Charlie Munger, the long-time business partner of Warren Buffett at Berkshire Hathaway, is renowned for his disciplined and patient investing philosophy. With the latest 13F filings revealing his portfolio’s state as of July 6, 2023, we can look deeper into his investment strategy by examining the business models of the companies he has chosen and speculating on why these particular positions align with Munger’s investing teachings.
Delving into the investment strategies of renowned financial gurus can provide profound insights for seasoned investors and those at the onset of their investing journey. Munger’s past selections have consistently yielded significant returns. In this analysis, we examine the key positions in Munger’s portfolio and the fundamental metrics that earned them a place in Munger’s current portfolio. Let’s unravel the fascinating story that each holding tells about Munger’s investment approach.
Current Charlie Munger Portfolio 2023 Q2
Based on the last 13f update on 7/6/23:
Rank/Company/Ticker Symbol/Portfolio%
- Wells Fargo (WFC) 41.54%
- Bank of America (BAC) 40.35%
- Alibaba (BABA) 15.29%
- U.S. Bank (USB) 2.83%[1]
Charlie Munger on Diversification
First, we can see that Charlie Munger follows his own advice that you only need to hold a few great companies to do well in the stock market.
“The idea of excessive diversification is madness.” – Charlie Munger
“Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.” – Charlie Munger
“It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it – who look and sift the world for a mispriced bet – that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.” – Charlie Munger
“The ‘know-nothing’ investor should practice diversification, but it is crazy if you are an expert. The goal of investment is to find situations where it is safe not to diversify.” – Charlie Munger
“If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity but a hell of a lot of patience. You stuck to your principles, and when opportunities came along, you pounced on them with vigor.” – Charlie Munger
Wells Fargo & Company (WFC): 41.54%
Wells Fargo is a diversified financial services company, one of the largest banks in the United States by assets. Its business model comprises three primary segments: community banking, wholesale banking, and wealth and investment management.
Wells Fargo likely caught Munger’s attention for several reasons. First, it’s a bank with a long history of solid earnings and a diverse income stream, consistent with Munger’s preference for simple, profitable companies. Munger is also known for his strategy of buying great businesses at reasonable prices rather than buying fair businesses at great prices. Despite the controversies around Wells Fargo, it seems he believes in the underlying strength of the business and its ability to overcome challenges, as its current valuation might reflect a discount for its past scandals.
Wells Fargo was also a favorite stock of Warren Buffett for decades before the scandals. Warren Buffett and his company Berkshire Hathaway recently disclosed that they sold off their last remaining holdings of Wells Fargo in the first quarter of 2022.[2]
Bank of America Corporation (BAC): 40.35%
Bank of America is another major financial institution providing banking services, investment banking, and asset management for individuals, corporations, and governments worldwide.
Bank of America’s wide moat, diverse range of services, and substantial scale make it an attractive prospect for a long-term investor like Munger. The bank’s consistent earnings and strong balance sheet also likely appeal to Munger’s taste for companies with strong competitive advantages and reliable profitability. Additionally, BAC has been making significant efforts to improve its digital services, reflecting its adaptation to changing consumer preferences – another trait Munger values in businesses.
Alibaba Group Holding Ltd (BABA): 15.29%
Alibaba is a Chinese multinational conglomerate specializing in e-commerce, technology, and various other sectors. It operates various businesses and derives income from diverse sources like its online marketplaces (Taobao and Tmall), cloud computing (Alibaba Cloud), digital media and entertainment, and others.
Munger’s investment in Alibaba indicates his faith in China’s long-term growth story of e-commerce and technology. Alibaba’s wide economic moat, vast user base, and ability to continuously innovate likely align with Munger’s preference for companies that have a substantial competitive advantage. However, investing in Alibaba also represents a departure from Munger’s usual reluctance towards tech companies. It signifies his ability to adapt his strategy based on prevailing market trends and the specific value proposition of individual companies.
U.S. Bancorp (USB): 2.83%
US Bancorp is the parent company of the US Bank National Association, the 5th largest commercial bank in the United States. It provides a comprehensive line of banking, investment, mortgage, trust, and payment services products to consumers, businesses, and institutions.
Like Wells Fargo and Bank of America, US Bancorp likely appeals to Munger because of its strong financial position, durable competitive advantage, and its history of generating consistent earnings. Furthermore, US Bancorp’s efficient operations set it apart from its peers, reflecting prudent management – a factor that Munger highly values in his investments. Even though it’s a minor position in his portfolio, it reflects Munger’s preference for reliable businesses with long-term potential.
Key Takeaways
- The cornerstone of Munger’s strategy involves selecting robust companies boasting durable competitive advantages. His substantial holdings in Wells Fargo and Bank of America testify to this.
- A historically solid track record of generating consistent earnings is another crucial criterion for Munger. His investments in US Bancorp, a renowned, profit-stable bank, exemplify this.
- Munger’s portfolio underlines the importance of valuation in investment decisions. His selection of Wells Fargo, which faced past controversies, possibly indicates his belief in the company’s undervalued status.
- Flexibility in investment approach and understanding of market trends is also vital. His position in Alibaba, a Chinese tech giant, is a clear departure from his usual investment style and indicates his ability to adapt his strategy based on current market conditions.
- Lastly, all companies in Munger’s portfolio showcase adept management, aligning with his belief in the significance of efficient and prudent leadership.
Conclusion
The composition of Charlie Munger’s portfolio offers invaluable insights into his disciplined investment approach. Centering on secure companies with enduring competitive edges and a history of steady profits, Munger exhibits a thoughtful balance between steadfast investment principles and a willingness to adjust to market dynamics. His positions reinforce the importance of seeking undervalued companies, appreciating competent management, and maintaining a long-term perspective. This nuanced approach, straddling traditional investing wisdom and openness to evolving trends, encapsulates the essence of Munger’s successful investing journey.
His choices offer valuable insights into his philosophy and may serve as helpful guides for investors who aim to emulate his style.