馃攳
Charlie Munger: The Stock Market Will Return 0% For Decades - YouTube
Channel: Casgains Academy
[0]
warren buffett's right-hand man charlie
[2]
monger is well known as one of the
[3]
legends of investing through the daily
[6]
journal portfolio he outperformed the
[8]
market by almost 2 000 since 1986. manga
[11]
recently spoke at the daily journal's
[13]
annual conference about the serious
[14]
issues in the economy in the financial
[16]
markets this video will explain how
[18]
munger is preparing his portfolio to
[20]
drastically outperform the market in the
[22]
coming years
[23]
[Music]
[27]
in order to understand how monger plans
[29]
to make large sums of money from the
[30]
economy we have to analyze the
[32]
macroeconomic environment due to covet
[35]
19 the federal government had to step in
[37]
to provide support as consumer spending
[39]
came to an abrupt halt there are two
[41]
different types of unemployment u3
[43]
unemployment tracks all unemployed
[45]
people who are looking for a job u6
[47]
unemployment is a broader measurement
[49]
that also includes discouraged workers
[51]
and part-time workers in april 2020 u3
[54]
unemployment exceeded 14
[56]
and u6 unemployment exceeded 22 percent
[59]
that is a substantial amount as almost
[61]
one out of every four people were
[63]
unemployed or underemployed as a result
[66]
congress sent stimulus checks to people
[67]
and provided various lending facilities
[69]
and grants to state and local
[70]
governments these checks also provided
[72]
covert relief funds that helped
[74]
businesses on the monetary side the
[76]
federal reserve lowered interest rates
[78]
which made it cheaper to borrow the
[80]
target interest rate ran from roughly
[82]
1.5 percent at the end of february 2020
[84]
to about 0.06 in april 2020. today that
[88]
rate is 0.08
[90]
but is expected by everyone to increase
[93]
as we'll cover soon these policies are
[95]
setting the stage for a terrifying
[97]
economic crisis while the federal
[99]
reserve lowered rates it ramped up
[101]
treasury bond purchases in the
[102]
marketplace or quantitative easing
[104]
during the pandemic the federal reserve
[106]
purchased in excess of 4 trillion
[108]
dollars of debt which had the effect of
[110]
pushing money out into the economy m2 is
[113]
the measurement of money in the economy
[114]
which measures cash on hand savings
[116]
accounts money market and certificate of
[119]
deposits under 100 000
[121]
the law of supply and demand eventually
[123]
found its way into inflation more money
[125]
available to everyone led to an increase
[127]
in the demand for goods but that alone
[129]
did not drive the inflation we are
[131]
seeing today
[132]
monger is keenly aware of the increase
[134]
in m2 money inflation and the
[136]
implications in asset bubble the
[139]
problems tied to the supply chain has
[140]
also continued to exacerbate the
[142]
situation you have probably noticed the
[144]
shortage of items in the stores and the
[146]
price increases of various items such as
[148]
consumer electronics most of this is due
[150]
to the inability to get products off the
[152]
boats into the marketplace the basics of
[155]
the issue started prior to covet but
[156]
were pushed forward by the pandemic the
[158]
underlying issues are vast first of all
[161]
there is a limited capacity to offload
[163]
ships in a lack of chassis to expand
[165]
that capacity the limited number of
[167]
truckers that are authorized to work at
[168]
the ports has declined due to a lack of
[170]
wage increases the u.s warehouse
[173]
technology which is behind in technology
[175]
compared to japan korea and china also
[178]
exacerbated the issue similarly
[180]
warehouse worker pay has not necessarily
[182]
kept up and attracting good warehouse
[185]
workers is harder the shortage of
[187]
warehouse workers has also further
[188]
constrained supply chains ryan johnson
[191]
an experienced truck driver wrote a post
[194]
that went viral explaining some of the
[195]
issues from his point of view he likens
[198]
the current supply issues to a store
[200]
like costco or walmart having one
[201]
cashier for hundreds of customers
[204]
truckers like him have to go through
[205]
three separate lines for multiple hours
[207]
on end to then pick up a container to
[209]
transport it across the country goldman
[212]
sachs along with a few other investment
[214]
firms tracked the supply chain goldman
[216]
recently lowered the stress to a 9 out
[217]
of 10 with 10 being the highest stress
[220]
according to the marine exchange of
[222]
southern california and goldman sachs
[224]
the number of vessels at the la port
[226]
waiting to unload goods has declined to
[227]
89 from a high of over 100 that is a
[230]
significant amount when you consider
[232]
that 20 months ago there were zero
[234]
vessels that might sound horrifying but
[236]
there may be light at the end of the
