Afford Anything - Tribute to Charlie Munger, The Man Who Taught Warren Buffett How to Invest

Episode Date: December 1, 2023

#475: Born in 1924, Charlie Munger was raised during the Great Depression. At the time of his death on Tuesday, his net worth was estimated at $2.6 billion. But Munger’s greatest achievement wasn’t merely the scorecard of his net worth. His wit and wisdom, which Munger shared with the world through his book, Poor Charlie’s Almanack, which made him one of the most respected investors of the last century. Munger is the man who taught Warren Buffet how to invest. He’s lauded as the moral compass of Berkshire Hathaway, the company where he has served as vice chairman since 1984. He’s the man who famously said, "In the short run, the market is a voting machine. But in the long run, it is a weighing machine." Munger and Buffett met each other in Omaha, their shared hometown, at a lunch at the local Omaha Club, where they were introduced by mutual friends. They instantly connected. Buffett was an unknown at the time, but Munger saw his potential. Munger’s wife once asked him, “Why are you paying so much attention to [Buffett]?,” and Munger replied, “You don’t understand. That is no ordinary human being.” Their business partnership and friendship has lasted for more than 50 years, and Munger played a key role in many of Buffett’s investing decisions. He passed away on November 28, 2023, at age 99. In today’s First Friday bonus episode, we pay homage to the late investing legend Charlie Munger. For more information, visit the show notes at https://affordanything.com/episode475 Learn more about your ad choices. Visit podcastchoices.com/adchoices

One of the most important investors of the last 100 years, a man who is known not so much for his wealth, but for his wisdom. Charlie Munger has passed. We're going to, in this episode, take a look at his life as well as talk about what's happening in our economy right now, including two Fed governors releasing contradictory statements about what may be happening with interest rates moving forward and news about. home prices, which, spoiler alert, have gone up 6.1% year to date. We'll be covering all of that and more in today's first Friday bonus episodes. So welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything. Every choice that you make is a trade-off against something else.

And that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention, to any limited resource that you need to manage. So what matters most to you? And how do you make choices accordingly? Those are the two questions that this podcast is here to explore. My name is Paula Pant. I'm the host of the Afford Anything podcast.

Normally we're a weekly show. We air every Wednesday-ish. But once a month, on the first Friday of the month, we air a first Friday bonus episode. So welcome to the December, 2023, year-end, 23, first Friday bonus episode. Let's dive right in with a reflection on the life of an absolutely remarkable individual whose impact extends so far beyond the world of finance. Charlie Munger was born in 1924 in Omaha, Nebraska, and he played a crucial role in shaping the world of investments as we know it. He was the right-hand man, the business partner, the best friend to Warren Buffett. Warren Buffett and Charlie Munger go together like peanut butter and jelly.

Charlie Munger's journey began in the middle of the Great Depression. He and Warren Buffett both share Omaha, Nebraska as their hometown. And Munger was originally a lawyer. But as he started meeting really interesting clients doing interesting things, he realized that he would rather be more like his clients than he would be their legal advisor. And so he left the world of law and by a twist of fate met Warren Buffett. So they met at lunch at a local Omaha club and that chance meeting, that absolute fluke chance meeting marked the start of a business partnership and a friendship that lasted for more than 50 years. So together, Warren Buffett and Charlie Munger formed a company called the Buffett Partnership Limited.

They formed that company in the 1960s, and that partnership became one of the most successful in history. In 1978, Charlie Munger became vice chairman at Berkshire Hathaway. He was a huge contributor to the decisions that the company made. you know, the Berkshire Hathaway, the, you know, the annual meetings that happen in Omaha. It's like the woodstock of stock investing. And it's largely because of the wisdom of Charlie Munger. Charlie takes the stage and shares the most profound insights. Warren Buffett has attributed much of his success to having the guidance of Charlie Munger.

And so his passing is a huge blow. to, frankly, to humanity. He has an accumulated wealth of about $2.6 billion. To share some of his insight, just a peak of it, his hiring philosophy was trust first, ability second, meaning first hire people that you trust. Don't worry if they don't necessarily have the skills to do a given job. Just make sure that they are trustworthy people. That is first and foremost.

