Oct 18, 2023
Unlike his famous business partner, Charlie Munger isn’t one to mince his words.
Warren Buffett’s longtime friend and right-hand man has often made controversial and searing comments about current affairs. Late last year, the 98-year-old spoke up at the Daily Journal’s annual meeting, calling out people in general for whining about economic struggles at the time, saying their discontent was a matter of unrealistic expectations.
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“People are less happy about the state of affairs than they were when things were way tougher,” Munger said. “It’s weird for somebody my age, because I was in the middle of the Great Depression when the hardship was unbelievable.”
The Great Depression, which started in 1929, saw unemployment reach 25% at the peak of the crisis in 1933, by which point real GDP had dipped 29% in four years. By comparison, real GDP actually expanded at an annual rate of 2.1% in the second quarter of 2023 while unemployment is at just 3.8%. Nevertheless, workers and investors still have to deal with inflation and the housing crisis, which are bound to lead to dissatisfaction.
Investing in this environment is difficult but not impossible. Indeed, Munger, Buffett and other billionaires are beating the economic gloom with savvy investments. Following their lead could help you supercharge your finances during tough economic times — and hopefully help improve your perspective on the state of affairs in the process.
Home builders
The housing crisis is a genuine issue. And Berkshire Hathaway is betting on the solution. Between 2012 and 2022, there were 6.5 million more households created than housing units completed. This gap is one of the key reasons for the housing unaffordability that’s already throttled many American cities and is rapidly spreading to others.
Naturally, this creates intense pressure to build more homes. That’s why Buffett and Munger added stakes in some of the largest homebuilders to his portfolio. During the second quarter of 2023, Berkshire Hathaway added D.R. Horton (DHI) , NVR Inc. (NVR) and Lennar Corp. (LEN), highlighting the fact that even during economic crises, there’s always an opportunity to bet on the remedies.
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Energy
Energy prices have been rising again. A barrel of Brent Crude now trades at $93 and JPMorgan expects it to reach $120. Berkshire has been accumulating shares of oil and gas producers for several quarters. Now, Chevron Corp (CVX) and Occidental Petroleum (OXY) are the fifth and sixth largest holdings in the Berkshire portfolio, respectively.
Energy companies are underrated and undervalued at the moment, given their cash flows. Occidental, for instance, trades at a price-to-free-cash-flow ratio of 7.2. These stocks are cheap, which perfectly fits Buffett and Munger’s strategy.
Health care
Health care spending is untethered to the economy. During the Great Recession of 2008, the number of visits to hospitals and purchases of pharmaceuticals didn’t drop. In the most recent crisis, health care spending actually surged because we were dealing with a pandemic. This phenomenon has led some academics to label hospitals and pharmaceutical companies “recession-proof.”
Buffett and Munger could be aware of this fact. Dialysis provider Davita Inc. (DVA) is one of Berkshire’s top holdings. Johnson & Johnson (JNJ) is on the list too.
More: Should you invest in health care stocks?
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
