Investing

Charlie Munger warns there are ‘lots of troubles coming’ because of ‘too much wretched excess’

Charles Munger

David A. Grogan | CNBC

Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s longtime business partner, issued a dire warning about the future on Wednesday.

“I think there are lots of troubles coming,” he said at the Los Angeles-based Daily Journal annual shareholders meeting. “There’s too much wretched excess.”

Munger — who chairs the publisher — highlighted how much risk investors are taking when investing, particularly in China.

“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.”

In the U.S. alone, investors face risks ranging from the coronavirus’ impact on the economy to political uncertainty from the upcoming presidential election. Also, the Treasury announced on Wednesday that the U.S. budget deficit increased by 25% in the first four months of the fiscal 2020 period to $1.06 trillion.  However, the Dow Jones Industrial Average and S&P 500 both hit record highs on Wednesday.

‘Bulls— earnings’

To make his point about excess, Munger cited the proliferation of EBITDA as a fake profit metric. “I don’t like when investment bankers talk about EBITDA, which I call bulls— earnings,” he said.

“It’s ridiculous,” Munger said, noting EBITDA — which is short for earnings before interest, taxes, depreciation and amortization — does not accurately reflect how much money a company makes, unlike traditional earnings. “Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You’re almost announcing you’re a flake.”

Uber shares jumped last week after saying it was moving up its “EBITDA profitability” target to the fourth quarter of this year.

But that’s not all that’s bothering Munger. He also said the innovation boom he has experienced throughout his live could start to wane.

“I do think that my generation had the best of all this technological change,” said Munger, 96, noting medicine has improved dramatically during his lifetime while inventions such as air conditioning have increased the standard of living. “I don’t think we’re going to get as much improvement in the future because we’ve gotten so much already.”

Investors of all stripes look forward to Munger’s annual address since because of the wisdom he shares. Munger is also considered to be one of the best investors and business thinkers ever. Before joining Buffett at Berkshire, Munger ran an investment partnership that returned an average of 20% per year from 1962 to 1975. Meanwhile, the S&P 500 averaged an annual return of just 5% in that time.

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