He was in many ways considered the moral compass of Berkshire Hathaway. He was a big proponent of buying really strong, wonderful businesses at fair prices, and that was his approach to investing. If you want to learn more about Charlie Munger, there's an amazing blog called Farnham Street. Farnham Street is the name of the street in Omaha that Warren Buffett lives on and also where the headquarters of Berkshire Hathaway are located. So there is a fantastic blog called Farnham Street that is really in many ways based around

the wisdom of Charlie Munger. If you want to read more of Charlie Munger's wisdom, I highly, highly recommend Farnham Street. It is one of the best gems on the internet. Moving away from this tribute to Charlie Munger and onto some hot gossip, there are two Fed governors who recently provided contradictory remarks on the future of interest rates. So there's one Fed governor based out of Atlanta. This Fed governor said that inflation is on a downward trajectory. And of course, if inflation's on a downward trajectory, necessarily that means that interest

rates, at least implies the interest rates are not going to rise, that we have hit peak interest rates. And when the Fed is ready, interest rates will only go down from here. So that's a very uplifting thing to hear from a Fed governor. But a different Fed governor, one based out of Richmond, advocated for caution. This Fed governor cited lingering price pressures and said, you know, we might not be out of the woods yet. inflation might not be consistently heading downwards. If it remains as it is, we're going to have to take some measures accordingly. So these two Fed governors, one based out of Atlanta, one based out of Richmond, they pointed to a mix of

economic figures and anecdotal data. Both of them did. And they both had very different takeaways on the outlook for inflation. What does that mean? It means that not even the Fed itself knows or can agree on whether or not they themselves will decide to hold interest rates steady, raise interest rates or lower interest rates. The Fed is meeting one more time this year. They are meeting December 12th and 13th. So we will know in less than two weeks, we will know by December 13 what the outcome of that particular meeting is going to be.

But as far as what's going to happen in 2024, the contradictory remarks issued by two Fed governors show that even the Fed itself is torn on where we currently stand with inflation and what the Fed is going to do about interest rates accordingly. Speaking of rising prices, let's take a look at the housing market. National home prices have seen a year-over-year increase. On a year-to-date basis, the national composite has risen by 6.1% that is way above the median. based on 35 years of data. Breaking that down into various cities,

Detroit is leading the pack, with gains of 6.7%. San Diego, home prices rose 6.5%. New York rose 6.3%. Now, all of this is according to the S&P CoreLogic, K Schiller Index. In terms of other metro areas, Boston and Miami are both doing very well,

or by doing well, I mean, home prices are rising. So in Boston and Miami, home prices went up 5.3% and 5% respectively. Cleveland, home prices rose by 5%. But there are a couple of cities that actually saw price declines. So Portland, Oregon saw a decline of 7 tenths of a percent. And Phoenix dropped by 1.2%.

And the worst performer of all is, of course, one of the cities where I hold a rental property, Las Vegas. Las Vegas experienced a 1.9% decrease in home values. So what's going on Vegas? So that's where we are in terms of the housing market overall. And that's also a reminder that every market is local. Detroit in particular has a very, very low inventory of homes that are for sale. That is a major contributor to the rising home prices in Detroit. By contrast in Las Vegas, homes are sitting on the market for longer. There's a metric called average days on market, and it's a metric that measures how long a home sits on the market before it's sold once it's publicly listed. In Las Vegas, homes are sitting on the market for more than two months on average.

And what that does is it puts pressure on sellers to lower prices in order to get houses sold. So inventory is lingering on the market longer in a place like Vegas, and that puts a downward pressure on prices. By contrast in a place like Detroit, you have homes sitting on the market for an average of 35 days, half the amount of time in Detroit as compared to in Vegas. And the average days on market of 35 days in Detroit means that homes are selling faster now in Detroit than they were last year. Last year, the average days on market in Detroit was 42 days. Now it's 35.

So a lesson for anyone who wants to buy a home, particularly if it's an investment property, Take a look at the average days on market in the city in which you want to buy. Take a look at what that number is, how it compares to the national average, how it compares to other nearby cities or cities of a similar size in the region or across the country. And take a look at how it compares with previous years data because that metric average days on market can give you a lot of information as to how quickly inventory, is moving and therefore the direction that prices are taking. The holidays are right around the corner and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens. Maybe you need servware and cookware. And of course,

holiday decor, all the stuff to make your home a great place to host during the holidays. You can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Black Friday deals all month long. I use Wayfair to get lots of stories. type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space-saving. I have a daybed from them that's multi-purpose. You can use it as a couch, but you can sleep on it as a bed. It's got shelving. It's got drawers underneath for storage. But you can get whatever it is you want, no matter your style, no matter your budget. Wayfair has something for everyone. Plus, they have a loyalty program, 5% back on every item across

Wayfair's family of brands. Free shipping, members-only sales, and more. Terms apply. Don't miss out on early Black Friday deals. Head to Wayfair.com now to shop Wayfair's Black Friday deals for up to 70% off. That's W-A-F-A-I-R.com. Sale ends December 7th. Fifth Third Bank's commercial payments are fast and efficient, but they're not just fast and efficient. They're also powered by the latest in-payments technology, built to evolve with your business. Fifth Third Bank has the big bank muscle to handle payments for businesses of any size.

