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Collection: Charlie Munger - #137 'Value Investing'


Video Link: https://youtu.be/Q-ZmGS52T04


In this episode, Charlie Munger was asked whether value investing is still relevant in a GDP-decreasing world?


In this episode, you’ll learn:

  • What is value investing?

  • Why value investing will never go out of style?

  • Charlie Munger on concentrated portfolio and diversified portfolio.

To check out all Collection: Charlie Munger <click here>

 

[Transcript]

(Source: https://youtu.be/Pp4CvjNw-9Y)

JULIA LA ROCHE 00:00

Jason Subotky, he asked previously, you have said "it takes character to sit with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." In the past few years, equity prices have increased significantly and cash has arguably become riskier due to central banking policy. Have you considered amending this quote or lowering your standards?


CHARLIE MUNGER 00:39

I think everybody is willing to hold stocks at higher price-earnings multiples when interest rates are as low as they are now. And so I don’t think it’s necessarily crazy that good companies sell at way higher multiples than they used to.


On the other hand, as you say, I didn’t get rich by buying stocks at high price-earnings multiples in the midst of crazy speculative booms. And I’m not going to change. I am more willing to hold stocks at high multiples than I would be if interest rates were a lot lower. Everybody is.


JULIA LA ROCHE 01:27

[Inaudible] he asked, do you think value investing is still relevant in a GDP-decreasing world? And, what about passive investing?


CHARLIE MUNGER 01:43

Well, that is easy. Value Investing, the way I regarded will never go out of style. Because value investing — the way I conceive it — is always wanting to get more value than you pay for when you buy a stock. That approach will never go out of style.


Some people think that value investing is you chase companies which have a lot of cash and they’re in a lousy business or something. I don’t define that as value investing. I think all good investing is value investing. It’s just that some people look for values in strong companies and some look for values in weak companies. Every value investor tries to get more value than he pays for.


What is interesting is that in wealth management, a lot of people think that if they have a hundred stocks they’re investing more professionally than they are if they have four or five. I regard this as insanity. Absolute insanity.


I find it much easier to find four or five investments where I have a pretty reasonable chance of being right that they’re way above average. I think it’s much easier to find five than it is to find a hundred.


I think the people argue for all this diversification, by the way, I call it deworsification and — which I copied from somebody. And I’m way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage.

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