Munger complained again today that "Almost everybody smart is sucked into finance by the money. I don't welcome it at all. I don't think we want the whole world trying to get rich outsmarting the rest of the world in marketable securities." Some thoughts below:
I wonder if Munger has contemplated whether this has occurred simply because equity valuations have historically been too low. It's been too easy to get rich just picking a bunch of half decent stocks, sitting on them and letting the money compound over time (cont).
Maybe the solution needs to be/eventually will be stocks going to 100x earnings, just like bond yields have now gone to basically zero, such that there will no longer be an opportunity to do so, and intelligent & hard working will be forced to go into other fields to make money.
You used to be able to get rich (slowly) just buying bonds yielding 6-8% and compounding over time. Can't do that anymore. Used to be able to get rich buying properties yielding 10%+. Can't do that anymore. They now yield 2%. The same thing could eventually happen to stocks.
Probably, people should not be able to become billionaires simply by picking stocks. They should have to go and create great companies that improve the world. If people still can, stocks are probably too cheap. The cost of capital equity capital should probably only be 2-3%.
Will it actually happen? I doubt it. Stocks will remain volatile and that will continue to scare ppl into selling em cheap from time to time. I do think the long term trend will be for stocks to get ever more expensive though. Grantham-esque mean reversion is probably foolhardy.
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