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Charles Munger

More on Charlie

I wanted to follow up on the “Art of picking stock picking by Charles Munger” article I wrote with two examples of stock trades that epitomise Charlie’s stock picking methods.

Charlie Munger believes that you’ll only find a few great opportunities in life so when you come across them you have to act aggressively. Therefore, the “secret” about his philosophy is to keep working hard, be very patient and when an opportunity presents itself, forget about diversification, bet big. With this approach. Charlie says you don’t need more than a few great opportunities in your lifetime to build wealth.

I recently read the transcripts of the Daily Journal AGM which he chairs every year and I thought I share some actual real life examples of Charlie’s trades which highlight his amplitude for patience.

Example 1

Charlie Munger is the Chairman of the Daily Journal Corporation, a publishing company which publishes newspapers and websites covering legal affairs in America. From mid 1990s to 2008, it had always invested its surplus cash in US Treasury bills. The US Treasury position grew from $3 million in 1995 to $19 million in 2008; it’s investment policy for 13 years was to purely invest in risk free securities.

Then the global financial crisis hit in 2009 and Charlie ploughed $15.5 million out of the $19 million it had to invest into equities (more than 80% of its portfolio). What did the Daily Journal buy? It bought a grand total of four stocks, with Wells Fargo making up eighty percent of the portfolio. Yes, you heard right eighty percent! So much for diversification. The other stocks which Charlie bought were Bank of America, Posco and US Bancorp.

What’s the value of the portfolio today?

Based on the company’s filings as at June 2017, it reported its common stock value to be $202.1 million. This is a 13x return or 38% compound return on the original investment in 8 years.

Example 2

This was told by Charlie at the 2017 Daily Journal AGM. Charlie had been reading Barron’s (an American weekly newspaper that covers US financial information and has stock recommendations etc) for 50 years and over the course of this time (about 2,600 issues read) he bought one stock idea recommended by Barron’s.

He bought an auto part manufacturer for $1 and sold it for $15 a few years later and made $80 million.  He then gave the $80 million to Li Lu (Himalaya Capital) which then turned it into $400 million. Two decisions turned $5.3 million into $400 million. I don’t know this for sure but I suspect the timespan would be in the vicinity of 20 years.

I think these two trades are amazing examples of the Munger investing philosophy which has worked wonders for him.

“The big money is not in the buying and selling …. but in the waiting” – Charlie Munger

 

4 replies on “More on Charlie”

For example 2, I think Tenneco dropped to around $1 in 2001, and went to $17 in 2004 so that took 3 years. Then if you look at Greenwald’s 2010 lecture where Li Lu was the guest speaker, Greenwald in his introduction said he invested with Li Lu in 2006 and in 4 years made 4x his money. I think Charlie invested with Li Lu around 2003/2004.

So I think the $5million into $400million took a bit less time than you suggested, maybe around a decade or slightly more. Though I’m not familiar with CGT in US.

But yes, definitely amazing returns for those who have patience and are well prepared!

Thanks for the info Daniel. I’ll check out the 2010 lecture.

I guessed 20 years as I read that Li Lu started this fund in mid to late 90s and Charlie mentioned this trade in the recent AGM. His compound return is even more amazing if that 20 bagger was done in a little more than a decade!

Stumbled across this. Great article Darrell! I think we can only hope to be even half of an investor as Charlie. He said this year at the Daily Journal meeting (at 93 yrs old) that he has 3 core holdings which represented nearly all of his wealth. He also experienced multiple 50% drop of his shareholdings and didn’t affect him that much….He’s got an insane mental fortitude! Its one which I hope to emulate!

Thanks for your comments Mark.
Yes, Charlie Munger is not only a next level thinker but he is also generous in sharing his wisdom. His “Art Of Stock Picking” article is all one needs to know to be successful in investing.

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