Charlie Munger is worth billions but the legendary investor likes to note that he doesn’t have absolute power.
If he did, he says he'd be a "benign dictator" but make some big changes in the way stock market works.
At the recent annual meeting of the Daily Journal (DJCO), his publishing and technology company, he described the 2021 meme-stock frenzy as a “speculative orgy.”
“What we're getting is wretched excess and danger for the country,” he said, comparing trading activity to an out-of-control party. “A lot of people like a drunken brawl, and so far those are the people that are winning, and a lot of people are making money out of our brawl.”
It has been about a year since stocks like Gamestop (GME) and AMC (AMC) began to see wild price fluctuations driven by retail investors as the 'meme stock' phenomenon took off. The activity came after an influx of liquidity in the markets as a result of government stimulus as well as the rise of online destinations like r/wallstreetbets on Reddit.
Munger has tangled with day traders often over the last year. Trading app Robinhood (HOOD), the epicenter of much of this trading, responded to previous comments by Warren Buffett and Munger by saying that the two billionaires "insulted a new generation" of investors for "doing things in a new way."
Munger, 98, is vice chairman of Berkshire Hathaway (BRK-A / BRK-B). The company, headquartered in Omaha, Nebraska, has long been led by Warren Buffett, who serves as chairman and chief executive.
‘It isn't good for our republic’
Munger says he knows exactly what he would do about the perceived problem. He would make short-term trading much less profitable.
He wants to add higher taxes on short-term capital gains and make the stock market much less liquid as a consequence. In Munger’s vision, stocks would operate closer to the way the real estate market works, in which there are significant barriers to constantly trading your assets.
He says that the current situation on Wall Street means that “not the most admirable people” are able to prey on individual investors who enjoy the excitement of meme stocks and the gambling-like atmosphere.
“A lot of people think, well, Warren and Charlie don't understand it,” he said.“Well I think we do understand it and know it isn't good for our republic and we can't do much about it, so we spend our time on the matters that we can do something about.”
Both Munger and Buffett have long advocated a “set it and forget it” strategy for most investors, advising people to put their money into diverse assets and then let them grow over a long period of time.
Munger predicts that eventually the rapid trading of today will lead to considerable trouble. He isn’t sure how the current boom ends but warned “that the wretched excesses of the 20s gave us the Great Depression.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
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