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Charlie Munger Advice As you may know, Charlie Munger passed late last year. He was the second-hand man for Berkshire Hathaway and ran the “fund” alongside Warren Buffet for many years. The results of this method of investing have been nothing short of astounding but what few people realize is that Charlie changed the way Warren invested. Warren Buffet was a disciple of Benjamin Graham who “wrote the book on investing” by focusing on a company’s underlying relative fundamental value for security selection. What Charlie brought to the table was the focus on successful companies that tend to dominate markets (they have a protective moat around their earnings). Basically, if you focus on purchasing terrific companies at reasonable valuations you should be able to outperform investing in mediocre companies at dirt cheap prices. The closest investing with funds in Canada tends to bear out this success with funds like Trimark (now Invesco), CI with Blackcreek (Bill Kanko came from Trimark), and Edgepoint (formed from Trimark fund managers). The caveat to this form of investing is that it tends to have higher volatility than value investing and also tends to ignore what is “hot” as it is by nature contrarian. Bonds Versus Stocks Over the long term, stocks have managed to outperform bonds on a relatively consistent basis. This makes sense as investors will be rewarded for taking the inherent risk investing in equities. To minimize this risk, a diversified portfolio generally will help mitigate volatility. Today, you can invest in a 10-year Government of Canada Bond and receive a yield of roughly 3.73% according to the bank of Canada. Or, you can invest in Royal bank common shares and receive a dividend yield of 4.14% currently. According to Ycharts, the price/earnings yield for RBC shares is currently 12.6 which means an earnings yield of some 7.9% (roughly 4% is paid out and 4% is reinvested). So, holding RBC shares should provide you with a superior return to holding a Government of Canada bond. But there will be risk. China Markets Rebound  China markets have rebounded since the end of January but really, they likely could not go much lower. According to CNBC the China economy grew 5.3% in the first quarter of the year. Also, according to the “World P/E ratio” site, the market itself has a price/earnings ratio of 8.27 or an earnings yield (the inverse) of 12%. To me the math makes a compelling case for investing in China for the high current yield coupled with a high growth rate. What else could you want? Gold and Technology Stocks
Advice on owning/buying gold and technology stocks: it is a speculative asset that pays you nothing. No interest and no dividends. Not to say that I did not buy gold coins “just in case” in 1999 as a hedge against financial disaster. People write books on gold. It is just not my forte. But my eavestrough guy showed up at my doorstep a few weeks ago wanting a list of junior gold producers and Costco does sell it. So, you never know. |
