for WSJ’s Intelligent Investor so when can all read up  ;D

[Dalal.Holdings]

This thread is funny. Basically the gist of the of article is that you have one the best/sharpest business leaders/investors in the world saying “Nobody in America’s ever seen anything like this. This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.” Then you have a few anonymous posters on an internet forum trying to convince us that they know exactly what’s going to happen and what should be done with Berkshire’s money. :o To those posters I say, let us know when Jason Zweig calls to interview you for WSJ’s Intelligent Investor so when can all read up  ;D

 

What’s even more amusing is the other hedgie names being brought up here while Warren’s name is trashed. The guy built up one of the most valuable companies on the planet from a failing textile mill, did not charge investors fees for the privilege of being on the ride, literally built up a company that stands the test of time, and people are freaking out that the company has 20% of its intrinsic value in cash...

 

Why aren’t those hedge funds worth hundreds of billions like berkshire is? Why couldn’t they take all the fee money they nabbed from managing OPM and build up a berkshire over decades? Could they not figure out how compounding works like Warren could? Why are Ackman and Einhorn still managing single digit billions?

 

A legendary investor is able to compound $20M or so over time into a megacap conglomerate while most great hedgies merely “tread water” while taking home fat fees.

 

Guess it’s similar to a couple of months ago how everyone thinks the cash is “burning a hole” in Warren’s pocket. Maybe easy to say when the S&P is at 2019 levels. Don’t think Warren is too bothered what other people think, certainly not minority shareholders who have only been around for a tiny fraction of Berkshire’s ride.

[Casey]

This thread is funny. Basically the gist of the of article is that you have one the best/sharpest business leaders/investors in the world saying “Nobody in America’s ever seen anything like this. This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.” Then you have a few anonymous posters on an internet forum trying to convince us that they know exactly what’s going to happen and what should be done with Berkshire’s money. :o To those posters I say, let us know when Jason Zweig calls to interview you for WSJ’s Intelligent Investor so when can all read up  ;D

 

Haha. I'll let you know if he calls 8) Charlie's just bummed they sat on their hands too much and the market is back up. He's trying to talk some sense into it! FWIW, I do agree with him, but Re: berkshire, they should have been paying a dividend, doing buybacks, or buying more of the big tech cos than they are. For years. I'll take Facebook and Amazon specifically to outperform BRK.B massively over the next 20 years to the point that it's comedic anyone considered it an open question.

 

For BRK owners... if you think of yourself as a long term investor, why do you own a business whose calling card is a pair of 90 year old experts in 20th century businesses?

 

Amazon and FAAGM generally have plenty of smart operators who have studied Buffett, understand the 21st century economy and businesses, have better data, better opportunities to invest capital, benefit from technology, and have all shown it by growing faster than BRK the last 10 years.

 

What's the advantage of BRK the business at this point? 1-5 years of Warren Buffett and staff picking a basket of bank stocks and SPY for you, and a random conglomerate with low synergies or integration, pays no dividend, has upcoming governance/brand risk?

 

Okay, that's pretty un-nuanced bordering on dumb devil's advocate take, but basically, I have a hard time disagreeing with myself about too much of it. I do own BRK, and trade in and out of it occasionally. You can tell when it's a good time to sell because it never goes above $225 a share :P

[buffetteer1984]

I completely agree with this.  Berkshires value has long been disconnected from buffetts ability to pick good companies.  Berkshire is relying on the growth of the economy at this point.  Nobody said Berkshire isn't a great company.  But even FB is a great company and it compounds value but do we attribute that to Mark Zuckerberg doing any stock picking? It basically runs itself.  The question is what is he doing with excess cash flows?  What has buffett actually done in the past decade? Made his famous bathtub 5 bil preferred in BAC and GS, then he botched a big bet on IBM, then the KHC debacle, then the purchase of PCP which hasnt' been that great, and then the mess that is airlines, great bet on AAPL and then Oxy.  If any of the investors that were listed made these bets in an overall portfolio would we not be questioning them?  You think berkshire is compounding value at this point based on buffett? It's more the operational managers that are compounding value. Buffet has been riding the waves of the economy and the cash flows of the companies he purchased in the past.  What we on this board are concerned with is ultimately picking stocks.  Maybe buffett just isn't that great of an investor in this new environment where innovation is dominating markets.

