Is Munger "On Tilt"?

[gfp]

DJCO feed seems to be delayed but Yahoo has an Andy Serwer interview with Charlie on the site to hold over the fans:

https://finance.yahoo.com/video/exclusive-munger-appalled-fear-vaccination-175330241.html

[wabuffo]

The margin question gets asked at the DJCO AGM and.....Munger ducks it!   Sad!

 

Bill

Edited February 16, 2022 by wabuffo

[aceskc]

He didnt duck it- he said "we are okay with a little bit of margin".  Folks can disagree on his position both in terms of risks and size of margin but he was clear about his view- risks in his mind were smaller than the market thinks, and he was okay committing small amounts of margins towards his book. 

Margin is roughly 20% of invested assets- 395M of securities, 14M Cash (incl restricted) and 69M funded through margin

[wabuffo]

Margin is roughly 20% of invested assets- 395M of securities

 

You have to deduct taxes on unrealized gains.  What counts is margin as a % of net worth (which must subtract deferred taxes from asset values).

 

If he has to liquidate now, he pays taxes so that part isn't available to cover margin.  If the stocks fall such that there are no taxable gains.....well margin is higher than 20% and that's a whole 'nother problem.

 

Bill

Edited February 16, 2022 by wabuffo

[aceskc]

20 minutes ago, wabuffo said:

Margin is roughly 20% of invested assets- 395M of securities

 

You have to deduct taxes on unrealized gains.  What counts is margin as a % of net worth (which must subtract deferred taxes from asset values).

 

If he has to liquidate now, he pays taxes so that part isn't available to cover margin.  If the stocks fall such that there are no taxable gains.....well margin is higher than 20% and that's a whole 'nother 

I understnd ur pt..but im trying to articilate his risk assessment

 

Irresponsibility of margin comes from forced liquidation at the bottom tick...which is tied to assets in custody with controllable liabilies ( unrealized taxes, credit lines or bank notes ) not just the balance sheet equity . Stocks have to fall nearly ~50% from here at which pt still has ~200m of liquid assets with his custodian while owing 69m before he faces forced liquidation.so an Equity % of 48% or so...I think he factors that possibility to be remote enough and probably has alternative recourse to raise cash before that scenario. 

[netnet]

The probability of a margin call on the DJCO is probably 0. The company undoubtedly has access to liquidity to cover any eventuality. 

 

This arm chair quarterbacking of one of the best investors in American economic history is a bit comical, frankly. (Note, Charlie has repeatedly lambasted the comfortably rich flirting with catastrophic risk.  He has said more than once, "I have no intention of going back to 0.")

[Blugolds]

Im a huge Munger fan...I appreciate his logic and his ability to be blunt...but he made a comment regarding the one-child policy that is probably gonna bring some criticism. Im not saying he is wrong...just that I dont know if I would have worded it the same way he did...to be honest I probably would have avoided a statement about it all together.

 

~37:30 to 39:00 mark of the video, regarding China's forced abortion policy. "...They (China) had to prevent 500 or 600 million people from even being born in China. They just measured the women's menstrual cycle when they came to work, and aborted those that weren't allowed. You can't do that in the United States, and it really needed doing in China"

[Aurel]

29 minutes ago, Blugolds11 said:

Im a huge Munger fan...I appreciate his logic and his ability to be blunt...but he made a comment regarding the one-child policy that is probably gonna bring some criticism. Im not saying he is wrong...just that I dont know if I would have worded it the same way he did...to be honest I probably would have avoided a statement about it all together.

 

~37:30 to 39:00 mark of the video, regarding China's forced abortion policy. "...They (China) had to prevent 500 or 600 million people from even being born in China. They just measured the women's menstrual cycle when they came to work, and aborted those that weren't allowed. You can't do that in the United States, and it really needed doing in China"

At his age one can afford a little more honesty. 

