In a recent interview with CNBC’s Becky Quick, Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) Vice-Chairman Charlie Munger (Trades, Portfolio) laid out some of his views on the current investment landscape, as well as where he sees the future of value investment heading. At 95 years of age, Munger has literally seen it all, so his public appearances are always a great opportunity to derive some good insights.
On the Federal Reserve’s policies post-2008
When asked about the lack of volatility in the market over the last 10 years, Munger credited the world’s central banks for stabilizing the economy following the 2008 crisis:
“I think that was necessary to do. I admire the politicians who did it and the technocrats, including the Federal Reserve people. And I think it was absolutely required, and that the danger they were avoiding was worth some of the troubles they caused. But it was very peculiar. And it did have the accidental effect of bailing out the rich in order to help the poor. And nobody was doing that because they love the rich. They just didn't have any other tool in the kit, and they had to do something.”
However, Munger also went on to say that he doesn’t know how much longer the Fed can continue its policy of printing easy money, pointing out that both the Roman Empire and the Weimar Republic were ultimately ruined by similar money-printing policies. So clearly Munger believes there is a point at which this course will become dangerous, although he concedes that he has no idea of where exactly that point is.
On Amazon’s prospects
Berkshire Hathaway famously does not invest in new and rapidly changing sectors, so it is no surprise that they were not involved with Amazon (AMZN, Financial) throughout the company’s remarkable run. But that does not stop Munger from expressing extreme admiration for both Amazon and founder Jeff Bezos:
“Becky Quick: Let’s go back to Amazon and the growth that you’ve seen there.
Charlie Munger (Trades, Portfolio): It’s incredible what they’ve done.
Becky Quick: Yeah. And you’ve called Bezos 'ferociously smart.'
Charlie Munger (Trades, Portfolio): Yes.
Becky Quick: What do you think about the prospects for Amazon longer-term? There are some movements in Washington that push back against him, whether it’s because he’s the owner of the Washington Post or whether it’s just one company getting too big and regulators worrying about that
Charlie Munger (Trades, Portfolio): My guess is that he still has a long ways to go. Up.”
On the future of value investing
When asked about whether he believes that the golden age of value investing is over, Munger had this to say:
“Well not forever, because I think it isn’t like the last recession or the last big opportunity that the world is ever going to get is past. There’ll be opportunities in the future. There are times where they’re easier, and there are times which are harder…
A) the valuations have come up, and B) the competition sorting through those opportunities is more intelligent and more aggressive and more numerous. Of course it’s harder… I think valuations will go up and down because they always have. And I think we’ll have smart people in this game forever. Lots of them.
The opportunities that we all remember came from a demoralized period when about 90% of the natural stock buyers got very discouraged with stocks. That’s what created the opportunity for these fabulous records that my generation had. And that was a rare opportunity that came to a rare group of people of whom I was one. And Warren was another.”
In other words, the intensification in competition for value stocks has made value investing harder now than it was in the past. The core advice from this part of the interview is to sit and wait for a major downturn to occur, then deploy your capital when prices are depressed. Crucially, this cannot happen while the majority of the market is still heavily invested in stocks. Only when buyers become truly demoralized and withdraw their capital from the equity markets will the real bargains come to light.
Disclosure: The author owns no stocks mentioned.