[238]
tunnel the expectation for when this
[240]
economic problem will be resolved varies
[242]
but seems to be closer to the end of
[244]
2022 to mid-2023 the key here is that
[247]
essentially all this pressure results in
[249]
a lack of supply of goods this pressure
[251]
in conjunction with the increase in the
[252]
money supply has pushed consumer prices
[255]
to new highs the consumer price index
[258]
recently accelerated to an annual
[259]
increase of 7.5 percent an important
[262]
relationship to understand here is that
[264]
inflation and interest rates are linked
[266]
in the 1980s inflation soared to
[268]
unprecedented heights fed chairman paul
[271]
volcker raised rates numerous times to
[272]
get ahead of inflation while the result
[274]
was a win for the economy in general
[277]
increasing rates is usually not a
[278]
politically favored action charlie
[280]
munger stated the likelihood of having
[282]
someone such as paul volcker being able
[284]
to raise rates in today's political
[286]
environments as unlikely even though the
[288]
fed is supposed to be outside the reach
[290]
of politicians he also said this could
[292]
lead to new troubles and could be worse
[294]
than those we saw in the late 70s and
[296]
80s the late 70s and 80s were terrible
[298]
times to invest in the market from 1965
[301]
to 1980 the market returned zero percent
[304]
when adjusted for inflation monger is
[306]
warning of a similar outcome and the
[308]
market may actually have negative
[310]
returns over the next decade
[312]
there's no we've there's never been
[313]
anything quite like what we're doing now
[316]
and
[318]
we do know from what's happened in other
[320]
nations if you
[321]
if you try and print too much money it
[323]
eventually
[325]
causes terrible trouble
[327]
and we're closer to terrible trouble
[329]
than
[331]
than we've been in the past but it may
[333]
still be a long way off
[335]
i certainly hope so
[337]
the first result that we talked about is
[338]
a decade of high inflation and low
[340]
inflation adjusted returns for the stock
[342]
market there could also be a second
[344]
outcome that monger is potentially even
[346]
more frightened about the fed obviously
[348]
does not want a repeat of the 1970s to
[350]
happen again and has already stated that
[352]
it will be moving the interest rate
[354]
higher the world's largest futures
[356]
exchange cme group recently published a
[359]
report that reviews the market
[360]
expectations and how accurately
[362]
investors tend to forecast rate hikes
[364]
currently the expectations are for four
[366]
to six fed rate hikes in 2022 and two to
[368]
three more in 2023 normally these
[371]
increases occur at 25 basis points each
[374]
one basis point is 0.01 percent so a 25
[378]
basis point increase would be an
[379]
increase of 0.25 percent
[381]
thus a 25 basis point hike from 2
[384]
percent would result in a rate of 2.25
[386]
percent the expectation is for the
[388]
target interest rate to end up at 1.625
[391]
percent versus today's 0.08
[394]
in addition to the increase in interest
[395]
rates the federal reserve is reducing
[397]
asset purchases specifically treasury
[399]
bonds also known as treasuries such an
[402]
action has the effect of lowering the
[404]
available supply of money in january
[406]
2022 the fed reduced purchases to 60
[409]
billion dollars which was down 30
[411]
billion dollars from december and down
[412]
60 billion dollars from november note
[415]
that the fed is still purchasing bonds
[417]
resulting in increasing the supply of
[418]
money in the economy and creating an
[421]
artificial demand for treasuries there
[423]
would have to be an equivalent amount of
[424]
new demand stepping in as the fed
[426]
reduces its purchases to keep price and
[428]
yields level this new demand would have
[431]
to balance out the lack of bond
[432]
purchases from the fed in order to have
[434]
a net zero effect on the market the
[436]
treasuries would have to find outside
[438]
investors adding 60 to 100 billion
[440]
dollars a month through their portfolios
[442]
that is extremely unlikely thus the
[444]
tapering will also result in lower bond
[446]
prices bond yields and bond prices are
[449]
inversely correlated so that would
[451]
equate to higher u.s treasury yields so
[453]
while the media focuses on the fed
[455]
increasing interest rates the tapering
[457]
of bonds will also have a substantial
[459]
impact on bond yields and therefore
[461]
interest rates as well charlie munger is
[463]
hesitant to state that the low rate acid
[464]
bubble will be popped as a result of the
[466]
increase in rates he believes the lower
[468]
rates were done as an extreme measure
[470]
during the onset of the coveted pandemic
[472]
the u.s is flirting with trouble that
[474]
will end badly the longer we stay with
[476]
low rates and high inflation especially
[478]
