At age 93 and with seventy years of very successful investing and wealth management under his belt, who is right? Mr Munger, or the fly by nights in Israel and Cyprus?
Charlie Munger is to the venture capital and wealth management world as Marks & Spencer or Macy’s is to the high street shopping world.
Mr Munger is a staple household name who is now 94 years old and has an illustrious, highly documented career dating back to the early 1960s, and a personal wealth of $1.72 billion.
Whims, fads and obsessive tendencies toward items that do not exist are not part of Mr Munger’s remit, and his proven history clearly demonstrates that.
The unprecedented and somewhat obsessive interest in virtual currency that has engulfed modern society recently, propagated by upstart keyword-obsessed marketing people with very little experience, anarchists and in some cases fraudsters into the eyes of overtly enthusiastic investors is a very puzzling and potentially insidious trend, which has in many cases been the bete noir of the genuine electronic trading industry, and quite rightly so.
Today, the voice of experience and sensibility has labeled Bitcoin as a noxious poison.
Mr Munger has stated that the bitcoin technology might be interesting but the investing frenzy around it over the last year should have prompted a government crackdown like the one in China.
Yesterday, during a shareholder meeting at Warren Buffett’s Berkshire Hathaway, Mr Munger said “Bitcoin is a noxious poison.”
He said “Our government’s more lax approach to it is wrong. The right answer to something like that is to step on it hard.”
Currently, the Securities and Exchange Commisssion (SEC) views Bitcoin as a commodity. Last week in various financial centers across North America, FinanceFeeds discussed this with derivatives exchange officials, many of whom concurred with FinanceFeeds perspective that whilst it could well be viewed as a sort of ‘digital gold’ due to its limited supply and the way that it is electronically mined, it is most certainly the preserve of mavericks and anarchists, is not part of any proper financial markets framework and is a potential danger.
Virtual currencies are also a gateway to fraudulent marketing and many cryptocurrency related ventures are being operated by semi-literate scammers who have spent the last few years operating binary options boiler rooms from Israel and Russia, which are now the subject of FBI scrutiny.
The question that really does not need answering is who to believe? A former binary options scammer who has very little business experience and has the sole goal of extorting as many unsuspecting people as possible and then morphing the same platform into crypto currency investments in an item that does not and never will exist with a currency that does not exist in exchange for proper centrally issued fiat currency which immediately goes into the pockets of the owners on deposit, or Warren Buffett’s senior executives.
Mr Munger joined the law firm Wright & Garrett (later Musick, Peeler & Garrett) more than sixty years ago. In 1962 he founded and worked as a real estate attorney at Munger, Tolles & Olson LLP.
He then gave up the practice of law to concentrate on managing investments and later partnered with Otis Booth in real estate development. He then partnered with Jack Wheeler to form Wheeler, Munger, and Company, an investment firm with a seat on the Pacific Coast Stock Exchange. He wound up Wheeler, Munger, and Co. in 1976, after losses of 32% in 1973 and 31% in 1974.
Although Munger is better known for his association with Buffett, he ran an investment partnership of his own from 1962 to 1975. According to Warren Buffett’s essay, “The Superinvestors of Graham-and-Doddsville”, published in 1984, Munger’s investment partnership generated compound annual returns of 19.8% during the 1962–75 period compared to a 5.0% annual appreciation rate for the Dow.
Mr Munger was previously the chairman of Wesco Financial Corporation, now a wholly owned subsidiary of Berkshire Hathaway. It began as a savings and loan association, but eventually grew to control Precision Steel Corp., CORT Furniture Leasing, Kansas Bankers Surety Company, and other ventures. Wesco Financial also held a concentrated equity portfolio of over US$1.5 billion in companies such as Coca-Cola, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs. Munger believes that holding a concentrated number of stocks, that he knows extremely well, will in the long term produce superior returns.
Mr Munger, along with Warren Buffett, is one of the main inspirations behind the book Seeking Wisdom: From Darwin to Munger. Author Peter Bevelin explained his key learnings from both Munger and Buffett in a 2007 interview: “How to think about businesses and investing, how to behave in life, the importance of ethics and honesty, how to approach problems but foremost how to reduce the chance of meeting problems.” Bevelin stated that previously, he “was lacking the Munger ability to un-learn my own best-loved ideas”.
Munger states that high ethical standards are integral to his philosophy; at the 2009 Wesco Financial Corporation annual meeting he said, “Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail.”During an interview and Q&A session at Harvard-Westlake School on January 19, 2010, Munger referred to American philosopher Charles Frankel in his discussion on the financial crisis of 2007–08 and the philosophy of responsibility.
With a background of this provenance, comments made by Mr Munger should be taken seriously. The question is, when will the sensibility return and the mania around cryptocurrencies stop?