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Is Munger "On Tilt"?

wabuffo

By wabuffo
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vince Proficient

vince

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On 1/5/2022 at 7:30 AM, Spekulatius said:

Well, if this was a boxing game,  the first two rounds went clearly to the other side.

 

 

 

I had this thought before this BABA episode and think there is a good chance that Munger would have blown himself up, if he hadn’t met Buffett and basically let him manage the bulk of his money.

His track record in his own partnership was very volatile and he used margin as well. Roll the dices often  enough and chances are high that you get a couple of sixes coming up at once and you are done.

 

Buffett on the other hand is far more risk averse than Munger and that’s what you need to be, if you want to survive for 7 decades. Risk management is far more important than returns in the very long run.

Spec, I have to respectfully disagree with this statement, haven't read further to see if anyone else responded but I studied Munger a great deal.  Yes his returns were volatile but investors really have no control over this and should forget about trying to smooth this out as it will come with increased cost/lower returns. His average return over the period was fantastic and his portfolio was way less risky (true risk) than the average manager despite having a concentrated portfolio.  Lastly he never goes over 25% margin and the math is such that it is almost impossible to get called.  And even with a call it wouldn't take much adjustment (sell a security that has done relatively better or add some cash etc), seems like it is definitely worth it when you are skilled enough to achieve 20% plus returns over a long stretch that included one of the worst bear markets of the 20th century.  I think Buffett is a better investor all around however I am certain that Munger's returns would have been higher.  He concentrates more, uses a safe amount of leverage and can identify risk better than any human alive according to buffett himself.  That is an extremely powerful combination. Then again Munger has never been tested with HUGE amounts of capital so it's possible his returns would be worse in those circumstances.  Anyway, for my mind, assuming a 1 billion dollar portfolio, Munger and possibly Simpson 
(this man Simpson simply cannot be beat operating in an overvalued market) would outperform Buffett.

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wabuffo
wabuffo

Well - its official.   Munger's other mystery foreign stock in DJCO's marketable securities portfolio is TenCent Holdings (0700.HK).   https://i.ibb.co/svsC7CC/TenCent.jpg   Bill

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vince Proficient

vince

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Posted (edited)
On 2/13/2022 at 7:39 AM, WFF said:

Am guessing the mystery buy(s):

1. 1658.HK - Li Lu is a substantial shareholder and could of influence Charlie. Plus the share price did trade around the prices Li Lu bought for Himalaya

 

2. 700.HK - Charlie has spoken in the past about how well Tencent has done with Weixin/WeChat.  Given his stake in Baba wouldn’t be surprised if he starts to buy Tencent, as spin-offs and valuations are attractive.

 

Anyone done any detective work?

Yes, I think its pretty obvious...you have a dominant business in a fast growing enormous market with somewhere around 20-40 billion of current earning power (if you shut off the growth investments and get through the regulatory challenges you are closer to the top end of that range) and at least 100 billion of cash type assets ( if you include their 33% ownership of Ant at a valuation of 100 billion which is 1/3rd of what the value was before the ipo was killed and the business forced to change).  So let's do an excercise with lots of conservatism and see if Charlie has lost it or if he just sees something obvious.  Let's assume Baba's margins take a beating and all their rapidly growing smaller cash consuming subs are burnt to the ground and they are left with only the commerce business, lets even get rid of the cloud which has consumed billions and is just starting to produce cash and will most certainly grow rapidly in a huge and expanding market.  Let's burn it down as well.  Once you strip out their initiatives their margins would have to fall further to bring them to 20 billion.  Let's just assume they grow with Chinese GDP and say 5%.  I think the odds are they will grow quite a bit more but we are being conservative.  Additionally with a 300 billion valuation, 70 billion in cash and short term investments (it may be even more than that) and a rock bottom valuation of Ant we are really only paying 200 billion for this business.  I think they have 20 billion in debt but who cares, they are paying interest to the lenders.   So even after taking a flame thrower to much of their business by burning down all their subs (don't forget these are the ones they showered with cash presumably because they will get adequate returns) and impairing their margins further, we are understating the likely growth rate of their legacy business, we are also impairing their equity investment in Ant, and by a lot.  After all that we are still getting a 10% fcf yield and some growth that gets us a 15% return.  I'm not claiming everyone should put 30% of their capital in it there are some risks that are hard to get a handle on.  But it looks to me things really have to fall apart here before your normal margin of safety is even touched.  And if things move along LIKE THEY SHOULD, you have a trillion dollar valuation in 5 years without anything heroic anywhere with this business

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vince Proficient

vince

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On 3/15/2022 at 2:18 PM, RadMan24 said:

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. 

The software business they are trying to compete in is fantastic.  The problem is Tyler is winning and looks like nothing will stop them from continuing to win.  