now that we are passed kovit and need to
[480]
live with it conventional economic
[481]
theory argues that excessive monetary
[483]
and fiscal stimulus over the last two
[485]
years has triggered the highest
[487]
inflation in 40 years do you broadly
[489]
agree with this thesis and more
[491]
importantly do you think there will be a
[492]
high economic price to pay as the fed
[495]
attempts to bring inflation back under
[496]
control i guess um the reasons for it um
[500]
well the first part
[501]
i agree with that we've done something
[503]
for we've done something pretty extreme
[506]
and we don't know how
[508]
bad the troubles will be whether we're
[510]
going to be like japan or
[512]
or something a lot worse
[514]
and
[517]
what makes life interesting is we don't
[518]
know how it's going to work out
[524]
i think we do know we're flirting with
[527]
serious trouble
[530]
i think we also know
[533]
that some of our earlier fears were
[537]
were overblown
[539]
so now that we know that the economy is
[540]
in serious trouble what should investors
[543]
do
[543]
monger is bearish on commercial property
[545]
in offices but he recommends owning
[547]
stocks in apartment buildings
[550]
the mongers have
[552]
berkshire stock costco stock chinese
[555]
stock sioux lilu
[557]
a little bit of daily journal stock and
[560]
a bunch of apartment houses
[562]
do i think that's perfect no
[565]
do i think it's okay yes
[568]
i think the great lesson from the
[569]
mongers is you don't need all this damn
[571]
diversification that's plenty of
[574]
you're lucky if you've got four good
[576]
assets
[578]
i think the finance professors and the
[583]
sell the idea that perfect
[585]
diversification is
[586]
professional investment
[591]
if you're trying to do better than
[592]
average
[594]
you're lucky if you have four things to
[596]
buy
[597]
and to ask for 20 is really asking for
[600]
egg in your beer it's it's
[603]
very few people
[605]
get can have enough brains to get 20
[607]
good investments
[608]
contrary to most investment professional
[610]
advice and business classes monger
[612]
argues that diversification beyond
[614]
around four to six investments is not a
[616]
good idea while he does not give a
[618]
specific number he does argue that
[620]
adding too much diversification has
[622]
diminishing returns his argument is well
[624]
grounded in markowitz's modern portfolio
[626]
theory or mmt in short form this theory
[629]
states that adding a stock reduces the
[631]
swings of the portfolio and as you add
[634]
more stocks the swings become less and
[636]
less however this trade-off is not
[638]
historically one-to-one as each
[640]
additional investment has a decreasing
[642]
impact on the portfolio of course this
[644]
assumes that each investment is
[646]
proportionately the same as the others
[648]
with 10 stocks each stock would be 10 of
[651]
the portfolio with five stocks each
[653]
stock would be 20
[655]
and with 100 stocks each stock would be
[657]
one percent as you would expect with 100
[660]
stocks one stock doubling would have
[662]
minimal impact but with five stocks one
[664]
stock doubling would have a much greater
[666]
impact monger believes that the current
[668]
market is ripe with gambling and
[669]
speculation as an example he talked
[672]
about the spack space which raises money
[674]
prior to having investments well
[676]
certainly
[678]
the great short squeeze
[680]
in gamestop was wretched access
[683]
certainly the bitcoin thing is wretched
[685]
access
[688]
i would argue that
[691]
venture capital is throwing too much
[693]
money too fast
[695]
in the
[696]
and there's a considerable wretched
[698]
access in venture capital and other
[700]
forms of private equity
[702]
and so
[707]
we have a stock market
[710]
which some people use like a gambling
[712]
parlor
[713]
and the transactions of the people who
[715]
love the gambling parlor aspect of the
[717]
business and those who want to make
[718]
long-term
[720]
investments to take care of their old
[721]
age and so forth
[723]
i mean we model that in one market
[726]
and it goes out of control because the
[729]
stock market becomes an
[731]
ideal gambling
[733]
parlor activity
[736]
i don't think that ought to have been
[737]
allowed either
[739]
if i were the dictator of the world
[743]
i would have some kind of a tax on
[745]
short-term gains
[747]
that made the stock market very much
[749]
less liquid
[751]
and
[752]
and drove out this this
[754]
marriage of gambling parlor and
[757]
legitimate
[759]
capital development of the country
[762]
it's not a good marriage and i think we
[764]
need a divorce
[767]
other signs that monger points to
[769]
besides the 850 spacks include the great
[771]
short squeeze and high multiple
[772]
valuations the s p 500 is currently
[775]
trading at a 20 times four pde based on
[777]
bloomberg estimates consensus earnings
[780]
