The investment community was saddened on Tuesday when it was announced legendary investor Charlie Munger (Trades, Portfolio), the right-hand man of Berkshire Hathaway's (BRK.A, Financial) (BRK.B, Financial) Warren Buffett (Trades, Portfolio), had passed away at the age of 99.
In a statement released by the Omaha, Nebraska-based insurance conglomerate, Buffett said, “Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation.”
Famous for his quick wit and keen mind, as well as his dislike for bitcoin, the guru was not only the vice chairman of Berkshire, but also headed up the Daily Journal Corp. (DJCO, Financial). Additionally, he is known for developing a series of mental models that are framed as a latticework to help solve critical business problems.
Investment style
Among his biggest, and arguably most important, accomplishments, however, was his influence on Buffett's investment style.
Under the tutelage of the great Benjamin Graham, the Oracle of Omaha started out his career embracing a cigar butt strategy that emphasized buying low-priced stocks of struggling companies.
According to the biography “Poor Charlie's Almanack,” the two gurus, who both grew up in Omaha, hit it off at a dinner party in 1959. While Munger was practicing law in California and Buffett was running an investment partnership in their hometown, they kept in touch and shared investment ideas.
While they occasionally bought into the same companies during the 1960s and ‘70s, Munger eventually convinced Buffett to shift his focus to investing in excellent business that could grow their profits over time, which has proven to be a successful and effective strategy for the duo over the decades.
Munger officially became Berkshire's vice chairman in 1978.
Portfolio overview
Munger's advocation of buying and holding quality stocks for the long term is well reflected in the equity portfolio of the Daily Journal. According to GuruFocus portfolio data, which is based on 13F filings for the three months ended Sept. 30, it has not made any changes to the Wells Fargo & Co. (WFC, Financial), Bank of America Corp. (BAC, Financial) or U.S. Bancorp (USB, Financial) holdings since the fourth quarter of 2013.
Another notable long-held investment for Munger's Daily Journal was Korean steelmaker POSCO Holdings Inc. (PKX, Financial). While the holding was significantly reduced a year after the initial investment was made in 2013, the position stayed steady until it was ultimately eliminated in the fourth quarter of 2022.
One of the few exceptions to this rule is Alibaba Group Holding Ltd. (BABA, Financial), which turned out to be one of his few investment missteps as well. After the holding was built up throughout 2021, it was slashed in half in the first quarter of 2022 as shares slid on the back of a tech sector crackdown enacted by the Chinese government. Munger's Daily Journal currently holds 300,000 shares of the e-commerce company, which occupy 16.40% of the equity portfolio. GuruFocus data shows it has lost around 47.50% on the investment so far.
It is not hard to see why Munger found the stock appealing. At 97 out of 100, the average GF Score in 2021 indicated the company had high outperformance potential on the back of solid ratings for profitability, growth, financial strength, value and momentum. Its score now stands at 91.
Munger admitted he was wrong about the company, though, saying at the Daily Journal's 2023 annual meeting it was “one of the worst mistakes” he ever made.
"I got charmed by the idea of their position in the Chinese internet; I didn't stop to realize they're still a goddamn retailer. It's going to be a competitive business, the internet — it's not going to be a cakewalk for everybody," he said.
Investors should be aware 13F filings do not give a complete picture of a firm's holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
A Costco addict
Munger also famously liked Costco Wholesale Corp. (COST, Financial). First introduced to the company through Sol Price, the founder of Price Club, he became a member of the company's board of directors in 1997. While Daily Journal never had a position in the stock, Munger maintained a personal stake in the company and constantly expressed his admiration for the brand.
For instance, during the Daily Journal's annual shareholder meeting in February, he said, “I love everything about Costco. I'm a total addict, and I'm never going to sell a share.”
According to regulatory filings, as of October, the renowned investor owned 167,615 shares of Costco personally and had another 19,565 shares held in his charitable foundation.
Berkshire Hathaway also owned the stock between 1999 and 2020.
Leaving behind a legacy
Munger's passing fell a little over a month ahead of what would have been his 100th birthday. With a life well-lived, it will be hard for anyone to forget the impact he made on the investment community. While his presence will be missed at future Berkshire Hathaway annual shareholder meetings, investors will remember his wisdom and investing acumen for years to come.
