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Why Munger’s missive struck a chord

May 08, 2023

Good morning! 👋

Earnings wind down, which means volatility will wind up.

Here’s my playbook.

Charlie Munger on Diversification

I’ve never felt more vindicated than I do now.

Charlie Munger, who has served as Warren Buffett’s sidekick for more than four decades, said over the weekend that it’s “insane” to teach mandatory diversification when investing in stocks.

Talk about feeling vindicated.

My own two cents is that diversification will go down as one of the greatest single, most desperately flawed ideas ever foisted upon the investing public, despite the fact that it’s taught as dogma.

I’ve caught no end of flack for decades for my views even though research bears me out... and now, so evidently does Mr. Munger, who added, “I’d rather be in my best ideas instead of my worst.”

I couldn’t agree more strongly.

Key Takeaways:

Anything more than 20–25 stocks is overdiversified and holds you back.
4–5 “best” ideas can change your life.

Speaking of which, I published the May Issue of One Bar Ahead® last Friday, and I hope you’ve had time to tuck into it. If not and you’d like some help concentrated on what some call the best profit potential money can buy... Upgrade to Paid

Chip Wars

Qualcomm (QCOM) announced its intention to purchase Autotalks Ltd., which produces chips aimed at preventing vehicle crashes. (Read)

Excellent, but why, respectfully, would you limit your choices??

Digitalisation is the largest single trend of our lifetime, possibly in human history.

Chips power it all.

Palantir reports later today

I’m super excited for reasons I laid out this morning ahead of the bell with the fantastic Ashley Webster on Fox Business. (Watch)

Wall Street does everything it can to stomp all over this stock because CEO Alex Karp told ‘em to pound sand when he listed directly instead of going through the usual IPO roadshow. That meant that lawyers, investment bankers, and other insiders missed out on billions of dollars in fees, so they’re angry.

Karp makes no bones about where he wants the company to go.

I think he’ll get there.

Very predictably, I’ll bet dimes to dollars that there will be a generation of folks who kick themselves in the asteroids because they didn’t buy at least a few shares today while they remain inexpensive and comparatively undervalued.

Oh, and don’t forget that Wall Street is quietly accumulating shares even though they’re publicly of the “other” opinion.

I’ll have more thoughts regarding what to expect in today’s OBA update. Upgrade to Paid

Oil bottoming, say analysts

Many people continue to try to “time” the markets. (Read)

That’s a mistake.

Stick to the broader trends at work.

Like oil.

Yes, EVs are inevitable and, imho, should be. But no, you can’t just flip a switch and abandon dinosaur juice any time soon.

Worldwide oil demand continues to rise absent a perfectly fungible substitution.
30–60,000 industrial processes depend on oil and switching away from ‘em is going to take decades.

Meanwhile, oil companies are some of the most aggressive alternative energy investors on the planet, and many pay super-healthy dividends, too. I especially like that part.

Percentages can be deceiving

The media reports that PacWest Bancorp shares were up 81.7% on Friday and are up another 39% in the pre-market from the news of a dividend cut to shore up its finances. Ooooooo, people are thinking... (Read)

Think again.

It’s a $7.72 stock.

Do you really want to place your hard-earned wealth at risk for peanuts and in a one-trick pony at that?

I don’t.

The game changes when you start talking about a company like SHOP.

One Bar Ahead® readers have had at least two opportunities this year alone to double their money since I recommended the stock, and it’s come roaring off 52-week lows.

Or TSLA.

I told investors to buy it during my very first TV appearance of the year on Liz Claman’s show when it was trading at just $113.64 a share. (Watch)

Shares hit $173.22 just 27 days later. Then a peak of $214.24 on 2/15/23, another double and then some.

My point is not to brag.

I’m not right all the time and never will be—that’s not the point.

And what is?

Simple.

REMEMBER: Big companies + big changes in consumer behaviour = big profit potential.