while this is down from the recent peak
[781]
of 27 times in august 2021 such
[784]
frothiness has not been seen in 20 years
[787]
similarly the nasdaq has declined to a
[789]
28 times bloomberg consensus ford pde
[792]
also down from its recent december peak
[794]
of 40 times these levels have not been
[797]
seen since 2003 diversification outside
[800]
the u.s could be a positive thing given
[802]
the current macroeconomic situation
[804]
monger has invested in china through
[806]
stocks such as byd and alibaba byd has
[809]
been one of munger's best picks of all
[811]
time which has also led to his more
[813]
recent investment in alibaba in both
[815]
this year's and last year's interview he
[817]
revealed his reasoning behind investing
[819]
in china despite the major risks there
[821]
were many inherent risks to investing in
[823]
china which i'm sure many of you are
[825]
aware of with the news over the past
[827]
year however charlie munger believes
[829]
that while these risks exist including
[831]
regulatory economic and delisting
[833]
concerns the value is substantially
[835]
better in china's financial market when
[837]
compared to the us
[839]
well we did a very very simple reason we
[841]
got more
[844]
strengths per dollar
[846]
invested
[847]
in china the companies we invest in
[851]
are stronger
[852]
relative to their competition
[855]
and priced lower
[857]
that's why we're in china
[859]
monger went on to say that china and the
[861]
us have bad tensions and it stated that
[863]
it continues to occur because the u.s
[865]
does not seem to understand that the
[866]
variations in government are appropriate
[869]
while china's system and policies would
[870]
not have worked in the u.s these
[872]
policies were needed for china
[875]
well the chinese government is worrying
[878]
all the capitalists in the world way
[880]
more than it used to
[882]
and of course we don't like that
[886]
and
[887]
we wish that china and the united states
[891]
got along better
[893]
and
[897]
if you stop to think about it
[901]
think of how massively stupid
[904]
both china and the united states have
[906]
been to allow the
[907]
existing tensions to arise
[910]
what bad is ever going to happen to
[912]
china or the united states if if we two
[916]
are close
[918]
if we make good friends out of the
[920]
chinese and vice versa
[922]
who in the hell is ever going to bother
[923]
us
[925]
of course we should make friends with
[926]
china
[927]
and of course we should learn to get
[929]
along with people who have a different
[931]
system of government
[934]
it we like our government because we're
[936]
used to it and it has advantages of
[939]
personal freedom
[941]
china could never have handled its life
[944]
with a government like ours they
[945]
wouldn't
[947]
it wouldn't be in the position they've
[949]
they're in they had to prevent 500
[951]
million or 600 million people for me
[953]
born in china
[955]
they just measured the women's menstrual
[957]
periods when they came to work and
[959]
aborted those who
[961]
weren't allowed to have children you
[962]
can't do that in the united states and
[964]
it really needed doing in china
[967]
and so they did what they had to do
[969]
using their methods and i don't think we
[971]
should be
[973]
criticizing china which which has
[976]
terrible problems because they're not
[977]
just like the united states
[979]
they do some things better than we do
[983]
they should like us and we should like
[985]
them so i'm i'm
[986]
totally i think nothing is crazier than
[989]
people who
[990]
foment
[992]
resentments on either side of that one
[996]
alongside munger plenty of top investors
[998]
have continued to invest in china some
[1000]
of these include ray dalio venture
[1002]
capital powerhouse sequoia capital and
[1004]
monish pabrai munger believes that the
[1007]
two countries the us and china with
[1009]
reasonable honor will continue to
[1011]
maintain stable relations which
[1013]
decreases the risk monger's presentation
[1015]
provides us with a backdrop of his
[1017]
thoughts higher inflation fed tightening
[1020]
supply chain issues and stretch
[1021]
valuations and speculation have placed
[1024]
the markets in a dangerous position
[1026]
monger has adjusted his portfolio to
[1027]
survive these macroeconomic trends by
[1030]
allocating his funds to robust companies
[1032]
his portfolio primarily consists of five
[1034]
companies bank of america wells fargo
[1038]
alibaba u.s bank and a south korean
[1041]
company called pasco monger is not a fan
[1043]
of diversification and has chosen these
[1045]
three companies as the stocks that will
[1047]
succeed over the long term let me know
[1049]
whether you agree with down below
[1052]
if you enjoyed this video please hit the
[1054]
like button and subscribe and i'll see
[1056]
you in the next one
Most Recent Videos:
You can go back to the homepage right here: Homepage