“This Is A Sign Of A Bubble” (Charlie Munger)

In this video Charlie Munger points out the different signs of a stock market bubble forming in 2021. But when could a potential pop occur? What investment strategy should we have? Let’s dig further into his opinion in this video…

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Charlie Munger is vice chairman of the biggest investing firm in the world, right hand man Warren Buffett, and truly I believe one of the greatest thinkers of our time.

Now every year, nerdy investors like myself, flock to listen to his annual meeting over at the daily journal corporation. Here people get to ask Charlie basically any question that they want, and to no surprise a lot of people asked about a stock market bubble forming in 2021. Let’s take a bit of a look as to what he said…

(Insert Clip 1)
So, I’m sure that we’re all aware that the market has changed from where it was 3,5,10 years ago. And as Ray Dalio puts it, we’re in the later stages of the bull market. Now what happens here, and what we’re seeing everywhere is the drive towards short-term profits.

A lot of novice investors, particularly those in the market are out to get rich, and get rich quickly. So they look for the stocks, that are most hyped, most talked about, and they place what is called a momentum trade.

You buy a stock, because it’s been going up, you ride the momentum, and then you hope to sell it a couple of months later for a quick profit. And there’s not just a few groups of people doing this, a lot of investors are buying stocks this way. This causes prices to go up and up and up.

And it sounds all well and good, but prices can’t keep going up forever. At some point the direction will change, because as Warren Buffett say’s no stock is worth an infinite value. At some point stock prices have to come back to their intrinsic value.

And this is why Munger thinks this momentum trading is dangerous and a lot of people could get burnt. Just like what happened in the south sea bubble in England back in the 1700’s…

So these are just signs that the market is very high. Signs that the markets in a bubble. But by no means does this mean that we’re definitely going to see the market come down quickly. And the key reason behind this is interest rates…

(Insert Clip 2)
You see for every stock investor, we have 2 key options to put our money. One is in the bank, in treasuries and in bonds. The other option is in stocks.

But the problem that we have today is that interest rates are ridiculously low. As you can see the federal funds rate is around 0.1 pretty much the lowest that it’s every been in history.

So we could have our money in the bank, in treasuries or in bonds, but because rates are so low, we get close to nothing when we have our money here. So that means our leftover cash has to go somewhere and it ends up in stocks.

And this is what Munger is saying here. Yes stock prices are very high right now, but that’s because interest rates are very low. This is the key thing that justifies where stock prices are right now.

And what Munger said in the clip is that he’s obviously not rushing in to buy stock at these prices, but he’s also not going to sell. And that’s because, there’s no other great place to put your money…

And one of the natural things that we’re seeing in this market is people saying that the old school value investment style of buying stocks is dead. It will not work in the future. Even investors like Cathie Wood she’s been warning old school type value investors.

Munger says value investing will never die…

(Insert Clip 3)

Because the true concept of value investing is very simple. You simply pay a price that is below the value of a stock. Aka value investing is all about finding bargains with the price you pay.
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DISCLAIMER: It's important to note that I am not a financial adviser and you should do your own research when picking stocks to invest in. This video was made for educational and entertainment purposes only. Consult your financial adviser. * Some of the links on this webpage are affiliate links. This means at no additional cost to you, we earn a commission if you click through and make a purchase and/or subscribe. This has no impact on my opinions, facts or style of video.

Видео “This Is A Sign Of A Bubble” (Charlie Munger) канала Cooper Academy