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Rupert Hargreaves
Rupert Hargreaves
Articles (1323)  | Author's Website |

Charlie Munger's Favorite Investments

Looking at the guru's top holdings

Charlie Munger (Trades, Portfolio) is probably one of the best investors alive today, but when it comes to distinguishing what stocks he favors in his portfolio, it is not an easy task.

The same can be said of Warren Buffett (Trades, Portfolio). Indeed, even though both investors are required to report the U.S. equities they own in their respective investment vehicles (Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) and the Daily Journal (NASDAQ:DJCO)) to the Securities and Exchange Commission on a quarterly basis, they do not have to report personal holdings and any investments outside the country.

This means there's a great deal we do not know about the types of investments these investors like.

Separate holdings

You might be wondering why the personal portfolios of these investors should be any different from the portfolios of their publicly traded vehicles. There are no precise answers to this question, but in some cases, it is better to own particular investments outside of corporate vehicles.

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For example, Buffett said several years ago that he owns a lot of real estate investment trusts in his personal portfolio because it is more tax effective to own these personally, rather than as part of a corporation. I don't know if this is still true, but that explains some of the reasoning behind the decision to own some investments personally and others inside Berkshire and the Daily Journal.

Another significant advantage with owning the investments in their personal portfolios is neither of these investors has to declare what they own, which might make it easier to own smaller, less liquid securities without having to worry about market manipulation.

Munger's investments

Moving back to the main focus of this discussion, what are the primary investments of Munger, both inside his portfolio and at the Daily Journal?

Well, according to publicly available SEC filings, we know his portfolio in the corporate vehicle hasn't changed for several years.

Before the financial crisis, Munger invested any free cash flow generated at the Daily Journal into Treasury bonds as he waited for the perfect opportunity to invest. The opportunity arrived during the financial crisis, where the guru used his capital to acquire a substantial block of shares in Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC) and U.S. Bancorp (NYSE:USB), along with South Korean steel producer POSCO (NYSE:PKX).

Together, these four holdings make up all of the Daily Journal's equity portfolio. Wells Fargo is the largest, accounting for 50% of the portfolio at the end of June, followed by Bank of America, which represents 45% of the portfolio.

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On top of these holdings, which Munger doesn't technically own as he only manages on behalf of the corporation's shareholders, the billionaire has a sizable (in monetary value) personal portfolio.

His personal portfolio is highly concentrated with just three primary holdings. These are Costco (NASDAQ:COST), Berkshire Hathaway and a substantial investment in Chinese value investor Li Lu's Himalaya Capital Management.

Stealth diversification

Even though this is a small number of investments, you could argue the portfolio is, in fact, exceptionally well diversified.

Berkshire Hathaway itself owns more than 100 different businesses and equities, which makes it more of an index fund than an individual company. Meanwhile, we don't know how many securities Li's firm owns, but we do know his primary investment universe is China, which gives Munger a bit of international diversification as well.

Berkshire Hathaway has substantial exposure to the financial sector, but limited international investments and no holdings of large retailers like Costco. Based on this, you could say that Munger is more diversified than Berkshire Hathaway itself, even though he frequently talks about the benefits of using a concentrated portfolio.

I'm not trying to make any judgments on the billionaire's portfolio here. I think it is interesting to observe how he manages investments, both inside the Daily Journal and in his personal portfolio. If there's one thing we can learn from Munger's investment actions, it is to only invest in what you know.

Disclosure: The author owns shares of Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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