Charlie Munger (Trades, Portfolio) is, without a doubt, one of the world's most patient investors. He is prepared to bide his time for years before making an investment decision, waiting for the right opportunity to strike and buy at the perfect price.
Munger also uses a very concentrated portfolio management approach. Of the limited information we have on him and his investment strategy, we know that Munger only has four positions in his equity portfolio at the Daily Journal Corp. (DJCO, Financial).
His personal portfolio contains a similar number of holdings. We know he owns shares of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) and Costco (COST, Financial), as well as a stake in Li Lu's Himalayan Capital and several real estate projects.
Considering all of the above, it is interesting to note the guru has recently been increasing his holdings of Costco -- despite the fact that shares of the retailer are up by around 50% this year.
According to a Securities and Exchanges Commission filing, which was lodged with the regulator on Oct. 24, Munger increased his stake in the company by 901 shares on Oct. 22, taking his direct investment to 165,736 shares. The billionaire investor also owns 19,565 shares in his Alfred C. Munger Foundation.
The investor also increased his stake in the business on Oct. 22, 2018. Last year, he acquired an additional 1,179 shares, taking his overall position to 164,835 shares. It looks as if these actions are dividend reinvestments.
According to my calculations, dividends paid by the retailer over the 12 months to the end of October would have been enough to acquire 1,340 shares at a share price of $300. When you include taxes and charges, the figures seem to make sense.
Dividend reinvestment
As a result, I do not think it is unreasonable to assume this is a dividend reinvestment plan. However, it is interesting to note that the billionaire investor is still willing to buy shares of Costco even though they are currently dealing at their highest level in history.
He's not one to reinvest dividends just for the sake of reinvesting dividends, so I believe these transactions suggest Munger still thinks the stock is undervalued.
The world's second-best business
Munger has been a director of Costco since January 1997, so he is going to know more about the inner workings of the company than any outsider. But he has also stated in the past he believes Costco is the second-best business in the world after Berkshire.
He made this statement in 2011 at Wesco Financial's last ever annual meeting, which was labeled "A Morning With Charlie."
When asked to highlight his favorite company outside of Berkshire, the billionaire replied, "That's easy. It's Costco." He went on to declare that the company is "one of the most admirable capitalistic institutions in the world. And its CEO, Jim Sinegal, is one of the most admirable retailers to ever live on this planet."
He went on to explain that one of the reasons why he is so optimistic about the business is its long-term focus. As Munger explained:
"It has a frantic desire to serve customers a little better every year. When other companies find ways to save money, they turn it into profit. Sinegal passes it on to customers. It's almost a religious duty. He's sacrificing short-term profits for long-term success."
This seems to explain why the vice chairman of Berkshire is still happy to add to his position in the retailer at current levels, despite its price and recent stock performance.
What's even more impressive is the fact Munger is still happy to own more of this stock when there are thousands of other options out there. He clearly continues to believe this company is still one of the best investments in the world.
Disclosure: The author owns shares of Berkshire Hathaway.
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