Berkshire Hathaway Inc., led by CEO Warren Buffett and Vice Chairman Charlie Munger, is a compound interest machine, achieving a return of about 2 million percent on its initial value — equivalent to a 20,000 to 1 ratio.
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The men accomplished this feat was accomplished by astutely investing the company’s capital in a variety of businesses, all while exercising caution in borrowing.
Having witnessed the detrimental effects of short-term investments, Munger developed a critical perspective on such practices.
In drawing a comparison between investing in meme stocks and gambling, Munger likened gambling to a highly addictive substance such as heroin, emphasizing the inherent dangers associated with high-risk investments. During the COVID-19 lockdowns, speculative trading fueled the rise of meme stocks and other risky companies, leading to substantial profits for retail investors before the market experienced a downturn.
Munger perceives this type of speculative trading as akin to an addiction that must be eradicated. In an April 2022 interview with Berkshire Hathaway Investment Officer Todd Combs, posted on YouTube earlier this year, Munger expressed his views on the matter.
"They [people] love gambling, and the trouble is, it's like taking heroin," Combs said. "A certain percentage of people when they start just overdo it. It's that addictive. It's absolutely crazy, it's gone berserk. Civilization would have been a lot better without it."
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Munger delineated two distinct groups attracted to the stock market: long-term investors and those seeking to engage in casino-style gambling. He contends that allowing these two categories to trade together creates a predicament.
"What earthly good is it for our country to make the casino part of capitalism more and more efficient, and more and more attractive and more and more seductive? It's an insane public policy," he said.
Munger believes this policy brings harm to the nation, although he admits the likelihood of changing it is virtually nonexistent.
During the interview, meme stocks like GameStop Corp. and AMC Theatres were experiencing exponential surges, reaching nearly 100 times their previous value. Before the speculation-driven increase, AMC faced the threat of bankruptcy, while GameStop’s value was only a fraction of what it ultimately soared to. Although market conditions have since undergone significant changes, meme stocks — especially during upward stock movements — continue to experience profitable days, further fueling the frenzy.
Munger makes a distinction between investments in stocks and sectors like real estate, highlighting the liquidity advantage of stocks that enables swift buying and selling. Munger reminisces about his time at Harvard Law School, remarking that it was rare for 1 million shares to be traded in a single day, perhaps occurring only once or twice a year. In contrast, billions of shares are now traded daily.
Buffett's business partner has repeatedly expressed concerns about how speculative investing can harm the stock market, asserting that it is an ineffective long-term strategy for investors. In Berkshire Hathaway’s shareholder letter in February, Buffett wrote, "The world is full of foolish gamblers, and they will not do as well as the patient investor."
While Munger’s criticism extends beyond speculative investing, encompassing other investment categories, he has been particularly vocal about his disdain for cryptocurrencies. He has referred to Bitcoin as "stupid and evil."
He claims its use is primarily for "kidnappers and extortionists." He draws comparisons between crypto and both "rat poison" and "venereal disease." He considers it "almost insane" to engage in the purchase or trading of such assets.
In an op-ed for The Wall Street Journal, Munger labeled crypto as a "gambling contract with a nearly 100% edge for the house." Earlier this year, Munger expressed his lack of pride in America for allowing the trading of cryptocurrencies and advocated for their ban.
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