 

This thread is funny. Basically the gist of the of article is that you have one the best/sharpest business leaders/investors in the world saying “Nobody in America’s ever seen anything like this. This thing is different. Everybody talks as if they know what’s going to happen, and nobody knows what’s going to happen.” Then you have a few anonymous posters on an internet forum trying to convince us that they know exactly what’s going to happen and what should be done with Berkshire’s money. :o To those posters I say, let us know when Jason Zweig calls to interview you for WSJ’s Intelligent Investor so when can all read up  ;D

 

Haha. I'll let you know if he calls 8) Charlie's just bummed they sat on their hands too much and the market is back up. He's trying to talk some sense into it! FWIW, I do agree with him, but Re: berkshire, they should have been paying a dividend, doing buybacks, or buying more of the big tech cos than they are. For years. I'll take Facebook and Amazon specifically to outperform BRK.B massively over the next 20 years to the point that it's comedic anyone considered it an open question.

 

For BRK owners... if you think of yourself as a long term investor, why do you own a business whose calling card is a pair of 90 year old experts in 20th century businesses?

 

Amazon and FAAGM generally have plenty of smart operators who have studied Buffett, understand the 21st century economy and businesses, have better data, better opportunities to invest capital, benefit from technology, and have all shown it by growing faster than BRK the last 10 years.

 

What's the advantage of BRK the business at this point? 1-5 years of Warren Buffett and staff picking a basket of bank stocks and SPY for you, and a random conglomerate with low synergies or integration, pays no dividend, has upcoming governance/brand risk?

 

Okay, that's pretty un-nuanced bordering on dumb devil's advocate take, but basically, I have a hard time disagreeing with myself about too much of it. I do own BRK, and trade in and out of it occasionally. You can tell when it's a good time to sell because it never goes above $225 a share :P

[SHDL]

Others have hinted on this already but I suspect there is a real chance that they end up needing at least a portion of their cash pile just to make it through this mess. Hard to make the case that they should be buying stocks aggressively given that (IMO).

[fareastwarriors]

Look at list of holdings, there aren't any names he's willing to nibble on when they went down 20-30%?

Add to your favorites when it's on sale?

 

[Gregmal]

Yea pretty much. Either that, or he simply lost interest, which would be more than understandable at this point. He's waiting for an elephant, and otherwise, probably considers other things more pressing. But to defend his investments the last decade is pretty stupid. I mean even just standing pat, are we really heralding someone who's sitting on a huge concentrated portfolio of financials and companies that got hit hardest by this? Many, which are clearly stagnant if not deteriorating businesses, that he likely refuses to liquidate for no other reason than not wanted to pay taxes? (after, not to mention, being one of the loudest advocates of "paying your fair share" nonetheless). I hope he bought some of the names he long said he wished he had bought earlier but missed. But I'll settle for slow and steady buybacks because it increases the value of what I own when the guys underneath him finally get in the batters box.

 

I'm significantly more excited about post Buffett/Munger BRK than I am about its current form. Likely won't have too long to wait.

[Viking]

We have discussed this on other BRK threads. Berkshire is being run today for current long term shareholders. Investors who have owned Berkshire for many decades. These investors, like Buffett, have enough; they are worth many millions (10’s an 100’s). Return of capital (over time) is far more important than return on capital. Berkshire will be run very conservatively. It is starting to look and sound like a kind of Trust (for the old, big holders of shares). Beating the S&P 500 is no longer important. If you want safety and a better than bond return then you buy Berkshire.

[CorpRaider]

Why can't he just issue negative yielding euro and yen bonds and produce free float and use that to lever holdco investments into the regulatory capture businesses (energy and transportation) with guaranteed double digit returns (with maybe a little more regulatory-capture, bank industry exposure via stocks)?  If memory serves, UTES did grandly during the great depression (after initially cleaning up the holding company excesses from prior period).

 

People are kicking dirt on him and AAPL from what last year was probably one of the greatest investments of his career.

[mattee2264]

I think Charlie's position is very reasonable and rational.

 

A lot of their businesses are going to be affected by the recession and will need support from the parent. Meanwhile their competitors are having to depend on the kindness of strangers. So the large cash position serves a good purpose especially if the recession is more prolonged than anticipated.

