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Charlie Munger’s Daily Journal Portfolio: Top 5 Stock Picks

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·8 min read
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In this article, we discuss the top stock picks of Charlie Munger's Daily Journal. If you want to skip our detailed analysis of Charlie Munger’s history, investment philosophy, and hedge fund performance, go directly to Charlie Munger's Daily Journal Portfolio: Top 3 Stock Picks.

Charlie Munger is an American billionaire business magnate and investor, who is known for his close long-term association with legendary investor Warren Buffett. Munger leads investments with Buffett as the vice chairman of Berkshire Hathaway, in addition to serving as the chairman of Daily Journal Corporation, which is an American publishing and technology company. He is also the portfolio manager of Daily Journal, which is a highly concentrated hedge fund with a Q4 portfolio worth $258.6 million.

Charlie Munger's Outlook on Economy

In an interview with Cal Tech on December 20, 2021, Munger shared his views on the future of the stock market. Since the stock market has performed well after the financial crisis of 2008, there has been an influx of investors in the space, which will in turn lead to lower real returns in the next 10 years, according to Charlie Munger. Since 2009, the S&P 500 returns have experienced only one decline of 4% in 2018, and the consistently solid performance has created a frenzy in the market, as amateur investors believe that it is easy money. Platforms provided to retail investors by companies like Robinhood Markets, Inc. (NASDAQ:HOOD) feed the market frenzy further. Munger’s expectation of lower real returns is a direct assumption of the billionaire about the inflation levels, which are only going to increase in the future. He believes that the US government is printing excessive money, and this quantitative easing will lead to a disastrous economic and fiscal outcome.

"Crazier than the Dot-com Bubble"

Munger also believes that most investors actively try to attain positions in blue chip tech stocks like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Meta Platforms, Inc. (NASDAQ:FB), however, they do not realize that these companies will one day face a downwards trajectory. He uses Rockefeller's State Oil as a primary example to drive his point home, since the descendants of the once mighty oil giant are a mere shadow of the original company. He stresses upon the importance of diversifying portfolios, stating that holding disruptive tech is as important as investing in safe, stable, and long-term assets which cannot be replaced.

Munger has termed the 2021 stock market to be “crazier than the dot-com bubble”.

Billionaire Charlie Munger is widely known for his investment philosophy, which involves investing very infrequently, and only buying stocks when the returns are guaranteed. He has historically purchased securities very sparingly over the years, but is always on the lookout for lucrative opportunities. In line with his investment philosophy, the 13F portfolio at Daily Journal from Q4 2013 to Q4 2020 remained unchanged.

In Q1 2021, Munger added the Chinese tech giant Alibaba Group Holding Limited (NYSE:BABA) to his portfolio, which made headlines since this was the time when the Chinese tech crackdown was in full swing. His position in the tech giant remained constant in Q2 2021, but as Alibaba Group Holding Limited (NYSE:BABA) slipped further, Charlie Munger elevated his stake in the company by 81% in the third quarter. In Q4 2021, Munger remained true to his philosophy, and when the tech giant reached a 52-week all time low of $108 per share, Munger purchased 300,000 additional shares, and now holds over 600,000 shares of Alibaba Group Holding Limited (NYSE:BABA). He firmly believes that a strong company falling in the stock market is just an opportunity to purchase more equity.

Munger’s Daily Journal portfolio gained $106 million in the 12 months ending September 2021, and the outperformance of the portfolio despite Alibaba Group Holding Limited (NYSE:BABA) plunging in value boosted the hedge fund’s total unrealized gains by 77% to $244 million over the period.

The most notable stock picks of billionaire Charlie Munger’s Daily Journal portfolio include Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), and Alibaba Group Holding Limited (NYSE:BABA).

Charlie Munger's Daily Journal Portfolio: Top Stock Picks
Charlie Munger's Daily Journal Portfolio: Top Stock Picks

Charlie Munger

Our Methodology

We used billionaire Charlie Munger’s Daily Journal’s Q4 2021 portfolio to analyze his top stock picks, ranking the companies according to the hedge fund’s stake value in each holding.

Charlie Munger's Daily Journal Portfolio: Top 5 Stock Picks

5. POSCO (NYSE:PKX)

Daily Journal’s Stake Value: $568,000

Percentage of Daily Journal’s 13F Portfolio: 0.21%

Number of Hedge Fund Holders: 11

POSCO (NYSE:PKX) is a company offering expertise in steel manufacturing and construction services, headquartered in Pohang, South Korea. POSCO (NYSE:PKX) also offers multiple secondary services including logistics management, computer hardware and software distribution, economic research, business facility maintenance, architecture, electronic commerce, intellectual property services, and consulting. POSCO (NYSE:PKX)’s three main subsidiaries include POSCO International, POSCO E&C, and POSCO Chemical.