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vince Proficient

vince

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On 2/15/2022 at 9:23 PM, Spekulatius said:

Volatility is risk if you use margin and that is what Munger did. Easy to blow yourself up with quality stocks or things that almost always work, if you are concentrated , leveraged and keep doing it over and over. WEB never did use margin, but as @wabuffo mentioned, he used a personal loan (which might be less risk than using margin ) early on to leverage.

 

As for the Berkshire partnership - one could contemplate that when Munger joined Berkshire, it was simply WEB risk management that took over.  Munger realized that he could better being WEB sidekick than being on his own. In a way, a super smart insight.

 

https://www.gurufocus.com/news/662624/notes-from-charlie-mungers-partnership-

You are using the word margin like it describes one state.  Surely Munger, and us can differentiate when margin increases risk beyond prudence and where it produces no risk with some benefit.  I like Buffett as much as anyone and quote him very regularly.  However I believe I can think for myself as well and it's very clear to me that he contradicts himself occasionally.  He uses debt in certain circumstances (significant amounts at the railroad and utility) and as another poster showed he was willing to go over 25% margin in his portfolio.  But he always claims he never used any debt.  What he should be saying is you give up some good risk free opportunities by never using it but you avoid using the one tool/weapon that can get a very intelligent person in trouble. He should also say it was ok for him to dabble in it when he wasn't filthy rich but now that he is he can afford to take a very rigid position that teaches others a valuable lesson by example AND separates him from the pack and helps build that perception of corporate loyalty to it's "partners" (which is absolutely genuine). If what Buffett claims about debt were an absolute certainty, then you can bet your life savings that Munger would either follow it or was the one that came up with it.  Just the casual way in which Charlie claims he feels fine USING MARGIN occasionally up to 25% means that he has concluded that there is no risk in the specific situation that he is applying it to.  Does anyone really think that Buffett carried Munger all these years or that now that he's 100, lol, now he potentially backed himself into a corner and he's going to let a business fail and throw away his image of genius at the last minute for a few dollars?  Anyone that believes that has been studying a different Munger than I have.  Buffett has been genius in convincing his loyal followers that Berkshire is 100% safe and he has many investors with all of their large net worth in Berkshire so it makes sense for him to back that up with his claims about debt...however he always claims that if there is even a 1% chance of something happening annually, that eventually it will happen.  However that absolutely means that Berkshire is no safer than a dozen other companies, even some with minor amounts of debt.  In other words there are events that have a very small chance annually of occurrence that would sink any business no matter their capitalization and there are NO EVENTS that would sink a fantastic business that has minor debt while leaving Berkshire intact.  Buffett himself said that in 2009 if the govt didn't backstop the banks that Berkshire was going down.  They would be the last to fall but fall just as surely.  Anyone that thinks through that statement will see the contradiction.   It's just not rational to claim that margin debt, or any debt should never be used.  I'm certain that if Buffett spoke the truth when asked he would 100% claim that Munger increased his ultimate returns with no added risk.  I am not trying to convince anyone to do anything but I guarantee that this Baba bet will without question improve their portfolio.  I think it's hilarious that after all these years we have been given that rare opportunity where Munger swings for the fences, maybe HIS best pitch ever, practiced exactly what he preached in terms of a falling security he uses margin to do it, and any no nothing investor can buy the same asset for 40% cheaper than his average price.  I think in this instance you are brain dead if you don't follow him in it.  And I will conclude with this.....even if it turns out to be a negative return, you were absolutely adhering to the fundamentals of value investing with the probabilities heavily in your favor.  

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Poor Charlie Explorer

Poor Charlie

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Daily Journal filed their 10Q this afternoon: https://www.sec.gov/ix?doc=/Archives/edgar/data/783412/000143774922012145/djco20220331_10q.htm

 

Notes:

  • Realized a loss of $33 million ($24 million net) on Alibaba (bought at $209 per share; sold at $101 per share). 
  • Redeployed the Alibaba proceeds into another non-US security (or securities?).
  • Increased margin debt by $6 million.
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Lazarus Explorer

Lazarus

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If you refresh the screen and then hit the "X" while it is still loading, that will get you past a lot of firewalls. 

 

Munger simply says in the interview that the fossil fuels industry still has a long life ahead of it and that renewables are also investment worthy. But avoid crypto like the plague.

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spartansaver

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2 hours ago, Lazarus said:

If you refresh the screen and then hit the "X" while it is still loading, that will get you past a lot of firewalls. 

 

Munger simply says in the interview that the fossil fuels industry still has a long life ahead of it and that renewables are also investment worthy. But avoid crypto like the plague.

Thank you!

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nafregnum Collaborator

nafregnum

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The headline thumbnail is terrible -- I just found it fun to listen to him talking big picture for a few minutes there.  Especially liked the bit about how Envy has made all of us humans unhappy even though we're about 600% more well off than 100 or 200 years ago...  Don't know of any other 98 year old with this much clarity remaining.  Sure will be fun if he makes it past 100. 

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