 

While it is true that a lot of their existing stock positions are 20-30% cheaper the fundamentals have deteriorated by an equivalent or greater amount. For example the banks are going to see a rise in credit losses and lower interest rates are bad for their margins. The airlines balance sheets are deteriorating and there could be a race to the bottom if demand doesn't pick up sufficiently and they are all competing for a small number of customers. It also takes time for them to build a position and markets rebounded so cheaply off the bottom most of the bargains disappeared as quickly. And besides the stock market portfolio barely moves the needle.

 

More importantly because banks and governments are being so accommodating businesses see no need to come for Warren and offer him sweetheart deals. By keeping cash on hand if things get a lot worse and businesses have got all they can out of their banks and governments then Berkshire will be well positioned to lend or take equity stakes on very attractive terms.

 

And perhaps there is an element of trusteeship going on. Berkshire is best suited for those looking to preserve wealth and I see nothing wrong with being conservative given all the uncertainty about how this could all pan out. If the stock price does take a dive Berkshire will be one of the few companies able to take advantage by buying back stock and that will create a lot of value for existing shareholders.

 

 

[Nomad]

 

While it is true that a lot of their existing stock positions are 20-30% cheaper the fundamentals have deteriorated

 

This seems to be a point lost on many investors - especially younger investors - who have been riding a decade-long bull market. Downward price action does not make something "cheaper." Downward price action only makes something cheaper if the fundamentals persist or improve. And as you note, the fundamentals are getting worse with each passing day.

 

What happens when more and more companies start including "going concern" warnings in their public filings?

[Dalal.Holdings]

 

While it is true that a lot of their existing stock positions are 20-30% cheaper the fundamentals have deteriorated

 

This seems to be a point lost on many investors - especially younger investors - who have been riding a decade-long bull market. Downward price action does not make something "cheaper." Downward price action only makes something cheaper if the fundamentals persist or improve. And as you note, the fundamentals are getting worse with each passing day.

 

What happens when more and more companies start including "going concern" warnings in their public filings?

 

But but but...stocks look cheap on a forward P/E basis when I set 2021 EPS = 2019 EPS...

 

After an incredibly agonizing 2 weeks, the bear market clearly ended on March 24, 2020. Plus, the Fed said the recession is cancelled. What a trying time it was for all of us. Glad I got to experience a full blown recession in my life--and one of the worst on record: the Great Recession of March 2020. Another notch in my belt!

 

If Warren didn't buy, it must be because he's senile and outmoded! Bring one of those hedge fund managers who crushed the last 10 years in...you know that guy. What's his name?

[Dalal.Holdings]

These posts mocking Warren/Charlie for expressing caution and stocking cash are sure to age well.

 

#popcorn

[rb]

 

While it is true that a lot of their existing stock positions are 20-30% cheaper the fundamentals have deteriorated

 

This seems to be a point lost on many investors - especially younger investors - who have been riding a decade-long bull market. Downward price action does not make something "cheaper." Downward price action only makes something cheaper if the fundamentals persist or improve. And as you note, the fundamentals are getting worse with each passing day.

 

What happens when more and more companies start including "going concern" warnings in their public filings?

 

But but but...stocks look cheap on a forward P/E basis when I set 2021 EPS = 2019 EPS...

 

After an incredibly agonizing 2 weeks, the bear market clearly ended on March 24, 2020. Plus, the Fed said the recession is cancelled. What a trying time it was for all of us. Glad I got to experience a full blown recession in my life--and one of the worst on record: the Great Recession of March 2020. Another notch in my belt!

 

If Warren didn't buy, it must be because he's senile and outmoded! Bring one of those hedge fund managers who crushed the last 10 years in...you know that guy. What's his name?

I'm gonna have these made.

 

I have a feeling the term will become popular really soon. Alternative translation: EBITDAC Earnings = We have no earnings.

[Dalal.Holdings]

What happens to your S&P EPS projections when companies that spent years buying back stock (buy high):

 

https://www.bloomberg.com/news/articles/2020-03-16/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart

 

Are then forced to issue stock when times are bad (sell low):

 

https://seekingalpha.com/news/3562845-united-airlineminus-3-after-39m-share-offering

 

Another win for corporate execs who get to take home millions regardless!

 

 

[Buckeye]

 

While it is true that a lot of their existing stock positions are 20-30% cheaper the fundamentals have deteriorated

 

This seems to be a point lost on many investors - especially younger investors - who have been riding a decade-long bull market. Downward price action does not make something "cheaper." Downward price action only makes something cheaper if the fundamentals persist or improve. And as you note, the fundamentals are getting worse with each passing day.