Charlie Munger has held a position in POSCO (NYSE:PKX) since the fourth quarter of 2013, and when the stock underperformed badly in 2014, Munger reduced his stake by 3.4% in Q4 2014, but did not sell POSCO (NYSE:PKX), like Warren Buffett and many notable investors who held stakes in the steelmaking company at the time. According to Munger’s Q4 2021 13F filings, the billionaire’s stake in POSCO (NYSE:PKX) remains unchanged, and he holds 9,745 shares worth $568,000, representing 0.21% of his total Q4 securities.

General Motors Company (NYSE:GM) announced a joint venture with POSCO (NYSE:PKX) on December 1, in order to procure electric vehicle battery materials. POSCO Chemical already supplies cathode to Ultium Cells, which is a joint venture between LG Energy Solution and General Motors Company (NYSE:GM). Shares of POSCO (NYSE:PKX) rose 6.6% as a result of this public announcement, in addition to reports that the company might split into a holding entity and an operating entity.

Among the hedge funds tracked by Insider Monkey, Richard Pzena’s Pzena Investment Management is the largest POSCO (NYSE:PKX) stakeholder as of Q3 2021, holding 957,976 shares worth $66 million. Overall, 11 hedge funds in the third quarter database of Insider Monkey were long POSCO (NYSE:PKX), with stakes totaling $140.9 million.

Just like Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), and Alibaba Group Holding Limited (NYSE:BABA), POSCO (NYSE:PKX) is a long-term stock pick of billionaire Charlie Munger.

4. U.S. Bancorp (NYSE:USB)

Daily Journal’s Stake Value: $7,864,000

Percentage of Daily Journal’s 13F Portfolio: 3.04%

Number of Hedge Fund Holders: 42

U.S. Bancorp (NYSE:USB) is a bank holding company, which operates via its wholly owned subsidiary, the US Bank National Association, which is one of the largest American banking institutions. U.S. Bancorp (NYSE:USB) caters to individuals, businesses, financial institutions, and public sector entities with services including consumer banking, corporate banking, insurance, investment banking, mortgage loans, private equity, wealth management, and financial analysis.

U.S. Bancorp (NYSE:USB) stock accounts for 3.04% of Charlie Munger’s Q4 2021 portfolio, with the billionaire holding 140,000 shares of the company, worth $7.86 million. Although U.S. Bancorp (NYSE:USB)’s returns on equity decreased consistently from the second quarter of 2012 till September 2017, Munger kept his position in the company constant, stating that he likes banks that acknowledge their problems and work on the issues, and his favorite banking names include U.S. Bancorp (NYSE:USB).

On December 21, U.S. Bancorp (NYSE:USB) declared a quarterly per share dividend of $0.46, in line with previous. The dividend was paid on January 18, to shareholders of record on December 31.

U.S. Bancorp (NYSE:USB) beat market consensus estimates for EPS and revenue in the third quarter of 2021, and bank management claimed that Q3 earnings increased due to strong credit quality and higher payment services revenue. U.S. Bancorp (NYSE:USB) also experienced growing momentum across its businesses, an increase in lending, and improved efficiency ratio. To leverage tech driven payment capabilities, U.S. Bancorp (NYSE:USB) also acquired Bento Technologies, a software company offering digital financial solutions.

According to Insider Monkey’s Q3 data, 42 hedge funds reported owning stakes in U.S. Bancorp (NYSE:USB), worth $8.39 billion. Warren Buffett’s Berkshire Hathaway is the largest U.S. Bancorp (NYSE:USB) stakeholder as of Q3 2021, with a $7.5 billion position.

Barclays analyst Jason Goldberg on January 3 downgraded U.S. Bancorp (NYSE:USB) to Equal Weight from Overweight with an unchanged price target of $68. The analyst believes that relative to U.S. Bancorp (NYSE:USB), The PNC Financial Services Group, Inc. (NYSE:PNC) has more interest rate sensitivity and will benefit sooner from acquisition related synergies.

U.S. Bancorp (NYSE:USB) is one of the top stock picks of billionaire Charlie Munger, in addition to Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), and Alibaba Group Holding Limited (NYSE:BABA).

Here is what Mairs & Power has to say about U.S. Bancorp (NYSE:USB) in their Q4 2020 investor letter:

“On the negative side, one of the Fund’s biggest detractor in 2020 was U.S. Bancorp (USB). Like all banks, U.S. Bank was hurt by the difficult interest rate environment and credit cycle concerns. We believe banks are strong enough to survive the current sector doldrums, and they remain some of the market’s most attractive opportunities.”

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Disclosure: None. Charlie Munger's Daily Journal Portfolio: Top Stock Picks is originally published on Insider Monkey.