But they also have the fintech hustle that got them named one of America's most innovative companies by Fortune magazine. That's what being a fifth third better is all about. It's about not being just one thing, but many things for our customers. Big Bank muscle, fintech hustle. That's your commercial payments of fifth third better. This Giving Tuesday, Cam H is counting on your support. Together we can forge a better path for mental health by creating a future where Canadians can get the health they need, when they need it, no matter who or where they are.

From November 25th to December 2nd, your donation will be doubled. That means every dollar goes twice as far to help build a future where no one's seeking help is left behind. Donate today at camh.ca.ca.givings Tuesday. Turning our attention to the world of credit card rewards, Chase just put out a new survey that shows that one third of American consumers are spending their credit card rewards on holiday gifts and one fourth are spending their credit card rewards on buying groceries to make big elaborate holiday meals so credit card rewards which kind of have the connotation of a nice to have for a lot of consumers are core pieces of their

budget when when something big comes up like the holidays and consumers need additional money for things like gifts or for, you know, a big holiday meal, it's going to cost a lot more money than just your standard, ordinary run-of-the-mill, a weekly grocery shopping. For those types of periodic expenses, credit card rewards are increasingly something that people are relying on. According to this Chase study, parents are more likely than non-parents to view credit card rewards as either extremely helpful or very helpful when it comes to covering holiday expenses. It's not just families, small businesses also. Forty-two percent say that they're spending it to reward employees, and another 31 percent say that they are spending it in order to just kind of get a handle

on their overall spending. Now, all of that relates to how ordinary individuals and small business owners are using rewards, but there is, and I mentioned this in the previous first Friday episode, there is proposed legislation. that if passed would likely significantly reduce, if not eliminate a lot of credit card rewards. So this legislation is called the Credit Card Competition Act. The proponents say that the passage of this act would break up the dominance that Visa and MasterCard have over the market. Visa and MasterCard together control more than 80% of the credit card market. And proponents of the CCCA, the Credit Card Competition Act, say that Visa and MasterCard are using that market dominance to block competition.

The proponents of the act are largely big-name merchants, the Amazon's and the targets of the world. And so it's Amazon and Target versus Visa and MasterCard. The merchants say that the lack of competition inside of the credit card market is ultimately bad for consumers. But by contrast to the opponents of the act say that if this act were to pass, it would pose a threat to credit card rewards, to data security, and to access to credit. Recently, a few weeks ago, I went to a conference called CardCon. It's a conference for credit card media. And I heard a very lively debate about the Credit Card Competition Act. And one thing that struck me is that there's one particular category, airlines, and airlines are in this very strange in-between space because they are simultaneously merchants.

They sell airline tickets, which makes them merchants, but they are also co-branded on credit cards. I was particularly interested in finding out where the airlines land on this topic. because they are both merchants and technically they're not card issuers, but they are co-branded on cards. So technically they have a foot in both camps. But when it comes to the Credit Card Competition Act, the airlines are firmly opposed to it. And they're opposed to it because it's widely agreed that the passage of this act would likely put an end to credit card rewards. And many people use airline miles in order to book travel. Airline miles and mileage rewards are a big piece of how airline loyalty is built.

In addition to that, both major bank, the big banks, as well as really small credit unions and community banks are also opposed to it. And that was one thing that struck me being at CardCon is it's very unusual that big banks and, and small community banks and credit unions and airlines and Visa and MasterCard would all be on the same side of a given issue. But that is the unexpected assortment of allies that have formed in opposition to the Credit Card Competition Act. We will at some point in the future probably dedicate an entire bonus episode to this really interesting issue that has caused unexpected alliances to form across. this very wide gamut of airlines to credit unions to data security experts. So that is where we are with the Credit Card Competition Act. Turning to tax matters, the IRS has delayed the 1099k reporting. They are treating 2023 as an additional

