I caught an interesting shareholders' meeting last week - the Daily Journal Corp. (Nasdaq: DJCO).
If you haven't heard of it, I'm not surprised. It's a sleepy little company, pulls in just $50 million a year in revenue selling newspapers and software products for the legal profession out in California and Arizona.
In other words, Daily Journal is about as far from the flashy FANGs or flavor-of-the-moment Dow movers as you can get and still be a listed company in the United States of America.
The meeting was packed to the rafters. A standing-room crowd of 1,000 people crammed into the hall.
Why such a crowd at a meeting like this?
Well, because the chair of Daily Journal is none other than Charlie Munger himself - the No. 2 guy at Berkshire Hathaway.
Easily one of the world's shrewdest, most successful investors, he's been Warren Buffett's compadre and partner in crime for decades now.
And I think every investor in America could make a mint if they heard what he had to say...
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Charlie Munger Is a No-Nonsense Paragon of Profitability
If you are not familiar with Charlie Munger, I'm here to tell you: Get to know him and what he does.
I'm absolutely convinced that world would be a better, wealthier place if a copy of "Poor Charlie's Almanac," Peter Kauffman's collection of Munger's articles and speeches, was on every nightstand in the country.
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His thoughts on the necessity of reading, probability, investing, business, and discipline - even life in general - are like an infallible guidebook to profits. Heck, along the way, you'll discover the keys to happiness itself.
If I sound a little like a man on fire, one of the reasons I find myself admiring Charlie Munger more and more as I age is that, in many ways, we think and act alike.
Now, I'm nowhere near as wealthy as he is, but I am just as grouchy, just as unwilling to put up with stupidity, and just as unable to keep my mouth shut when said stupidity gets in my face.
Like both Munger and Buffett, I am a voracious reader and, like they tell you in grade school, I attribute most of what success I've found in life to that habit. (I also suspect that, like me, Munger has long since reached that point in his life where he wishes those kids would stay off his damn lawn and turn down that crap they call music.)
In past years, he has always had something of tremendous value to say at the Daily Journal meeting, and he did not disappoint at the 2018 session.
He indulges all the groupies, and as soon as the very short business meeting is over, he spends a few hours answering questions on a wide range of topics.
This year, Munger tackled investment management (or lack thereof) and the poor results and high fees that Wall Street specializes in offering.
He Skewered Half the Fat Cats on the Street
Munger told that standing-room-only crowd, "The incentive structure in investment management is very interesting. There are those with a gob of money from the past, such as the Massachusetts Investment Trust, who pioneered mutual funds. Once they got big and hired a bunch of people with over $700 billion in assets, their chances of outperforming the S&P 500 were zero. Their world is threatened, and they can't command those fees anymore for not outperforming, and the fees themselves kill the chance of net outperformance. Say someone is charging 'one and 20' or - even worse - 'two and 20', and they have $30 billion in assets under management and an army of people working for you who want to get rich very fast, these people's chances are very poor to outperform."
He also pointed the way to investment success, saying, "The two rules of fishing are to fish where the fish are and don't forget the first rule. Investing is the same thing. In some places, no matter how good a fisherman you are, you won't do well. Life is a long game."
This is something all of us at Money Morning have talked about almost constantly - fishing where the fist are: Identifying those big trends and big ideas that change the world is a critical step on the road to unreasonably good, "Munger-style" returns in the stock market.
Avoiding those dying segments of the economy helps you avoid investing in fatal money traps, like compact disc manufacturers, buggy whip companies, video stores, and other once-important segments of the economy that simply disappeared... taking tens of billions of investors' dollars right along with them.
Straight from the horse's mouth, so to speak. That's an absolutely unbeatable approach. But Munger didn't stop. The hits kept comin'.
You Won't Just Get Rich - You'll Get "Munger Rich"
Munger also hit on another crucial step on the path to stock market success. Munger told the crowd, "If you run $1 million, a very smart man who is patient and aggressive in combination and willing to root around in thinly traveled places could return high results. If you're shrewd and work with small sums, you can do very well."
You and I are building a nice nest egg and moving towards retirement (or in my case, my wife's retirement - I enjoy what I do far too much ever to quit).
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We may have accumulated a nice chunk of change, but we aren't faced with the challenge - no, the burden - of slinging billions of dollars around during the trading day.
We can find and buy (at unreasonably good prices) companies that the big hedge funds and institutions can't - literally cannot; they're not that flexible - even consider.
That small bank that's a sitting-duck takeover target... this little cannabis company that's going to clean up thanks to marijuana legalization... that smaller infrastructure company that will see huge profit growth when it gets contracts to help rebuild the electric grid over the next decade...
...these companies are way, way too small for most of Wall Street to be involved, and they offer the very real potential for life-changing returns. Looking for these "Wall Street-proof" companies should be a significant part of every individual's investment approach.
It should be, but of course, it's not.
Talk to any 20 people about what they own, and you will hear... index funds, Amazon.com Inc. (Nasdaq: AMZN), Facebook Inc. (Nasdaq: FB), Microsoft Corp. (Nasdaq: MSFT), and all the other stocks we hear discussed on TV and around the web every day of the week.
Don't get me wrong, these are great companies that have leveraged massive trends themselves. But the life-changing money has already been made in most of them.
Big money sits in piles in the dark corners of the market, so that's where I spend most of my time. You can bet Charlie Munger has hung out there plenty, too, as has just about every successful self-made investor.
So should we all.
One parting thought from Charlie Munger to take us on our way: "Life is a long game. Take it as comes and do the best you can, and if you live to an old age, you will get your full share of opportunities, which will be two in total, maybe, but seize one of the two, and you will be alright."
[Note: ValueWalk has published an edited transcript of all of Munger's remarks at the Feb. 20, 2018, Daily Journal shareholders' meeting. You can access it here in PDF format at no charge. Just a reminder: We're neither affiliated with ValueWalk nor responsible for the content of its site.]
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.