Charlie Munger Warns About the Stock Market. This is His Portfolio Now

Just this past week, Charlie Munger sat down for a rare interview. In this interview, Charlie Munger warned that this current stock market is, quote, "the craziest market I have ever seen." Considering Charlie Munger is 97 and has lived through his fair share of stock market bull runs and crashes, these are pretty strong words.

So this raises the billion-dollar question: How is Charlie Munger positioning his portfolio in this crazy stock market? Make sure to stick around till the end of the video to see what you can learn from Munger's portfolio and how to invest in these quote "crazy" markets. Let's jump right into the video.

Charlie Munger manages the portfolio of a newspaper company named the Daily Journal and is also the company's chairman. He purchased the paper in 1977, and through a series of acquisitions and organic growth, built it into a group of newspapers and websites that provides information on the legal industry, real estate, and general business.

The company now publishes 10 newspapers in California and Arizona. Its largest publications are the Los Angeles Daily Journal and the San Francisco Daily Journal. However, what is most important is that since the Daily Journal is a publicly traded company trading on the Nasdaq Stock Exchange under the ticker symbol DJCO, it is legally required to disclose what stocks it holds within its portfolio.

That means you and I, as outsiders, can see exactly what stocks Munger owns. Now let's take a look. The largest position in the portfolio is Bank of America, ticker symbol BAC. The stock currently trades at around 44 dollars a share, has a P/E ratio of 13, and a dividend yield of 2 percent. Bank of America is the second-largest bank in the United States next to JPMorgan Chase.

Bank of America has multiple different business segments. Consumer banking makes up 40% of its revenue. This business segment is what you think of when you think of a bank: checking accounts for individuals and small businesses, credit and debit cards, traditional savings accounts, and different types of loans such as mortgages. When someone buys a house, the next largest segment is the global wealth and investment management segment, making up about 20% of revenue.

This is where the company manages money on behalf of wealthy people through financial advisors. This group focuses on managing the money of rich people. It makes money by taking a percentage of the money they manage in exchange for the advice they offer. Next up is the global market segment, which accounts for around 15 percent of the company's revenue.

This is where the company provides trading and research services for clients. So for example, if you see an article saying that Bank of America is predicting something in the economy, it comes from this business segment. Bank of America makes 55% of its money from interest paid on loans, so think of interest payments on a Bank of America mortgage, for example. The other 45% comes from what is referred to as non-interest income.

This includes investment and brokerage services, trading account profits, card income, and investment banking profits. It is really interesting to note that the position of Bank of America makes up roughly 43% of the entire portfolio. One key element of Charlie Munger's investment strategy is that he believes in having a very concentrated portfolio, focusing on only a few stocks.

If you want to learn more about Charlie Munger's investment strategy, make sure to check out the video I did on the checklist he uses when investing. Here next up in Munger's portfolio is Wells Fargo, ticker symbol WFC. This position makes up nearly 33% of the portfolio, meaning that between the largest position, Bank of America, and Wells Fargo, 76% of Munger's portfolio is concentrated in just two names.

Just for some context, some investment funds have rules that prevent any single position from being more than five percent of the total portfolio. This just goes to show that Munger has never been one to listen to conventional wisdom. Wells Fargo stock currently trades at around 48 dollars a share, has a P/E ratio of 11, and a dividend yield of 1.67 percent.

Wells Fargo is the third-largest bank in the United States. The company is organized into three separate business units. Community banking, the firm's largest segment at around 50% of total revenue, offers consumers and small businesses a full range of retail banking products, including checking and savings accounts and credit and debit cards, as well as car, home, and small business lending.

The next largest segment is wholesale banking, which accounts for 30% of total revenue and provides banking and financial services to larger businesses with revenues exceeding five million dollars a year. The third and final segment is wealth and investment management, which generates 20% of the company's revenue. This segment provides financial planning for individuals through financial advisors, as well as investment products through the investment management arm of this segment.

Munger's history with Wells Fargo goes back decades. He and his business partner, Warren Buffett, bought shares in the bank through Berkshire Hathaway all the way back in 1989. Given that Munger has been involved in owning Wells Fargo stock for decades, it's fair to say that he understands the company very well. Munger has continued to own shares in the company despite the bank's stumbles in recent years, with issues such as a scandal where the company's employees were opening up fraudulent checking accounts in customers' names in order to hit sales goals.

The third largest position in Munger's portfolio is Chinese e-commerce company Alibaba. This position totals roughly 20% of the entire portfolio. Alibaba stock currently trades at around 110 dollars a share, which is down from the 315 dollars a share it was trading at in late October 2020. This is the newest position in the portfolio and is the first new stock to be added to the portfolio in many years.