 

What happens when more and more companies start including "going concern" warnings in their public filings?

 

But but but...stocks look cheap on a forward P/E basis when I set 2021 EPS = 2019 EPS...

 

After an incredibly agonizing 2 weeks, the bear market clearly ended on March 24, 2020. Plus, the Fed said the recession is cancelled. What a trying time it was for all of us. Glad I got to experience a full blown recession in my life--and one of the worst on record: the Great Recession of March 2020. Another notch in my belt!

 

If Warren didn't buy, it must be because he's senile and outmoded! Bring one of those hedge fund managers who crushed the last 10 years in...you know that guy. What's his name?

 

Dalal, I have very much appreciated many of your posts in this forum. Thank you for your contribution. One day we’ll get rid of the senile old man and have someone in charge who really knows how to pick stocks like the pros. He can call into CNBC and have a complete meltdown and tell all of the viewers that the world is ending. Then, a few days later let us all know that everything is actually going to be fine and that he made a bunch of money shorting the market. :)

[meiroy]

Buffett/Munger have a ton of insight into the real economy with the data they see daily from their subsidiaries.  Buffett is close friends with Bill Gates--you know, the guy who resigned from Berkshire's board to work on COVID response.

 

Buffett/Munger have tough days ahead, as they have tons of businesses hard hit:

 

Railroads

Airplane parts manufacturers

Car dealers

Net Jets

Furniture stores

Mobile home makers

Retail candy stores

Stocks in airlines, banks, and Apple, among others

 

The only bright spots are insurance like GEICO, which is likely minting money, and the utilities, which are probably not hurt too badly.

 

Overall though, I think Berkshire is going to have a lot of rough segments and I wouldn't be surprised if there are layoffs across many divisions of the company.

 

Uncle Warren came rushing in to buy in 2008 because nothing was fundamentally broken about most of the economy.  Right now, I don't think that's the case, and one reason I don't think you've seen Buffett buying (in fact, he's been selling at least airlines, which require regulatory disclosure).

 

That was the argument he gave for buying IBM.

 

 

 

 

[Dalal.Holdings]

 

While it is true that a lot of their existing stock positions are 20-30% cheaper the fundamentals have deteriorated

 

This seems to be a point lost on many investors - especially younger investors - who have been riding a decade-long bull market. Downward price action does not make something "cheaper." Downward price action only makes something cheaper if the fundamentals persist or improve. And as you note, the fundamentals are getting worse with each passing day.

 

What happens when more and more companies start including "going concern" warnings in their public filings?

 

But but but...stocks look cheap on a forward P/E basis when I set 2021 EPS = 2019 EPS...

 

After an incredibly agonizing 2 weeks, the bear market clearly ended on March 24, 2020. Plus, the Fed said the recession is cancelled. What a trying time it was for all of us. Glad I got to experience a full blown recession in my life--and one of the worst on record: the Great Recession of March 2020. Another notch in my belt!

 

If Warren didn't buy, it must be because he's senile and outmoded! Bring one of those hedge fund managers who crushed the last 10 years in...you know that guy. What's his name?

 

Dalal, I have very much appreciate led many of you posts in this forum. Thank you for you contribution. One day we’ll get rid of the senile old man and have someone in charge who really knows how to pick stocks like the pros. He can call into CNBC and have a complete meltdown and tell all of the viewers that the world is ending. And then a few days later let us all know that’s everything’s actually fine and he made a bunch of money shorting the market.

 

Buckeye--now that would be a sight. However, we know this 89 yo guy who lives in Omaha has leagues more class than the NYC self-acclaimed masters of the universe!

[Gregmal]

Buffett/Munger have a ton of insight into the real economy with the data they see daily from their subsidiaries.  Buffett is close friends with Bill Gates--you know, the guy who resigned from Berkshire's board to work on COVID response.

 

Buffett/Munger have tough days ahead, as they have tons of businesses hard hit:

 

Railroads

Airplane parts manufacturers

Car dealers

Net Jets

Furniture stores

Mobile home makers

Retail candy stores

Stocks in airlines, banks, and Apple, among others

 

The only bright spots are insurance like GEICO, which is likely minting money, and the utilities, which are probably not hurt too badly.

 

Overall though, I think Berkshire is going to have a lot of rough segments and I wouldn't be surprised if there are layoffs across many divisions of the company.

 

Uncle Warren came rushing in to buy in 2008 because nothing was fundamentally broken about most of the economy.  Right now, I don't think that's the case, and one reason I don't think you've seen Buffett buying (in fact, he's been selling at least airlines, which require regulatory disclosure).

 

That was the argument he gave for buying IBM.

 

Exactly. Someone who's a real value investor, like Buffett at one point undoubtedly was, takes value where ever it is. $50B, $5B, $500M... he s still pulling the trigger because thats the game. So, "I cant find size" is BS. "I cant find value" is BS too. For better or worse, I think he's either disinterested at this point in his career, or knows he's lost his touch as the businesses and markets he knew, arent the ones we see today. Which all things considered, might not be the worst thing. Look at his track record the past decade...outside of Apple, its quite poor. Heck he even bought SRG at $35 or whatever in his personal account years ago. Now look at all the other "value investors" and how they've struggled. As a shareholder, I just want him to buyback stock in reasonable % and if he's comfortable, pull the trigger on one of these index type big tech names. I mean the BRK portfolio even has VOO for gods sake. Dragging "that" much cash is a waste($100B+), especially when Berkshire could probably borrow infinity dollars at pretty much zero rates. Keep the company in tip top shape, and then let the new guard take over and make BAM and BX look like minor leaguers.

[thowed]

For better or worse, I think he's either disinterested at this point in his career, or knows he's lost his touch as the businesses and markets he knew, arent the ones we see today.

 

This reminds me of that interview that Druckenmiller gave last year where he said, 'I'm just too conservative in my old age' (and he's a lot younger than Buffett).

 

And also whoever said, 'You can't price a Trump tweet'.  Druckenmiller echoed saying he found it hard to invest with Trump around.

 

So with the combination of old age and Trump unpredictability, I don't blame Warren if he's not on his A game right now.

[scorpioncapital]

So are we to conclude that a young or middle age person would be best to avoid Berkshire as it cannot meet the return expectations given this 'old age' conservatism?

[thowed]

So are we to conclude that a young or middle age person would be best to avoid Berkshire as it cannot meet the return expectations given this 'old age' conservatism?

 

I'm not sure if you're being sarky or not!

 

The obvious answer is - depends on a) how much risk they want to take and b) how they're using it as a tool in their portfolio make-up.  It's arguably good to have a quality lower-risk conglomerate in any portfolio to balance with the riskier stuff.

 

And of course, this is all idle speculation about the behaviour of elders - I suspect Druckenmiller has gone in hard this year - some of the Macro guys have cleaned up this year after 10 years of bad performance, so this seems much more his sort of environment.  It made sense for him to be cautious before.

 

And there's been other posts about the theory that Buffett is running it for the older existing investors now i.e. there's a greater focus on preservation.  Again all speculation as far as I can see.

 

I think there is a generalised idea that the older you get, psychologically there's often a greater desire to preserve what you have, than create more.

 

[Gregmal]

So are we to conclude that a young or middle age person would be best to avoid Berkshire as it cannot meet the return expectations given this 'old age' conservatism?

 

If you can carry it in a margin account at a 1% annual borrow, those return expectations should go up.

[rb]

Whenever we get to a market peak we generally also get the "The old man's gone senile and lost it" meme. It happened in 1999, it happened in 2006, and it seems like it's starting to happen again now.

 

As for the "All/most the value comes from tech innovation" idea let take a look down memory lane (figures approximate not exact):

 

Since 1990 to today Berkshire smokes the Nasdaq 1,300% to 500%.

 

Since 2000 to today Berkshire wins against Nasdaq again 400% to 100%

 

Since 2010 to today Nasdaq wins 270% to 180%. And they were tied at the end at 2018, with all the Nasdaq outperformance happening in the past year or so.

 

Sure sounds like someone who's lost it and overwhelmed by the new world in the new century.

[skanjete]

It's striking how people try to find reasons to rationalise their own bias. Munger's message in the interview doesn't align with someone's bullish view, so their reflex is to find reasons why Munger is wrong and they're right.

 

If someone like Munger comes to tell me he's got a different opinion than me, my first reflex would be : "Ouch, where did I go wrong?"