In a recent in-depth conversation with the Wall Street Journal at his Los Angeles residence, Charlie Mungerthe nonagenarian vice-president of Berkshire Hathaway (NYSE: BRK-A) (NYSE-BRK-B), shared his candid insights on a range of topics, from the state of investing to the future of money.
Munger, alongside his famous partner Warren Buffettwas instrumental in expanding Berkshire Hathaway into a colossal company with large stakes and a substantial financial reserve.
The duo, known for their unparalleled investment acumen, are preparing to return to the spotlight with the upcoming release of Berkshire’s third-quarter financial results on Saturday.
Munger provided insight into his and Buffett’s investment strategies and their thoughts on the economic landscape in the Journal interview.
Munger on mergers and acquisitions: Asked about the possibility that Berkshire Hathaway could make a substantial acquisition soon, Munger acknowledged the challenges posed by the venture capital industry’s competitive bidding, which inversely affects investment outcomes. Reflecting on the evolution of investment opportunities since the 1960s, he noted the disappearance of “low-hanging fruit” and the need for modern investors to seek out exceptional stocks to maintain a competitive edge.
Munger on the role of stock pickers: Munger, who likens stock picking to the thrill of hunting and fishing, expressed skepticism about the need for stock picking in today’s market, criticizing the high fees charged by some for managing investments. During his interview with the WSJ, he advocated index funds as a rational choice for those who do not have a distinct advantage in stock selection.
Despite his success, Munger expressed concerns about the influence he and Buffett may have had on the proliferation of the stock-picking profession. He emphasized his modest lifestyle, questioning the extravagance of others of comparable wealth.
“I’m not one to use your money to buy a big yacht, which flies its own jet so you can go to the Mediterranean during the season,” he told the Journal.
Munger on cryptocurrency: The rise in power Bitcoin BTC/USDThe value of money has not escaped the attention of Munger, who remains a proponent of hard currencies issued by sovereigns, a fundamental principle that he believes is essential to the progress of society.
He views the introduction of artificial currencies as a disruptive force for a well-established financial system.
About the U.S. government’s antitrust actions against big tech companies, like Amazon.com Inc. AMZNMunger told the Wall Street Journal that he disagreed with the idea of splitting them up, downplaying their market dominance and expressing appreciation for the tech sector’s contribution to capitalism.
Munger also shared his belief in lifelong learning, attributing his economic success to a lifelong habit of reading widely. He emphasized the importance of understanding psychological biases in investing, particularly overestimating one’s own abilities.
Upcoming Berkshire Third Quarter Results: Berkshire Hathaway will demonstrate how the high interest rate climate works to its advantage.
The Omaha-based conglomerate, with diverse interests ranging from railroads to insurance, is generally vulnerable to the dampening effects of rate hikes. Yet its substantial cash reserves, mostly made up of short-term Treasuries, are now generating better returns in the face of the Federal Reserve’s inflation-control measures, Bloomberg reports.
Edward Jones analyst Jim Shanahan said Berkshire “clearly benefits from higher short-term interest rates” even as some of its sectors are feeling the effects of the economic slowdown, according to Bloomberg.
The company’s investment income is expected to soar this year, potentially setting a new record for its cash holdings and significantly boosting its operating profits, according to analyst forecasts.
The company’s cash reserves remain a focal point, with speculation about how it will use its growing cash, particularly after its acquisition of Alleghany Corp. and its participation in a Maryland LNG project.
With liquidity exceeding $147 billion at the end of the second quarter, analysts anticipate a figure that could exceed $150 billion, according to Bloomberg.