Over the weekend, one of the headlines on Yahoo Finance was about Charlie Munger.
While most of the world adores Warren Buffett's kindly grandfather persona, I have always found Munger's persona more to my liking.
I can identify with a grouchy old guy who just wants to read books and thinks an awful lot about what goes on in the world every day and falls somewhere on the curve between malarkey and nincompoopery.
The headline summarized a quote from the 2019 Daily Journal meeting where Munger compared the folks selling trading systems to individual investors to drug dealers pushing heroin.
The full quote reads: "Then if you take the modern world where people are trying to teach you how to come in and trade actively in stocks. Well, I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin. It is stupid. And when you are already rich to make your money by encouraging people to get rich by trading?"
No matter how much we all want to believe differently, he is not wrong.
When can we all have hopes and dreams of making it big as day traders and telling all the bosses everywhere to stick a job far up their backside? It tickles their throat.
We can discuss anecdotes about this guy that my uncle's friend knows who makes big money all the time, day trading or swing trading, or some other form of short-term frenetic activity.
Everyone wants to be Roaring Kitty, but the only one making big money from Keith Gill's trades is Keith Gill, and perhaps his inner circle.
The numbers have not changed all that much since I started in the markets back in the 1980s.
Most traders fail.
Somewhere between 3-5% are consistently profitable.
1% can make a living at it.
Everyone else is just cannon fodder for the market makers.
There are very few successful traders. For every Paul Tudor Jones, there are 99 people who flunked out of the game.
The legends that we hear about all the time in the sales pitches are either value investors with leverage (Tepper, Guerin, Julian Robertson, Lampert, Shelby Davis), Macro/trend traders with leverage (Ed Sekoyta, Liz Cheval, Druckenmiller, Bruce Kovner, Richard Dennis) or arbitrage traders with massive leverage (Thorp, Simons, Guy Wyser-Pratte, John Paulson).
They are not trading cool little patterns they read about on the internet.
Trading comes in and out of vogue every cycle. For a period of time, it seems almost easy.
Just buy NVDA on down days. Buy calls on meme stocks.
Sell calls and puts. It is free money.
Like taking candy from a baby.
Then, one day, the baby turns around, throat punches you, takes your wallet, breaks your fingers one by one, and, with a final bone-shattering kick to the kneecaps, walks away laughing maniacally.
I have been doing this for over 35 years, and the movie ends the same way every time.
We can and will talk about the ways to use the styles mentioned, along with the tools and techniques developed by a handful of exceptional stock pickers (Lynch, Zweig, Driehaus, O'Neil, Greenblatt) used to pile up higher returns by embracing volatility and fundamentals.
Today, I want to go back to that 2019 Daily Journal meeting.
It is a business, life, and investing master class.
Munger answered questions for several hours on a wide range of topics and spit out incredibly valuable information that should be read and considered.
Charlie told a story about a client of his father's (a lawyer), a woman whose husband had passed away, leaving a successful Soap company behind. The woman sold the company for $300,000 back in 1930.
Instead of listening to all the insurance salesmen and stockbrokers who had the perfect solution to grow and protect her money, she bought five stocks. Munger only remembered 3 of them: General Electric, Dow, and Dupont.
When the dividends piled up, she bought municipal bonds.
When she passed away 20 years later, it was worth 1.5 million dollars.
She never paid a commission after the first purchase.
She only paid taxes on the dividends she received.
There were no hourly fees or account charges. She told Munger that late in life, she figured that electricity and chemicals would play a big role in the future, so she invested in that and sat still.
I suspect that investing in energy, both fossil and renewable, along with Sunbelt offices and apartments, could deliver similar results today.
I am not forgetting AI and other tech advancements.
It simply is not the time to buy them. Keep in mind when our widow was deploying cash, we were in a generational bear market, and that magnified her subsequent returns.
If you look at Munger's stock purchases at the Daily Journal and the stocks he and Warren bought at Berkshire, they were usually in a bear market at the time of purchase.
Munger was also asked a question about a subject near and dear to my heart.
Q: My question is about smaller banks. If you look at banks with assets greater than about a billion dollars in the U.S. and go up and stop at the super regional level, there's about 250 of those banks. And my question is, is that a hunting ground that you would think, applying the principles of value investing, is likely to yield one or two great businesses?
Munger: The answer is yes.
Obviously, I agree.
Bank stocks are cheap, and no one seems to be differentiating much between banks with lots of clarity and a history of no stupid behavior and their opposition.
We can buy strong banks with lots of insider ownership and smart money bank activists and specialists as shareholders for less than book value right now.
Dividend-paying banks that have cash flows well in excess of payout levels and that are also buying back stock are trading at prices that would indicate a level of distress that simply does not exist.
Munger also says something during the Q&A that you should always keep in mind but especially when casting a vote of buying a stock.
"Modern life creates successful bureaucracy and successful bureaucracy breeds failure and stupidity. How can it be otherwise? That's the big tension of modern life."
I can go on for hours about the evil of bureaucracy but we will save that topic for another time. They are occasionally a necessary evil but should be avoided whenever possible.
Munger also discusses philosophy in response to a question about Stoic philosophers.
Question: Can you talk to me about the influence that the Stoics had on you and some of your favorite advice from them?
Munger: "A lot. A lot have had (a lot of influence) on me, including Epictetus who started as a slave. No, I like those old Stoics. And part of the secret of a long life that's worked as well as mine is not to expect too much of human nature. It's almost bound to be a lot of defects and problems. And to have your life full of seething resentments and hatreds, it's counterproductive. You're punishing yourself and not fixing the world. Can you think of anything much more stupid than trying to fix the world in a way that ruins yourself and doesn't fix the world?"
I will wrap it up here, but I am enclosing a link to the full transcript. It should be mandatory reading in the senior year of high school.
Link is fixed in the article, but I will include it here as well
https://latticeworkinvesting.com/2019/03/03/charlie-munger-full-transcript-of-daily-journal-annual-meeting-2019/
Please provide link