Billionaire investor and Berkshire Hathaway vice chairman Charlie Munger said he still favors big bank stocks and maintains an aversion towards cryptocurrency.
Munger, a board director at Daily Journal, discussed bank stock investments at the annual meeting of the newspaper publisher. Daily Journal owns stakes in several major banks, including the Bank of America and Wells Fargo.
The veteran investor said he had "different ideas" from his long-time business partner in Berkshire, Warren Buffet, about holding stakes in big banks. Last year, Buffet trimmed his investment in major banks over recession fears.
Munger said he does not plan to sell Daily Journal's bank stocks because the company bought many of them at heavily discounted prices during the 2008 financial crisis. Selling the stocks will result in a huge tax bill in California, where Daily Journal is headquartered.
"It's not so bad for us. We're not in a normal position. We're willing to hold them for a while," Munger said.
Bank stocks briefly strengthened in 2022 due to higher loan profits due to the Federal Reserve's interest rate hikes. Later, however, fears of recession caused a significant headwind for banks because of a higher number of bad loans.
With many banks reporting drops in profit, analysts said investors became cautious about trading with bank stocks. Financial service company Morningstar reported that, on average, U.S.-listed bank stocks traded around 11 percent below their fair value estimates.
In addition to the "unclear outlook" of the U.S. economy this year, banks also encounter various challenges — including rising expenses, a weaker projection for fees and competition for customer deposits — that can further lower their profits. It can lead to volatile bank stocks.
Morningstar strategist Eric Compton said the market had not fully priced in recession risks for bank stocks, even though the sector was vulnerable to a recessionary environment. He estimated bank stocks to trade around 25 percent to 30 percent below the fair value estimates.
Munger also criticized Bitcoin and other forms of digital assets, saying cryptocurrencies are "worthless," "ridiculous," and "unspeakable," and advised investors to avoid them altogether.
"I think people who oppose my position are idiots," Munger added.
“It’s not even a little stupid, it’s massively stupid and obviously it’s very dangerous and obviously governments were dead wrong in allowing it.”
Charlie Munger, Vice Chairman of Berkshire Hathaway
He said fiat currencies are critical in advancing modern human civilization, adding that replacing national currencies with crypto is futile. Munger also called for a ban on crypto in the U.S., maintaining that the country should follow China's steps.
Like Buffet, Munger has been a significant opponent of cryptocurrency for years. He argued that digital assets are not tangible or productive. According to Munger, loose regulations regarding crypto lead to excessive asset circulation and a gambling mentality among investors.
After many digital assets, including Bitcoin, hit their all-time highs in November 2021, the crypto industry was bearish throughout 2022. In addition to macroeconomic challenges, some high-profile crypto firms, such as the crypto exchange FTX, announced bankruptcies.
Munger weighs in investment in China
Munger was asked about Daily Journal's investment in China in the wake of the Chinese spy balloon controversy and the Xi Jinping administration's crackdown on many of its companies.
Munger said he is still optimistic about the economic prospects of China. Regardless, he admitted that Daily Journal's investment in Chinese holding company Alibaba was one of his "worst mistakes." According to Munger, the company is "still a retailer" and will face a "competitive business."
Munger also answered questions about why Berkshire preferred to buy shares of Chinese electric vehicle producer BYD instead of Tesla. He explained that BYD is "so much ahead of Tesla in China," although conceding that the stock is expensive. Over the past year, Berkshire has sold some of its stake in BYD.