What Charlie Munger Says About China

Best investing story of all-time...?

BORN on January 1, 1924, Charlie Munger is now 94 years old, writes Jody Chudley, financial analyst at The Daily Edge, for Addison Wiggin's Daily Reckoning.

For decades, Munger has played the role of Warren Buffett's curmudgeonly right-hand man at Berkshire Hathaway (BRK.A). Together, the two have made billions and billions of Dollars.

But before you write Charlie off as being far too old to listen to, I have to tell you about what Charlie did in March of 2009 – at the very bottom of the financial crisis – back when Munger was a fresh-faced 85-year-old.

It is my single favorite investing success story of all-time.

Here's how it went down...

In addition to being vice-chairman at Berkshire Hathaway, Munger also moonlights as the chairman of Daily Journal Corp. (DJCO), a small company that owns a few newspapers.

To appreciate what Munger did, you need to remember what it felt like at the time.

Everyone was terrified. The global financial system was seizing up.

Investors across the board were reacting with the normal human "flight or fight response," most choosing to flee from danger. It was hard enough to hold stocks in the face of the panic, never mind buying aggressively.

Even very experienced, successful investors were scared.

At the end of September 2008, as the financial crisis was really kicking into gear, Daily Journal held $20.7 million of US Treasury securities. Munger had been letting this cash balance build for years waiting for what he believed was an exceptional opportunity.

On March 9, 2009, the S&P 500 bottomed at 666 points. At the very moment when investors all over the world were capitulating, the 85-year-old Charlie Munger was literally going "all-in" with Daily Journal cash.

In the absolute depth of the financial panic, Munger invested the entire $20.4 million in the two dirt cheap bank stocks that he knew the best – Wells Fargo (WFC) and Bank of America (BAC).

It is unbelievable, but it is true. Munger timed the bottom perfectly.

The Daily Journal equity portfolio, which was initiated with a $20.4 million investment in March 2009, was worth $131 million by December 31, 2015.

That's a 542% return!

Munger made so much money for Daily Journal Corp. that the SEC came knocking and asked how this little newspaper suddenly had a $131 million investment portfolio.

Their response to the SEC 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."

What else was there to say? They had a lot of cash and the man in charge knew exactly what to do with it and exactly when to do it.

Today, Charlie Munger has another one of these "call the bottom" investment ideas – Chinese stocks.

In May of this year at the annual Berkshire Hathaway general meeting, Charlie said that American investors were completely missing the big opportunity in Chinese stocks.

Recently, he repeated his bullish view on Chinese stocks in another interview. And we agree with him here at The Daily Edge and have since been pointing readers in the direction of China for several months now.

The thesis is simple.

The Trump trade war has caused the Chinese stock market to drop by almost 20% in 2018. And while some Chinese stocks likely deserve to be down because of the trade war, many Chinese companies that are in no way impacted by President Trump's tariffs have also been sold off.

As a result, this could offer a terrific opportunity to own a powerhouse business at a rock bottom price.

I think now really is a great time to start looking across the Pacific for investments. Charlie Munger certainly knows what he's talking about, and who knows, maybe this investment will be the start of my new favorite investing story of all-time.