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Charlie Munger: 'We're Not Playing!'

Our thoughts on market valuation and how gurus perceive it

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Apr 20, 2020
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Berkshire Hathaway (

BRK.A, Financial) (BRK.B, Financial) may not have been buying a lot of the dip so far this year, contrary to many people’s expectations that the Oracle of Omaha would be pouring the conglomerate's massive pile of cash into equities.

According to the company’s vice chairman,

Charlie Munger (Trades, Portfolio) the $460 billion conglomerate aims to get through the economic typhoon “safe for people who have 90% of their net worth invested in it.” The value investing guru also thinks that the company will “emerge on the other side very strong,” as it acts “fairly conservatively.”

Per our observation, one key commonality among legendary investors is their intent and ability to sit there and do nothing the majority of the time but buy aggressively when quality businesses are on sale, which has happened rarely in recent years. Terry Smith and

Chuck Akre (Trades, Portfolio) utilize the same strategy.

A quick glance at the market valuation may confirm Munger’s judgment. According to GuruFocus, the so-called 

Warren Buffett (Trades, Portfolio) Indicator, which measures the valuation of a country's economy, is shifting from “overvaluation” back to “significant overvaluation” territory for the U.S. (see below), a level that we experienced during the peak of the dot-com bubble. At the same time, many individual businesses with high returns and wide moats, such as MasterCard (MA, Financial), MarketAxess (MKTX, Financial) and Intuit (INTU, Financial), may see even more severe overpricing in their highly-desired shares at the moment. It appears to us that investors should still find it challenging to track down attractive deals, even with decent market timing.


Per the chart below, insiders have become net sellers, already switching from the rare “net buying” status a month earlier (see below).


We notice that some quality-oriented money managers have been cautiously acting. For instance, in its Q1 letter to shareholders, Akre Focus Fund wrote the following:

“You know that we have made no secret of the Fund’s growing cash position. That growing cash position stemmed from our view that valuations for both existing and potential new holdings were simply not conducive to above-average returns looking forward

The pandemic’s impact on the market has supplied buying opportunities in both existing and several long-coveted names. Accordingly, our cash weighting declined from 17% at year-end to just over 10% as of March 31st. Since neither we nor anyone else knows where or when stocks will see their bottom, we have spooned rather than shoveled cash into select positions, mindful of the extremes to which price and value can become decoupled in times like this.”

The Sequoia Fund employs a more balanced approach, concentrating on “reducing holdings that Mr. Market continues to view with relative optimism and increasing those where we think he has become excessively skeptical.” Per its latest quarterly communication, the fund added to investments in beaten-down names like Booking Holdings (

BKNG, Financial), CarMax (KMX, Financial) and Credit Acceptance (CACC, Financial) while trimming positions in outperformers like Alphabet (GOOG, Financial) (GOOGL, Financial) and Amazon (AMZN).

Terry Smith, often called the “English Buffett,” looks to be most optimistic in our tracking universe. The Fundsmith founder indicated that he purchased two new holdings that “have been hard hit in this market because of China exposure and a classic ‘glitch’” during the recent market sell-off. Meanwhile, he expected one third of his holdings to continue top-line growth this year.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We own shares of Berkshire Hathaway, Credit Acceptance, and MasterCard.

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