How Munger Got Hustled; Musk’s Magic Fades; The Legend of Sam

10X advantage to USA investing; The $100 trillion Global Economy

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Welcome to the 1940+ Global Guru fans and 2500+ Twitter followers (@NickVardy) who have joined us in our first three months on substack.​

Today at a Glance:

·       One Quote: Munger Got Hustled

·       One Presentation: Musk’s Magic Fades

·       One Documentary: The Legend of Sam

·       One Statistic: 10x Advantage to USA investing

·       One Chart: The $100 trillion global economy

One Quote

How Charlie Munger Got Hustled

“One of the worst mistakes I ever made.”

                                      Charlie Munger on his investment in Alibaba (BABA)

I am a big fan of Charlie Munger.

His insights mesh well with my skeptical habit of mind.

Munger calls out crypto as rat poison. He ignores economists with 160 IQs. He understands the difference between academic and worldly wisdom.

He penetrates the crux of an issue with Occam’s razor precision, worthy of the best 30-second mind in the world.

Yet, a year ago, Charlie Munger made an investment decision that I disagreed with profoundly.

I called out it publicly in a piece called:  “How Charlie Munger just got hustled.”

Munger’s Mistake

Munger invested heavily in Alibaba during 2021 through The Daily Journal – a newspaper publisher/investment vehicle he runs independently from Berkshire Hathaway.

Less than a year later, Munger slashed his stake.

“In thinking about Alibaba, I got charmed with the idea of their position on the Chinese internet. I didn’t stop to realize they’re still a retailer. It’s going to be a competitive business,” he told investors at the Daily Journal’s annual investor meeting.

I found Munger’s mea culpa odd.

Alibaba wasn’t a lousy investment because it is a retailer.

It’s a lousy investment because it’s Chinese. And the political risks of investing in China are incalculable.

Munger seems to have a blind spot concerning China. He has praised China for years, enamored with its people’s work ethic and the country’s unquestionable progress.

Munger’s shortsightedness is excusable.

After all, Munger grew up in Nebraska and worked and spent his professional life in California.

So Munger has little appreciation for what living in a totalitarian state is like.

Warren Buffett seems to agree with Munger’s newfound skepticism about China. Berkshire Hathaway has been gradually selling its stake in Tesla rival and China-based Byd Ltd (BYDDF)

It’s good to see Buffett is doing the right thing.

One Presentation

Musk’s Magic Fades

As Yale professor Robert Shiller argues in Narrative Economics (2019), powerful narratives impact the success or failure of a company, an entire economy, and overall market sentiment.

Today’s master of the narrative is Elon Musk.

Musk turned a company producing less than a  million cars a year into a $1.4 trillion stock market behemoth. It also made him the world's richest man- on two separate occasions.

Another great pitchman of his era was Apple's, Steve Jobs.

Jobs’ presentations turned an Apple marketing pitch into an event followed by millions of acolytes across the globe.

Still, the line between visionary and fraudster is surprisingly thin. Once a company starts slipping, the former quickly morphs into the latter.

That’s exactly what happened to Adam Neumann and the collapse of WeWork, which I wrote about last week.

Tesla Falls Short

Here's a controversial opinion.

I’ve always thought Musk’s presentation skills were lousy.

Where others saw oracular pronounceements, I saw a pretty inarticulate guy who didn’t sound very bright.

Shocking, I know.

Consider Tesla's most memorable presentation.

It was when Franz von Holzhausen hucked a metal ball, not once, but twice at supposedly bulletproof Cybertruck windows.

Both windows shattered in front of millions of people.

You can see the video HERE.

Last week's Tesla much-vaunted investor day may have been the first time audiences began to scream, "the emperor has no clothes."

Tesla had repeatedly hinted at a more affordable car for the masses-  a $25,000 price point.

As it turned out, Musk failed to unveil any of the next-generation vehicle platforms or cars.

Instead, the presentation focussed on improving Tesla's operational efficiencies and efforts to reduce costs.

Investors could barely stifle their collective yawn. The stock promptly tumbled 6%.

Of course, there is no better salve to bad presentation skills than a soaring stock price.

As the Wall Street adage says: “Never confuse brains with a bull market.

But it appears that millions of Tesla investors may have done just that.

Once the Musk magic fades for good, look out below.

One Documentary

The Legend of Sam

The London Financial Times just published an excellent short documentary on the collapse of FTX and Sam Bankman-Fried.

FTX: the legend of Sam Bankman-Fried | FT Film

https://www.ft.com/video/f7a7fad1-f3ed-41ee-94a7-e1311989aa7e

It provides a dispassionate summary of the collapse of FTX devoid of the U.S. political biases.

Everything about SBF has struck me as fishy.

Astonishingly, SBF is under house arrest at his parents' house on the Stanford campus after two other Stanford professors posted bail. I find it equally astonishing that the Stanford media has almost all but ignored the whole affair.

Between Sam Bankman-Fried (FTX), Elizabeth Holmes (Theranos), Do Kwon (Terra crypto), and the Stanford president under investigation for falsifying academic studies, my alma mater is now associated with more than its fair share of collapses and frauds.

One Statistic

The 10X Advantage for the US Stock market

Investment bank Credit Suisse recently published its annual Credit Suisse Global Investment Returns Yearbook 2023.

The report assesses the returns and risks from investing in equities, bonds, cash, currencies, and factors in 35 countries and five different composite indexes since 1900.

The US stock market came to dominate global stock markets over the past 123 years to a remarkable extent.

Three additional points to highlight:

·      Since 1900, the U.S. stock market has been the world’s top performer. An initial investment of USD 1 in 1900 grew to $70,211 in nominal terms by the end of 2022.

·      Focusing on the U.S. market leads to a “success” bias and overstate return expectations for international investors. For example, the real return on the World ex-USA equity index was 4.3% per year. That is 2.1% per year, below that for the USA.

·      That differential of 2.1% per annum leads to massive differences in terminal wealth when compounded over 123 years.

The key insight:

“A US-based investor who invested solely in their domestic market would have enjoyed a terminal wealth more than ten times greater than from investing in the rest of the world.”

You can download a summary of the report here:

One Chart

The $100 Trillion World Economy

Source: Visual Capitalist

Let me share three major takeaways

• IMF projections suggest that the global economy surpassed the $100 trillion level for the first time in 2022.

• China's GDP growth has slowed in recent years. As a result, projections that it will overtake the U.S. by 2030 are now less likely.

• California’s (population of 40 million) GDP is higher than that of India (population of 1.4 billion). New York state is far bigger than Russia. Florida’s economy is the size of Spain's.