It was obviously huge news when Munger started buying shares in Alibaba. In fact, I actually did an entire video on the topic that you can watch here if you want a detailed explanation of why Munger was buying tens of millions of dollars worth of Alibaba stock. Alibaba is frequently referred to as the Chinese Amazon.

The company operates through four segments: core commerce, cloud computing, digital media and entertainment, and innovation initiatives and others. The stock currently trades at a P/E ratio of 16.6. Despite being nearly 100 years old, Munger is still the ultimate long-term focused investor. However, with that being said, Alibaba's stock price has fallen by nearly 50% since Munger started buying shares in the company.

You don't have to be a billionaire investor to understand why someone would want to invest in Alibaba. Here are three reasons I can think of right away:

Number one: high growth. Alibaba has grown revenue at 60% per year on average over the past 10 years. The company grew free cash flow by 57% over that same time period. Alibaba was able to grow earnings per share by 66% on average over the past 10 years. These figures are all significantly higher than the average stock for most mature American companies. Five to six percent revenue growth makes for a pretty solid year.

Number two: moats. Alibaba's moat, or competitive advantage, is called the iron triangle. Alibaba's iron triangle is a combination of e-commerce, logistics, and finance. This triangle consists of Alipay for payment, SignNow for logistics, and this combination of payments and logistics creates a network effect for Taobao and Tmall. Through these services, Alibaba has become an ingrained part of the life of Chinese consumers, so much so that it would be extremely difficult for a competitor to come in and take away Alibaba's customers.

And then third and finally, you can make a case for Alibaba being undervalued. The stock currently trades at a P/E ratio of 16. This compares pretty favorably to other large tech companies. Facebook's P/E ratio is 22x, Amazon's is at 66x, and Apple's P/E is at 29x. So even though Munger's investment in Alibaba isn't off to the best start, it will take more time to see how things truly turn out.

Next up, at just under four percent of the portfolio, is U.S. Bancorp, ticker symbol USB. The stock currently trades at 55 dollars a share and has a P/E ratio of 11. U.S. Bancorp is the holding company for U.S. Bank, the United States' fifth largest bank by assets. The company's operations are broken up into distinct business segments, the largest of which is consumer and business banking, raking in more than 35% of total revenue.

This is where U.S. Bancorp markets standard banking products such as checking and savings accounts and offers loans to individuals and businesses. The next largest segment is payment services at 25% of revenue. This covers business activities and cards such as consumer and business debit, corporate cards, and merchant processing. Then, 15% of revenue is the corporate and commercial banking segment.

This segment focuses on banking services for larger companies, which includes offering depository services, treasury management, and capital market services to middle market, large corporate, commercial real estate, and non-profit and public sector clients. And then finally, at under 1% of the portfolio, is Posco, ticker symbol PKX.

Posco is a South Korean based manufacturer of various types of steel products. The company produces hot-rolled steel, cold-rolled steel, stainless steel, and other forms of steel. Posco produces its products mainly for the automobile, construction, and shipbuilding industries. Posco operates in four distinct business segments: the steel segment, which nearly 50% of revenues, includes the production and sale of steel products; the trading segment, at about 40% of revenues, consists mainly of global trading activities and natural resource development activities.

This segment includes the export and import of a wide range of steel products, both from Posco as well as between other suppliers and purchasers in Korea and overseas. Then there is the construction segment, which accounts for 5% of revenue, which is involved in the planning, designing, and construction of industrial plants, civil engineering projects, and commercial and residential buildings, both in Korea and overseas. Finally, there is the other segment, which includes power generation, LNG logistics, and manufacturing of various industrial materials.

So now that we know what stocks Munger has in his portfolio, I want to talk a little bit about what lessons you can apply to your own investing from Munger. The first and biggest lesson is to stick to companies you understand and don't chase the new popular companies. Over the last 12 months or so, there have been a ton of new companies coming to the market that have received a ton of buzz and attention.

While there may be a ton of focus and attention on those companies, over the long run, how much money will be made in those companies that barely produce a product and have little to no revenue? It's hard to say, but I would make the argument that it might be better to stick with companies you understand. Another lesson is, don't feel the need to constantly buy and sell stocks. In nearly 10 years, Munger has only bought one additional stock to his portfolio.

Now, you don't have to be that extreme, but keep in mind one of my favorite quotes from Charlie: "In investing, you don't make your money when you buy or when you sell; you make your money in the waiting." This means be patient and wait for compound interest to work wonders. Don't interrupt it unnecessarily by also buying and selling different stocks.

So there we have it. Make sure to like this video and subscribe to the Investor Center because it is my goal to make you a better investor by studying the world's greatest investors. If you want to watch a video I did on Charlie Munger's investing checklist, you can check that out here. As always, thank you for watching, and I look forward to speaking with you again very soon.