⭐️ Legendary Charlie Munger learnings

What’s going on here?

Legendary investor Charlie Munger passed away at the age of 99.

What does this mean?

Warren Buffett personifies investing success today – but without right-hand man Charlie Munger’s strategic insights and partnership, Buffett’s billions may have remained a pipe dream. Munger joined Berkshire Hathaway as vice chairman in 1978, thirteen years after the duo met. But the lawyer-by-training did far more than that job title suggests, often acting as the driving force behind investments. Case in point: it was Munger who steered Buffett’s strategy away from buying decent companies at cheap prices to buying outstanding companies at reasonable prices. His no-nonsense decision-making helped lead Berkshire to average annual gains of 20% between 1965 and 2022, roughly double the pace of the S&P 500 Index. And during the process, Forbes believes Munger racked up a personal fortune of some $2.6 billion.

Why should I care?

For investors: Value’s in the eye of the beholder.

Munger’s superstar status might not have rivaled Buffett’s, but the straight talker won an allegiance of fans thanks to his clear-cut, practical, and enduring investing lessons. Arguably his biggest belief, besides the importance of never-ending learning through reading, was to design a trustworthy investment strategy and stick with it. For Munger, that meant selecting first-class companies at acceptable – not necessarily cheap – prices, using careful logic and a deep understanding of how those firms work.

The bigger picture: Less losing equals more winning.

That considered approach does have drawbacks. Cautious Munger didn’t buy into tech giants like Microsoft and Google when early investors did, for example. But sometimes winning just means not losing: Munger also avoided stocking up on the tech stocks that crashed in the dot-com bubble, and passed on over-investing during heady market highs when risks peaked. At the end of the day, it’s the classic calls – Coca-Cola, American Express, and GEICO, to name a few – that underpin Berkshire’s success, not quick-win crazes.

What’s going on here?

German and Spanish inflation came in much lower than expected.

What does this mean?

Usually the go-getter of Europe, Germany’s economy has been sagging under the weight of inflation. It bodes well, then, that German inflation fell to a much-lower-than-expected 2.3% in November, the lowest since 2021. Spain’s figure caught investors off guard too, dipping for the first time since June to land below expectations at 3.2%. With any luck, that’ll set the tone for overall European inflation figures this Thursday. There’s just one snag. Those dips are mainly down to falling energy prices: core inflation – which ditches food and energy prices – is still 3.8% in Germany and 4.5% in Spain. And because energy’s been getting cheaper for a year now, the difference will look less dramatic when comparing months to the same time the year before. So unless other prices start falling, inflation could tick higher again.

Why should I care?

For markets: On your marks, markets.

Central banks won’t cut economy-squashing interest rates until they’re sure that inflation’s been beaten into submission, but data like that could be the start of the trend they’re looking for. That’s why whispers of rate cuts have started swirling, and that might be why the S&P 500 is on track for its fourth-best month in nearly three decades. Remember: falling inflation and interest rates make companies’ future cash flows – what investors value stocks on – look better when discounted back to today’s worth.

The bigger picture: Put the champagne on ice.

Not to be outdone, the US issued a pleasant surprise on Wednesday. The stateside economy strengthened by a higher-than-expected 5.2% last quarter, while the Federal Reserve’s preferred inflation measure was pulled down slightly. Now, interest rates are known for throwing out nasty surprises with a lag, but that aside, the data suggested the central bank might’ve managed to calm inflation without sacrificing the economy completely.