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Charlie Munger: It's 'absolute insanity' to think owning 100 stocks instead of five makes you a better investor

Julia La Roche
·Correspondent
·2-min read

Investing icon Charlie Munger, Berkshire Hathaway's (BRK-B, BRK-A) vice-chairman and Warren Buffett's long-time business partner, says his type of value investing will “never go out of style.”

“Because value investing — the way I conceive it — is always wanting to get more value than you pay for when you buy a stock, and that approach will never go out of style,” Munger said on Wednesday at the Annual Meeting of Shareholders of the Daily Journal Corporation (DJCO), where he serves as chairman of the board.

According to Munger, some think that value investing means chasing companies with a lot of cash but run a lousy business.

"[I] don't define that as value investing," he added. "I think all good investing is value investing. It's just some people look for values in strong companies and some look for values in weak companies. But every value investor tries to get more value than he pays for."

'Diworsification'

Munger observed that in the wealth management space “a lot of people think if they have 100 stocks they're investing more professionally than they are if they have four or five."

“I regard this as insanity. Absolute insanity,” Munger said.

"I think it's much easier to find five than it is to find 100," the 97-year-old investor argued. "I think the people who argue for all this diversification, by the way, I call it 'diworsification,' which I copied from somebody. And I’m way more comfortable owning two or three stocks which I think I know something about and where I think I have an advantage.”

Vice Chairman of Berkshire Hathaway, Charlie Munger attends the annual Berkshire shareholders meeting in Omaha, Nebraska, May 3, 2019. (Photo by Johannes EISELE / AFP)
Vice Chairman of Berkshire Hathaway, Charlie Munger attends the annual Berkshire shareholders meeting in Omaha, Nebraska, May 3, 2019. (Photo by Johannes EISELE / AFP)

Later in the meeting, when asked how he advises universities and charitable institutions to manage their endowments, Munger shared that one charitable endowment where he’s had “some influence for a very long time” has a “bunch of hotshot financiers in every branch of wealth management there is” on its board. According to Munger, that institution has two assets in its endowment account — a large interest in Li Lu’s limited partnership and a Vanguard index fund.

“And the result of holding those two positions, we have a way lower cost than anybody else and we make more money than practically everybody else," he said. "So you now know what I do in charitable institutions. By the way, that's not the normal outcome in America. The wealth management industry has a crisis on its hands. They really need the world to stay the way it is, and that isn't necessarily right for its customers.”

Shares of Daily Journal closed up 1.4%, or $4.70, to end Wednesday at $351.

Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.

Read more from the Daily Journal Meeting: