Retirement

The Greatest Investment Story You’ve Never Heard Of

I remember being in my early 20s and thinking that my dad was so old and out of touch that his opinion wasn’t worth paying attention to.

He was in his late 40s at the time. Ancient, I know!

Fast-forward a couple of decades, and of course my view is very different. I’m now convinced that my dad’s take on things was much more valuable than mine.

Experience counts, folks, and no place more so than in investing.

I will prove it to you today with my absolute favorite investing success story of all time…

Achieved by an 85-year-old man!

Not Your Ordinary Charlie…

Chances are you know of Warren Buffett.

You probably even know that those of us in the investing community call him the “Oracle of Omaha.” Buffett occupies the No. 1 spot on most lists as the greatest stock market investor in history.

But do you know Buffett’s right-hand man, Charlie Munger?

For 50-plus years, Munger has been the vice chairman to Buffett at the Oracle of Omaha’s publicly traded conglomerate, Berkshire Hathaway (NYSE: BRK-A).

If you haven’t heard of Charlie Munger, you are missing out. I highly recommend soaking up everything he has to say – about investing and life.

He is brilliant. And with his dry, curmudgeonly take on everything, he is also extremely funny.

Charlie was born on January 1, 1924. That makes him 96 years old today, and he is still as sharp as a tack. He can run mental laps around almost every human on the planet.

I have often thought that Munger is genetically built to be an incredible investor (which he has proven to be for decades). These traits of his make it so:

  • He has a Mensa-level IQ.
  • He is obsessed with acting rationally (not emotionally) in every instance.
  • Munger reads more in a month than most of us do in a decade.
  • He is absurdly patient.

Together, these attributes make him the ultimate investing weapon.

We can get better as investors by studying what makes greats like Munger so successful.

Now, about that incredible investing story…

Going “All In” on the Right Financial Stocks at the Absolute Bottom

Most people are familiar with Munger from his association with Buffett at Berkshire. Munger is also the chairman of Daily Journal (Nasdaq: DJCO), which produces newspapers and websites for legal, business and other purposes.

The newspaper business isn’t a great one, but Daily Journal just happens to be the vehicle through which Charlie Munger made one of the greatest investments of all time.

The financial crisis is getting more distant with each passing year, but if you lived through it, you can close your eyes and remember how terrifying it was for investors. We have had a taste of that level of panic in the markets lately.

In early 2009, almost everyone was experiencing the normal human fight-or-flight response, with most investors choosing to flee. It was hard enough to hold stocks in the face of the panic, never mind to buy aggressively.

People were scared. The consensus was that we were on the verge of a multiyear depression. Optimism was in short supply, and the future looked bleak.

Always the rational thinker, Munger had a different view of what was about to happen.

On September 30, 2008, Daily Journal found itself sitting on $20.7 million in cash. For the company, this represented many years’ worth of earnings that Munger had been letting build up in the corporate bank account.

Unlike most corporate CEOs, Munger did not let the cash burn a hole in his pocket. He was content to let it build and build until an obvious use for it arrived.

On March 9, 2009, the S&P 500 bottomed at 666.

At that very moment, when investors all over the world were capitulating and giving up on stocks, the then-85-year-old Charlie Munger took Daily Journal’s cash and went “all in.”

At the absolute depth of the financial crisis and stock market crash, Munger invested $20.4 million into two bank stocks. The majority of the cash went into Wells Fargo (NYSE: WFC), and the remainder went into Bank of America (NYSE: BAC).

Munger didn’t invest this money just over the course of 2009. He got it done right at the very bottom that was hit during the first week of March 2009.

I know, it is unbelievable… but it is true.

You know how the story played out from there. While some financial stocks did go to zero, Wells Fargo and Bank of America most certainly did not. Munger knew these banks extremely well, having studied them for years.

In March 2009, Munger knew he was hitting an investing home run.

The Daily Journal equity portfolio jumped from $20.4 million in March 2009 to $131 million by December 31, 2015.

Munger made so much money for Daily Journal that the Securites and Exchange Commission even came knocking and asked how this little legal newspaper company suddenly had $131 million in cash.

Daily Journal’s answer was pretty simple:

There is no question that Daily Journal’s marketable securities currently exceed 40% of its total assets.

 

This is due to the wise decision of the Board of Directors in 2009 to begin shifting the Company’s cash and cash equivalents into marketable securities that have appreciated significantly.

 

The Board recognized that this decision would be contrary to the conventional (but questionable) notion that the least risky way to preserve corporate capital for the long-term benefit of stockholders is to invest it in government bonds at interest rates approximating zero, notwithstanding rising inflation.

 

Accordingly, the Board decided to purchase securities selected by Charles Munger, the Company’s non-executive chairman, and J.P. Guerin, the Company’s vice chairman.

 

Those investments were quite successful…

That pretty much sums it up. The company had quite a bit of cash, and the man in charge knew exactly both when and what to do with it.

Not bad for an octogenarian.

Good investing,

Jody


About

Jody Chudley is a Contributing Analyst to Wealthy Retirement. He is a qualified accountant with two decades of experience in the international banking and hedge fund industries as a financial analyst.
His background in finance has made him an expert in deciphering financial statements and uncovering deep value and income opportunities. He has written for various websites and financial magazines with a focus on the resource sector and contrarian investment opportunities.

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