Legendary investor Charlie Munger drops a few truth bombs on the financial system
05-May-2023 •Agnisheik Chatterji
The highly-anticipated Berkshire Hathaway annual shareholder weekend is upon us. Thousands of investors descend on Omaha to attend the weekend, whose centrepiece is the meeting, where the high priests of the investing universe - Warren Buffett and his trusted lieutenant Charlie Munger - spend hours fielding questions and dropping pearls of wisdom.
On the eve of the hallowed shareholders' meet, 99-year-old Munger sat down with UK-based Financial Times in an exclusive chat, to discuss which way the world's financial system is heading, perhaps giving a glimpse of what the legendary duo will talk about at tomorrow's convention.
And if you thought he'd gush about the future, look away.
The age of high returns is over
Munger and Buffett's deceptively simple strategy of "buying wonderful businesses at fair prices" reaped rich rewards. Between 1965 and 2022, their company gunned out 19.8 per cent annualised returns, double that of the S&P 500 index. That's an overall return of 37.9 lakh per cent returns! Basically a dollar in 1965 became $3.7 million in 2022. Let that sink in.
But Munger doesn't see the good times extending for long.
He said they were "a creature of a particular time and a perfect set of opportunities". As per him, Berkshire lived during a period of "low interest rates, low equity values, ample opportunities". "A perfect period to be a common stock investor," he says, rather humbly.
However, the future, as per him, is far more tenuous.
"It's gotten very tough to have anything like the returns that were obtained in the past," he says, pointing to the high interest rate climate we are living in right now.
Calling out money managers
Munger had his knives out for investment managers, saying the "glut of investment managers (is) bad" and comparing them with "fortune tellers or astrologers who are dragging money out of their clients' account, which (is) not being earned by any useful service".
Looming bad loan crisis
With the collapse of Silicon Valley Bank in the backdrop, it didn't take too much persuasion for Munger to talk about the state of banks in the US. Even though his company has previously nursed back ailing banks, he warned of a looming bad loan crisis, though "not nearly as bad as it was in 2008".
Citing commercial banks' large stake in commercial real estate, the nonagenarian said, "A lot of (commercial) real estate isn't so good any more. We have a lot of troubled office buildings, a lot of troubled shopping centres, a lot of other troubled properties. There's a lot of agony out there."
Though the risks he stated were specific to the US, some 13,000 kilometres from India, any financial quake there can rattle the foundations of our commerce in no time.
Also read: Timeless wisdom from Charlie Munger