[Parsad]

1 hour ago, Blugolds11 said:

Im a huge Munger fan...I appreciate his logic and his ability to be blunt...but he made a comment regarding the one-child policy that is probably gonna bring some criticism. Im not saying he is wrong...just that I dont know if I would have worded it the same way he did...to be honest I probably would have avoided a statement about it all together.

 

~37:30 to 39:00 mark of the video, regarding China's forced abortion policy. "...They (China) had to prevent 500 or 600 million people from even being born in China. They just measured the women's menstrual cycle when they came to work, and aborted those that weren't allowed. You can't do that in the United States, and it really needed doing in China"

 

Agree.  A cringe-worthy topic, but what would happen in the U.S. if they had 1.5B people?  Cheers!

[wabuffo]

The company undoubtedly has access to liquidity to cover any eventuality. 

 

No it doesn't.  Both operating businesses are losing money and too small to be able to get outside financing.  DJCO also has no positive cash flow coming in from either the newspaper business nor the software business.   The Utah property is already mortgaged.  I guess he could throw a mortgage onto the LA properties or do a dilutive secondary.

 

If catastrophe strikes in both the equity markets and the economy, Charlie has painted himself in a corner, in my opinion, unnecessarily.

 

Look - I'm not saying that this won't work out.  I'm also not saying that its going to zero.  But why court even a small chance at catastrophe.  Buffett doesn't.

 

With that said,  I guess I've made my point - no sense belaboring it.  Thank y'all for letting me make it.

 

Bill

 

Edited February 16, 2022 by wabuffo

[Spekulatius]

Speaking of being on tilt, Munger dishes it out freely to the Laser Eyes, Inflationistas, Bernie Sanders:

https://finance.yahoo.com/news/charlie-munger-critics-of-the-ultra-rich-motivated-by-envy-211503200.html

[RichardGibbons]

 

5 minutes ago, Spekulatius said:

Speaking of being on tilt, Munger dishes it out freely to the Laser Eyes, Inflationistas, Bernie Sanders:

https://finance.yahoo.com/news/charlie-munger-critics-of-the-ultra-rich-motivated-by-envy-211503200.html

 

The funny thing about this article is that the author doesn't realize that Munger was being critical of Bernie Sanders, not complimentary.

 

Munger is basically saying, "They've managed to screw up the country in a big way. As a result, it's way harder to become rich and create the innovations and efficiencies that raise the standard of living of everyone. So now everyone gets to be equally poor, scrambling simply to get the basics. So Bernie got what he wanted."

[Spooky]

A lot of controversial takes from Charlie at the DJCO annual meeting but they sure are original. His depth of knowledge is staggering.

[coc]

I don't know what you guys are on about re: margin. I'm not sure if you're understanding the concept of maintenance margin - i.e., the % of equity in the account for a margin call to come in. It's usually 25-30% but I've seen up to 40%, for stocks - which would be rare. This means if you were margined 50/50, you'd typically get a margin call with the securities down ~30%. 

 

DJCO has $395M in securities at year end against $69M in margin. They could easily pay off $10M with cash on hand if they needed to, leaving $59M net, but you can use $69M. That leaves $326M equity in the margin account (82.5%). 

 

If the securities fall by half from 12/31/21 prices, you're down to $198M gross with $69M margin, leaving $128M equity in the account - still 65%. 

 

 

Even using the 40% bogey, DJCO's securities would have to fall to $115M to get to 40% equity on $69M margin debt, leaving aside the cash. A 71% drop from 12/31/21. Even if Alibaba went to zero and the entire rest of the portfolio were cut in half, DJCO would still not face a margin call. 

 

And even in the case of a 70%+ drop, even if by some miracle some idiot broker liquidated the famous Charlie Munger's account, DJCO shareholders would still have $40-60M left over from the liquidation, ready to invest into a bombed-out stock market. 

 

Charlie Munger is not an idiot. Without him DJCO would be worth zero today. The guy turned ~$40M into $326M after accounting for the margin. 

