Endless Conversations Repeated – Value 2024

The coast seems a little clear, Monster Truck Rain excepted. Since I dread writing this time of year from the standpoint of “predictions for any one year are, at best, entertainment value,” I will first wade back in time and then sneak in some clarity into Cove Street’s present activities and direction. That’s an ADHD test starting with 2400 words.

With the passing of Charlie Munger at the end of 2023, there has been endless regurgitation of Mungerisms about life, learning, and investing. Most of this is worth reading and understanding if you have not been exposed to the corpus; some of this is worth re-reading as classic and important; and some of it is just eye-blindingly awful, repetitive, not relevant, or being applied by third parties to the wrong examples or without, dare I say, “context.”

This Wall Street Journal piece encompasses all versions of the preceding paragraph.. Can Charlie Munger’s Investing Playbook Still Work? Which is not as definitive as a “Death of Equities” headline in what was the Businessweek cover from years past. But it is at least a natural occurrence, vs. a recent and related piece from whomever Furey Research Partners is, entitled, “It is time to face the facts—the ‘Death of Small Cap Equities’ is upon us.” He continues, “All of us here are tired of writing the essay that says ‘here’s why small-cap is going to work,’” said Jeff Burton, co- founder of small-caps specialist Furey, who says he penned the note with a whiff of melodrama in mind. “Our clients are well aware of some of the problems. They hear it from investors all the time.” But we are ahead of ourselves.

Any discussion that begins with “so what is value and how do you define it” is my personal version of “and now the bass solo.” Leave the room and come back with an empty bladder. The obvious should be restated—investing life is a see-saw with “good business” on one end and “valuation” on another. It is a relationship doomed to permanence as to shack up exclusively with either side has proven problematic. Not everything priced wonderfully for future perfection sustains its wonderfulness long enough to earn through the starting multiple, as our behavioral flaws often focus current attention on the ones that have, and conveniently misplace the other generational “can’t misses.”

So Mr. Munger. As repeated in the WSJ article, Munger is alleged to have been the primary critical variable in the Buffett/Berkshire decision to focus on “better business models” vs traditional “cigar butt value” investing.

While not without truth, I would also argue that circumstance materially dictated this change. When markets were small, technology didn’t exist, and very few had any idea who Buffett was and what he was really up to. And Berkshire was small, enabling a much larger palette of activity. When you run $500 billion and are petitioning the SEC to hide your every trade, things are different. The natural and obvious motion would be toward fewer investments, larger investments, and dare I say one of my new favorite hated phrases…compounders. You had no choice.