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.
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.