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Munger on Intelligent Investing
With markets at record highs – trading at very high valuations – I felt it was timely to revisit investing lessons from Charlie Munger. Sadly, Charlie passed away late last year – just shy of his 100th birthday. Whilst Charlie was an incredible investor – what I loved most was his ability to draw insights from many disciplines – which included the study of psychology, economics, physics, biology, history, architecture among other things. This enabled Charlie to develop a lattice of “mental models” to cut through difficult problems. Over the years, I’ve found Charlie’s insights into investing, business and life not only rare but generally correct. What’s more, they stand the test of time.
Tobin’s Q-Ratio Trades at Historical Highs
By just about any intrinsic measure – the stock market looks expensive. Ben Graham would be warning investors to heed caution. Now one of the more widely cited metrics is its forward price-to-earnings (PE) ratio – which trades at a very high 22x. However, another intrinsic measure is James Tobin’s Q-Ratio – which now trades at a record high – exceeding that of the dot.com bust. And whilst not a great timing tool – it maintains a very reliable record of picking long-term secular highs.
Tariffs: More than Just Trade Imbalances
Since Trump’s election win – it’s clear he’s willing to use access to (lucrative) U.S. markets as leverage to achieve broader objectives. And major trading partners are taking notice. For e.g., the ECB’s Chief – Christine Lagarde – has suggested European countries should look at how to avoid (new) tariffs by buying more US made goods. And South Korea is looking at buying more US based LNG. What’s clear is any potential tariffs are becoming an integral part of a larger strategy to reorient global trade relations around issues such as greater security, immigration and health priorities. That is, they’re not exclusively aimed at reducing economic imbalances.
Benjamin Graham’s ‘The Intelligent Investor’
Over the 14 years writing this blog – I’ve mentored many people on how to become a better investor. It’s something I enjoy and a large part of why I’ve written this blog for so long. As part of that, one of the (many) books I highly recommend is Benjamin Graham’s timeless classic “The Intelligent Investor”. Unfortunately this is not a great book for those beginning their investing career. It’s very dense and requires a lot of time and focus. I had the idea to write a 20-part summary of the book — where each part corresponds to a chapter. And where practical – I produced up-to-date examples of his principles – simply to illustrate that nothing changes. And whilst someone will always say “it’s different this time” – the truth is very rarely is it different.