Charlie Munger Trading Tip: Avoid Speculative Stocks
I’ve been to a couple of Warren Buffett’s Berkshire Hathaway shareholder meetings.
With the 2019 version coming up this Saturday in Omaha, Nebraska, he naturally gets most of the attention.
But with the stock market at all-time highs, Berkshire’s vice chair, Charlie Munger, deserves a minute of our attention with a bit of advice on how to stay out of serious investing trouble.
Munger’s not as well-known or as comfortable in the spotlight as his friend. Onstage at the Berkshire meetings, he has all the personality of a curmudgeonly bullfrog.
But he’s just as sharp of an investor.
With a net worth of $1.7 billion, Munger earned much of his money as chairman of Wesco, his own diversified investment company — a miniature Berkshire, if you will — before merging Wesco into Berkshire in 2011.
Here’s Munger’s advice, written in a letter to Wesco shareholders years ago:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
I like that. Few of us are as sharp as Munger or Buffett.
But being consistently not stupid when it comes to investing?
I think I have a shot at doing that. So do you.
Stay Away From Popular Stocks
Being not stupid means…
Avoiding speculative stocks when they’re at an extreme of popularity (like now). It’s the exact opposite of four months ago when I told you to “Keep Calm — History Says Stocks Will Rebound.”
It means steering clear of money-losing initial public offerings (IPOs) like Uber and Lyft (which is now down nearly 40% in four weeks). Neither of them will ever earn a profit, in my opinion. These kinds of massive (and popular) IPOs are most often seen at market tops.
Buy Good Stocks at a Huge Discount
Being not stupid means…
Buying stocks of good companies at cheap prices. That’s how you beat the market over years of time.
Like in June 2017 when I told my paying subscribers to buy one beaten-down stock because it was “Like Buying Tesla, But Without All the Risk.”
If you’re not a subscriber, here’s a hint at my thinking, then and now.
At the time, Tesla was perched at all-time highs. Since then, my stock is up nearly 70% while Tesla shares are down more than 35% (with a lot further to fall, in my opinion).
Invest Like Warren Buffett and Charlie Munger
We will all be wrong from time to time when it comes to investing. That’s just part of the game.
But if we can try to be (again, in Munger’s words) not stupid in our choices, our portfolios will survive the occasional market trauma.
We’ll stand ready to buy good stocks at cheap prices today, tomorrow, next month, next year — with a lot less risk than I see in the broader market right now.
Jeff L. Yastine
Editor, Total Wealth Insider