transition year. This move is trying to reduce confusion for taxpayers with reporting only required for transactions exceeding $20,000 and 200 transactions. As we approach the end of the year, the IRS has also made some pretty significant adjustments for the 2024 tax year. The income thresholds for tax brackets have been increased by 5.4%

and the standard deduction for income tax filings in 2024 will also be 5.4% higher. This move is not expected to dramatically alter most Americans tax budgets. It is trying to instead maintain taxpayers in their same current brackets by acknowledging that any additional income that taxpayers have might merely be keeping pace with higher living costs. So basically it's an inflationary adjustment. Also, because it is December, we should point out some common mistakes that people make when doing your end of year tax planning. I know you're not making these, but people will forget to

to maximize retirement account contributions. I know that you haven't done that, but just in case you've got a friend or a family member, remind them to maximize their retirement account contributions. Don't forget about your HSAs, don't forget about your 529s, right? Those are big, big pitfalls. Don't forget about deductions, credits. Remember to maintain your records, you know,

and I'm guilty, I'm very guilty of having kind of a scattered, disorganized record keeping system, but keeping really good, records is how you take advantage of tax deductions that you legitimately, legally are totally entitled to get. Okay. Now our last story for today is about J.P. Morgan's S&P 500 outlook for 2024. So J.P. Morgan Chase just put out their expectations for how they think stocks are going

to perform in 2024. And it wasn't a very positive story, but they expect, and again, who knows if they're going to be right or not, it's always challenging to look at a crystal ball. They put out a pretty gloomy forecast expecting the S&P 500 to drop by 8% from its current level by the end of 2024. According to JPMorgan Chase, they attribute this to the deceleration of global growth, to the shrinking of household savings. and to various geopolitical risks, as well as the national elections in the United States. So all of that could add to some volatility. Now we should state that year to date in 2023 year to date, the S&P 500 is up nearly 19%. And that's because economic data is really strong, as we covered in the November 1st Friday bonus episode.

unemployment remains at a historic low at right around 3.8, 3.9%. GDP growth for the third quarter of 2023 was 4.9%. That's the highest rate that it's been, annualized 4.9%. That's the highest rate that it's been since 2021 in two years. So we've got really, really strong economic data. Inflation is falling, although, of course, as we just discussed, the even the Fed governors are divided as to whether or not that's a permanent thing. But overall, there's wide agreement among financial observers that the Federal Reserve is

probably pretty close to being done raising interest rates. They might hold interest rates steady for a little while longer. If they do have to raise interest rates, it probably, probably won't be too many more times and it probably won't be by too much. That seems to be the general consensus. And so based on all of that, the S&P 500 is up nearly 19% this year. So this has been a very, very positive year for the stock market. J.P. Morgan is saying that next year, according to them, they're predicting that next year is not going to be as good. They're predicting a little bit of a drop next year. It is, of course, very dangerous to try to make

predictions about the future. One year from now, we will be able to look back and know whether or not that prediction came to be. What we do know is that there is a large disconnect right now between the economic data and consumer confidence. Consumer confidence is quite low despite the fact that economic data is really strong and despite the fact that the markets are roaring. I mean, a 19% increase is a roaring market. And yet consumer confidence is weak and largely.

that is attributed to inflation. So that's a snapshot of where we are as we close out 2023 and an interesting set of questions about what lays ahead for the year to come. Well, thank you for tuning in. This is the Afford Anything podcast. This is a bonus episode.

So I hope you enjoyed it. And we will be back with our usual formatting in our Wednesday episode. By the way, this upcoming Wednesday episode is an interview with former NASA astronaut Mike Mossimoto, who was also on the Big Bang theory. He is going to talk about his experience, going to space, his experience as a NASA astronaut, and the lessons that he learned that you can apply in your own life when you take your own moonshot.

So make sure that you are subscribed to the Afford Anything podcast in your favorite podcast playing app, open up Spotify, Pandora, Apple Podcasts, whatever it is that you're using. and make sure that you hit the follow button so that you don't miss any of our fantastic upcoming episodes, including this interview with NASA astronaut Mike Mossimoo. He was the guy who sent the very first tweet from space, and he tweeted, launch was awesome. So if you're wondering what beautiful, eloquent wording was first tweeted from space, it was launch was awesome. Make sure also that you are subscribed to our show notes. You can get those by going to afford anything.com slash show notes.

Thank you so much for tuning in. My name is Paula Pant. This is the Afford Anything podcast, and I'll catch you in the next episode.