Charlie Munger Airs a Morose View of the Future

Lack of innovation and ‘wretched excess’ signal trouble is coming, Buffett’s pal warns.

Charlie Munger has a gloomy view of the future, ranging from Chinese investing to US accounting shortcomings to stunted powers of invention. And throw in the dire fate of newspapers, too.

At first blush, it’s easy to write off the negative outlook of a 96-year-old as typical curmudgeonly grousing. But given the investing track record of Warren Buffett’s business partner, and Munger’s ever-sharp analytical powers, such a glib dismissal could well be unwise.

Tellingly, the venue for his dour assessments was the annual stockholders meeting of a publishing company whose board he chairs, Daily Journal. There, he pronounced that newspapers “are all going to die.”

Exceptions he cited: national brands like the Wall Street Journal and the New York Times. His own media company, which specializes in legal data, not daily news, has logged rising revenue and a stock price that is up by a third over the past 12 months. Meanwhile, Munger’s employer, Berkshire Hathaway, is divesting itself from the newspapers it owns.

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 “I think there are lots of troubles coming,” he told the audience at the investor gathering. “There’s too much wretched excess.”

His dour view of China avoided the coronavirus question and homed in on that nation’s ardent individual stock investing, which he termed naïve and misguided. “In China, … they love to gamble in stocks. This is really stupid,” Munger said. “It’s hard to imagine anything dumber than the way the Chinese hold stocks.”

Munger reserved his most pointed critique for US accounting, namely the use of earnings before interest, taxes, depreciation, and amortization (EBITDA). Many American companies, especially unprofitable ones, highlight EBITDA as the best metric to judge their financial progress.

But to critics like Munger, plain old-fashioned net income is preferable, because interest and taxes (while capable of being manipulated) are real costs, and the other two intangible entries do indeed reflect decreasing values of assets.

 “It’s ridiculous,” Munger said, charging that EBITDA fails to accurately measure how much a business makes. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You’re almost announcing you’re a flake.”

Then Munger dove into what some call secular stagnation—the belief that the economy is consigned to slow growth in the future due to a lack of really transforming innovations. “I do think that my generation had the best of all this technological change,” Munger said.

He pointed to past advances in medicine and air conditioning, which enhanced living standards. “I don’t think,” he noted, “we’re going to get as much improvement in the future because we’ve gotten so much already.”

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