How tough is it to make a dime in markets these days?”
Investment legend Charlie Munger will tell you. Our call of the day comes from the billionaire vice chairman of Berkshire Hathaway BRK.A, +1.92% BRK.B, +1.72%, who offered investing insights via a podcast from Acquired over dinner at his Los Angeles home. The interview published Oct. 29.
Warren Buffett’s right hand man acknowledged the tough hunt for good investments, as he discussed bets on Costco, Apple, Japanese trading companies and more. “There was a lot of low hanging fruit in the early days to our operation, you don’t have any low hanging fruit that’s easy right now,” he said.
He repeats that view later on, saying the “low hanging fruit for the idiot is not gone, but it’s very small,” when asked how Berkshire selected its biggest holding, Apple AAPL, +1.23%, back in 2016.
“Everybody needs some significant participation in the 12 companies that do better than everybody else and you need two or three of them at least, and if you have that mindset, Apple is a logical candidate to be on the list,” he said.
And how did they pick the iPhone maker out of the roster of Big Tech companies? “We couldn’t find anything else. It got cheap — 10 times earnings.”
Munger was asked why he thought all the Big Tech dominants — Apple, Microsoft MSFT, +2.27%, Tesla TSLA, -4.79%, Alphabet GOOG, +1.90% etc. — have become so concentrated in markets, pensions and 401k plans. “It was natural…that’s what human nature and competition causes…eventually with this craziness in venture capital, when they’ve all gone stupid, that’s a natural outcome.”
And when asked to divulge advice on finding those good bets, he said: “When you know you have an edge, you should bet heavily.”
Munger weighed in on Costco COST, +2.18%, which Berkshire sold off in 2020, though the billionaire still owns it and has said he’d never sell any.
“Well they really did sell cheaper than anybody else in America and they did it in big efficient stores…the parking spaces were 10 feet wide instead of 8 feet or whatever they normally are…they kept out of their stores all these people who didn’t do big volumes. They gave special benefits to the people who did come to the stores in the way of reward points. It all worked,” he says.
He said Walmart WMT, +1.15% has made a big error over the years versus Costco, chiefly being “too wedded to the ideas they already had” and unable to accept new ideas. Walmart got stuck into a formula of going into small towns where real estate was not worth much, and keeping their occupancy costs down.
“So it offended them to go against the rich suburbs and have to pay up for good locations, and Costco just specialized in the good locations where the rich people live. and Walmart just let them do it year after year and it was a terrible mistake,” he said. Munger added that he likes Costco for the next 10 years, and buying now at current prices may work, but “it’s getting hard.”
He was also asked whether the auto industry and electric vehicles were more investible due to disruption. “Maybe for one or two electric cars [makers] that are really good at it, but certainly nobody else. It’s too tough,” he said.
Munger praised China EV maker, BYD 002594, -2.48%, which Berkshire owns as a “a miracle, but that guy works 70 hours a week and has a very high IQ. He can do things you can’t do, he can look at somebody else’s auto part and he can figure out how to make the…thing. You can’t do that.” While not naming names, one assumes he’s talking about BYD’s rags-to-riches chairman Wang Chuanfu.
Munger also discussed his aversion to so-called “style companies,” like Nike NKE, +3.90%, though he offered praise for luxury makers like Hermès RMS, +1.00%, adding that “I suppose if you offered me Hermès at a cheap enough price I’d buy it.” What makes those kinds of companies enduring is “they’ve got a brand people trust so much,” he said.
He also touched on Berkshire’s much-discussed investments in five Japanese trading companies, Mitsubishi 8058, +0.45%, Mitsui 8031, +0.78%, Itochu, 8001, +0.19%, Marubeni 8002, +0.37% and Sumitomo 8053, -0.34%. Those stakes were boosted by Berkshire this summer.
