‘Things were way tougher’: Warren Buffet’s right-hand man has a blunt message for whiners worried about 'hardship.' 3 stocks that keep Charlie Munger happy in tough times
Despite a strong start to early 2023 for stocks, inflation remains hot and recession fears linger.
But Warren Buffett’s right-hand man Charlie Munger suggests that we should be more content with our current situation.
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“People are less happy about the state of affairs than they were when things were way tougher,” Munger said earlier this year.
“It’s weird for somebody my age, because I was in the middle of the Great Depression when the hardship was unbelievable.”
Best known as Berkshire Hathaway’s vice chairman and Buffett’s long-time business partner, Munger also serves as the chairman of Daily Journal, a newspaper publisher with a sizable stock portfolio of its own.
So if you’re hoping some of Munger’s blunt realism will rub off on you this year, why not borrow some of his investing picks too? If these three stocks can keep the 99-year-old investing veteran happy, maybe they’ll work for you too.
Bank of America
Daily Journal held 2.3 million shares of Bank of America (NYSE: BAC) at the end of September 2022, worth approximately $69.46 million at the time. Occupying 42.49% of the portfolio, that makes the bank the largest publicly traded holding at Munger’s firm.
With economic turmoil forecast for this year, it’s a savvy holding for Munger. While many sectors fear rising interest rates, banks look forward to them. That’s because banks lend money at higher rates than they borrow, then pocket the difference.
When interest rates increase, the spread of a bank’s earnings widens.
And it just so happens that Bank of America has steadily been upping its payout to shareholders.
Last summer, Bank of America boosted its quarterly dividend by 5% to 22 cents per share — and that’s after the company’s 17% dividend increase in July 2021.
At the current share price, the bank offers an annual yield of 2.5%.
Buffett likes the company, too, as Bank of America happens to be the second-largest holding at Berkshire Hathaway.
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With approximately $1.9 trillion in assets, Wells Fargo (NYSE:WFC) is another heavyweight player in America’s financial services industry. It serves one in three households in the U.S. and more than 10% of small businesses in the country.
Daily Journal owned 1.59 million shares of Wells Fargo as of Sept. 30, 2022, making the bank its second-largest public holding with a 39.16% weight.
According to the company’s latest earnings report, Wells Fargo generated $19.6 billion of revenue in Q4. Earnings came in at 67 cents per share for the quarter.
Management is monitoring how higher interest rates can affect its customers.
“Our customers have remained resilient with deposit balances, consumer spending, and credit quality still stronger than pre-pandemic levels,” Wells Fargo’s CEO Charlie Scharf said in a statement.
“As we look forward, we are carefully watching the impact of higher rates on our customers and expect to see deposit balances and credit quality continue to return toward pre-pandemic levels..”
Wells Fargo has a quarterly dividend rate of 30 cents per share, translating into an annual yield of 2.6%.
Chinese tech stocks haven’t exactly been market darlings these days. E-commerce giant Alibaba Group, for instance, plunged 26% in 2022 and is down more than 40% over the past five years.
But Daily Journal has kept the company as its third-largest holding. As of Sept. 30, it owned 300,000 shares of Alibaba — a stake valued at $24.0 million at the time.
And the downturn in Alibaba shares could give contrarian investors something to think about.
In Q3 of 2022, the Chinese tech company grew its revenue by 3% from a year ago to $29.1 billion.
Management noted that the company delivered this top line growth despite “the impact on consumption demand by the COVID-19 resurgence in China as well as slowing cross border commerce due to increasing logistics costs and foreign currency volatility.”
While Alibaba doesn’t pay a dividend, it still returns cash to shareholders through its stock buyback program.
As of Nov. 16, 2022, the company has repurchased approximately $18 billion of its own shares under its existing $25 billion share repurchase program.
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