Edited February 17, 2022 by coc

[nsx5200]

We’ve only seen Munger go all in on ideas that he knows he’s got an edge on.  Some idea that more or less nobody else have figured out yet.  Looking at the process they went through for Coke, I suspect it’s something along those lines.  Something micro, with multiple factors at play to create a Lolla effect.  My current thinking is that he sees BABA will one day challenging Amazon itself but on a global scale.

 

I remember seeing a lot of reviews/feedback from different countries when shopping on Ali, so it’s just a matter of continuing the execution and let the network/scaling effect take care of it since they seem to have the only practical(although not great) global logistic chain that delivers from supplier to consumer.

 

Does anybody have seen other competitors that can challenge that?  I welcome ideas that refute those thoughts.

 

Full disclosure, I’m long in BABA and a bunch of other Chinese companies during this time of tech crackdown.  Probably prematurely…

[randomep]

On 2/16/2022 at 1:33 PM, Blugolds11 said:

Im a huge Munger fan...I appreciate his logic and his ability to be blunt...but he made a comment regarding the one-child policy that is probably gonna bring some criticism. Im not saying he is wrong...just that I dont know if I would have worded it the same way he did...to be honest I probably would have avoided a statement about it all together.

 

 

 

I am not sure what point you are making here.  I am not sure I'd disagree with munger. And you said the same thing.  So your only problem is with his delivery.  Well I for one am glad he said it.

 

To me free speech is under attack when public figures cannot say things they believe are true; AND those statements can bring about intellectual discourse.  But more political correct but false statements go unchallenged.   For example, Obama stated in public there is a gender wage gap, but I have never heard any public figure challenge that yet many less public figures have since cast doubt in my mind that it exists.

[Spooky]

Any clues on what the mystery Chinese company Munger / DJCO are buying in addition to BABA?

[ValueMaven]

Is this a good level to get into DJCO given the BABA blow-up??

[wabuffo]

Is this a good level to get into DJCO given the BABA blow-up??

 

No.

 

Bill

[RadMan24]

On 3/14/2022 at 11:51 AM, wabuffo said:

Is this a good level to get into DJCO given the BABA blow-up??

 

No.

 

Bill

Yes.

[Spekulatius]

39 minutes ago, RadMan24 said:

Yes.

What do you get with DJCO that you can't invest in directly? Their software business looks crappy and isn't worth much, imo.

[RadMan24]

2 minutes ago, Spekulatius said:

What do you get with DJCO that you can't invest in directly? Their software business looks crappy and isn't worth much, imo.

Well, for one, if one did invest in DJCO, you'd have to believe in long-term nature of the niche software business that DJCO is investing in, i.e. DJCO eating all the costs upfront, and 5 years from now, bearing the fruits of its labor. That type of business or investment is not readily available to investors. Analogous would be something like raw camera converters that are focused on certain niche areas of the photography world that Adobe doesn't have the time or need to focus on, given the niche scale of those subset of customers. 

[Parsad]

Looks like Munger talked to Xi!    Cheers!

 

https://www.bloomberg.com/news/articles/2022-03-15/asia-to-get-boost-from-easing-china-rout-oil-drop-markets-wrap?srnd=markets-vp

 

Cheers!

 

 

[formthirteen]

48 minutes ago, Parsad said:

Looks like Munger talked to Xi!    Cheers!

 

https://www.bloomberg.com/news/articles/2022-03-15/asia-to-get-boost-from-easing-china-rout-oil-drop-markets-wrap?srnd=markets-vp

 

Cheers!

 

Thank you Mr. Munger for saving the market!

 

Does this mean SoTP valuation is great again?

 

 

 

 

Edited March 16, 2022 by formthirteen

[Spekulatius]

This could just be cheap talk from the party committee though. I recall they did a similar statement a few month ago while continue to cracking down on big tech.

 

Congrats to those who timed this, especially with options.