Munger called the investment a “no-brainer. Something like that, if you’re as smart as Warren Buffett, maybe two, three times a century you get an idea like that. The interest rates in Japan were half a percent a year for 10 years and these trading companies were really entrenched old companies…so you could borrow for 10 years ahead all the money and you could buy the stock and the stock made 5% dividends so there is a huge flow of cash with no investment, no thought, no anything. How often do you do that?”
But he added that it was tough to build stakes in those, and Berkshire had to be “very patient and pick away little pieces at a time. It took forever to get 10 billion dollars in investment but it was like just like God opening a chest and pouring money into it. It was awfully easy money.”
Munger also weighed on his sour taste for venture capital, saying it’s akin to “gambling” these days, as some of the deals “get so hot and you have to decide so quickly.” Also he said a lot of VCs these days make money by “screwing” their investors.
He briefly discussed China, where he says the economy has “better prospects over the next 20 years than almost any other big economy. Number one, the leading companies in China are stronger and better than practically any other” and cheaper, he added.
Among Asian companies, though, TSMC 2330, -0.56% is not one he’d hold because it doesn’t really have a “brand of its own” like Apple, said the storied investor. Listen to the whole podcast here.
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The markets
Stock futures ES00, +0.10% are flat, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y falling and the dollar DXY lower. The Bank of Japan said it would stick to its 10-year JGB bund yield BX:TMBMKJP-10Y at 0%, but with plans to be more flexible. Crude prices CL.1, +0.80% BRN00, +0.78% are modestly up.
Read: Global central-bank gold purchases reach a record high for the first 9 months of the year
The buzz
Data revealed wages in the third quarter rose 1.2%, and S&P Case-Shiller data showed home prices in the top cities up a sixth straight month. Still to come is the Conference Board’s consumer confidence survey at 10 a.m.
Caterpillar CAT, +1.51% stock is climbing on a hefty profit beat as price rises helped boost sales. JetBlue JBLU, +1.69% stock is tumbling after the low-cost carrier warned of a bigger loss ahead as its third quarter fell short. Amgen AMGN, +0.62% is up on an earnings beat, while Anheuser-Busch BUD, +2.27% is up after a slightly better profit and a new $ 1 billion stock buyback plan. Results from First Solar FSLR, -4.84%, Paycom PAYC, -0.12% and Caesars Entertainment CZR, +2.43% after the close.
Pinterest PINS, +3.04% stock is up 17% after the social-media company blew past estimates with a revenue and earnings surge.
Silicon-carbide group Wolfspeed WOLF, -3.41% is up 14% after forecasting a narrower-than-expected loss. Lattice Semiconductor LSCC, -4.05% slid 15% after a weak sales forecast. Watch for the next chip biggie, AMD AMD, -0.26% to report after the market close.
Ahead of earnings later this week, Apple AAPL, +1.23% made its debut new processors and MacBook Pros.
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Chart of the day
A 10-year outperformance by U.S. stocks may have reached the end of the road, says a team at Goldman Sachs. Peter Oppenheimer, chief global equity strategist said Wall Street equities have “underperformed for long stretches in the past,” and a lesser performance could be seen in the next decade.
Oppenheimer recognizes that “the U.S. remains at the cutting edge of technological innovation,” but the market is heavily concentrated in a few big companies and “increased competition from other asset classes in the current high-rate environment could dissuade U.S. households from adding to already high equity ownership,” the Goldman note said.
Here’s a chart that Goldman offers up:
The tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
| Ticker | Security name |
| TSLA, -4.79% | Tesla |
| AMC, +8.85% | AMC Entertainment |
| AMZN, +3.89% | Amazon.com |
| AAPL, +1.23% | Apple |
| NVDA, +1.63% | Nvidia |
| CAT, +1.51% | Caterpillar |
| GME, -2.44% | GameStop |
| MSFT, +2.27% | Microsoft |
| NIO, +1.08% | Nio |
| META, +2.00% | Meta Platforms |
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