'Crazier than the dot-com era': Charlie Munger on current share market valuations

Charlie Munger believes that current market valuations are crazy.

| More on:
ASX expensive defensive shares man carrying large dollar sign on his back representing high P/E ratio or dividend

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

At the latest Hearts and Minds Investments Ltd (ASX: HM1) investment conference, legendary investor Charlie Munger has said that the current share market valuations are crazy.

Hearts and Minds Investments is a listed investment company (LIC) which brings together the top picks of leading fund managers. At the conference, the managers pitch their best ideas and it also has famous guest speakers like Charlie Munger.

Charlie Munger is the business partner of Warren Buffett at Berkshire Hathaway, the investment business that they have been running for decades together. Mr Munger is widely seen as one of the wisest investors in the world and helped hone Mr Buffett's investing to be more effective by focusing on the long-term with great businesses.

Hearts and Minds fund managers provide their investment picks for free, so that the LIC can donate 1.5% of its net tangible assets (NTA) per year to a range of medical research beneficiaries.

Charlie Munger calls the share market valuations "crazy"

Mr Munger was quoted by various news sources, including the Australian Financial Review, who said:

The dotcom boom was crazier on the valuations even than we have now but overall, I consider this era even crazier than the dotcom era.

You have to pay a great deal for good companies and that reduces your future returns.

Berkshire Hathaway, under Mr Buffett's stewardship, has generally avoided technology businesses over the decades. Mr Buffett has been wise in the past to stick to investing in what he calls his "circle of competence" – only investing in what he understands.

However, a few years ago, Berkshire Hathaway bought a position in Apple and that's now the largest stock position in the Berkshire Hathaway portfolio.

Charlie Munger went on to say that whilst he has become more focused on great companies, the high valuations make investing mistakes more costly. He said about investing in those companies:

That is particularly hard for me because the great companies come at a high price.

You want companies that have high earnings on capital and have a durable competitive advantage, and if you can add to that they've got a good management instead of a bad one, that's a big plus too.

But what you'll find is that the great companies of the world have been discovered. They're very expensive to buy.

But stocks wasn't the only thing that Mr Munger commented on.

Not a fan of cryptocurrencies

The Sydney Morning Herald reported that Mr Munger said he wouldn't take part in the "insane" boom of cryptocurrency and didn't approve of promoters of cryptocurrency assets. He said:

I'm never going to buy a cryptocurrency. I wish they'd never been invented.

I think the Chinese made the correct decision, which is to simply ban them. My country – English-speaking civilisation – has made the wrong decision

I just can't stand participating in these insane booms, one way or the other. It seems to be working; everybody wants to pile in, and I have a different attitude. I want to make my money by selling people things that are good for them, not things that are bad for them," he said.

Believe me, the people who are creating cryptocurrencies are not thinking about the customer, they are thinking about themselves.

Inflation

Finally, on inflation, Charlie Munger reportedly said that over 100 years he doesn't trust any currency issued in the world. He said it's natural to reduce the purchasing power of currency. The best a government can hope for is slow inflation.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Opinions

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Happy woman looking for groceries. as she watches the Coles share price and Woolworths share price on her phone
Opinions

Why I bought this ASX 200 stock instead of Woolworths

I decided to put this stock in my shopping basket over Woolies.

Read more »

A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall
Dividend Investing

Invest $12,000 in Woodside stock and get $5,700 in passive income

Reliable dividend shares are everywhere on the ASX. Here's how you could use that to your advantage.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Cheap Shares

1 secretly cheap ASX 200 stock I'm buying for the long run

The best performer on the index last year has had a poor start to 2024. Let's examine whether this is…

Read more »

ventilator mask
Opinions

Here's why I think the Resmed share price should be 18% higher

Just because a company's share price has gone up doesn't mean it's no longer good value.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Index investing

3 top ASX index funds to buy now

I think these index funds are well worth a look right now.

Read more »