Tribute to Charlie Munger, The Man Who Taught Warren Buffett How to Invest

0:00One of the most important investors of the last hundred years, a man who is known not so much for his wealth, but for his wisdom. Charlie Munger has passed. We're going to, in this episode, take a look at his life, as well as talk about what's happening in our economy right now, including two Fed governors releasing contradictory statements about what may be happening with interest rates moving forward, and news about home prices, which, spoiler alert, have gone up 6.1 % year to date. We'll be covering all of that and more in today's first Friday bonus episode. So welcome to the Afford Anything podcast, the show that understands you can afford anything, but not everything.

0:45Every choice that you make is a trade-off against something else. And that doesn't just apply to your money, that applies to your time, your focus, your energy, your attention, to any limited resource that you need to manage. So what matters most to you and how do you make choices accordingly? Those are the two questions that this podcast is here to explore. My name is Paula Pant. I'm the host of the Afford Anything podcast. Normally, we're a weekly show. We air every Wednesday-ish. But once a month, on the first Friday of the month, we air a First Friday bonus episode. So welcome to the December 2023, year-end 2023, First Friday bonus episode.

1:28Let's dive right in with a reflection on the life of an absolutely remarkable individual whose impact extends so far beyond the world of finance. Charlie Munger was born in 1924 in Omaha, Nebraska, and he played a crucial role in shaping the world of investments as we know it. He was the right-hand man, the business partner, the best friend to Warren Buffett. Warren Buffett and Charlie Munger go together like peanut butter and jelly. Charlie Munger's journey began in the middle of the Great Depression. He and Warren Buffett both share Omaha, Nebraska, as their hometown. And Munger was originally a lawyer.

2:15But as he started meeting really interesting clients, doing interesting things, he realized that he would rather be more like his clients than he would be their legal advisor. And so he left the world of law and by a twist of fate met Warren Buffett. So they met at lunch at a local Omaha club. And that chance meeting, that absolute fluke chance meeting, marked the start of a business partnership and a friendship that lasted for more than 50 years. So together, Warren Buffett and Charlie Munger formed a company called the Buffett Partnership Limited. They formed that company in the 1960s, and that partnership became one of the most successful in history.

3:02In 1978, Charlie Munger became vice chairman at Berkshire Hathaway. He was a huge contributor to the decisions that the company made. You know, the Berkshire Hathaway, you know, the annual meetings that happen in Omaha, it's like the Woodstock of stock investing. And it's largely because of the wisdom of Charlie Munger. Charlie takes the stage and shares the most profound insights. Warren Buffett has attributed much of his success to having the guidance of Charlie Munger. And so his passing is a huge blow to, frankly, to humanity. He has an accumulated wealth of about$2.6 billion. To share some of his insight, just a peek of it, his hiring philosophy was trust first, ability second, meaning first hire people that you trust.

4:04Don't worry if they don't necessarily have the skills to do a given job. Just make sure that they are trustworthy people. That is first and foremost. He was in many ways considered the moral compass of Berkshire Hathaway. He was a big proponent of buying really strong, wonderful businesses at fair prices. And that was his approach to investing. If you want to learn more about Charlie Munger, there's an amazing blog called Farnham Street. Farnham Street is the name of the street in Omaha that Warren Buffett lives on and also where the headquarters of Berkshire Hathaway are located. So there is a fantastic blog called Farnham Street that is really in many ways based around the wisdom of Charlie Munger.

4:52If you want to read more of Charlie Munger's wisdom I highly highly recommend Farnham Street. It is one of the best gems on the internet. Moving away from this tribute to Charlie Munger and onto some hot gossip. There are two Fed governors who recently provided contradictory remarks on the future of interest rates. So there's one Fed governor based out of Atlanta. This Fed governor said that inflation is on a downward trajectory. And if, of course, if inflation is on a downward trajectory, necessarily that means that interest rates at least implies the interest rates are not going to rise that we have hit peak interest rates and when the Fed is ready interest rates will only go down from here so that's a very uplifting thing to hear from a Fed governor but but a different Fed governor one based out of Richmond, advocated for caution.

5:56This Fed governor cited lingering price pressures and said, you know, we might not be out of the woods yet. Inflation might not be consistently heading downwards. If it remains as it is, we're going to have to take some measures accordingly. So these two Fed governors, one based out of Atlanta, one based out of Richmond, they They pointed to a mix of economic figures and anecdotal data. Both of them did, and they both had very different takeaways on the outlook for inflation. What does that mean? It means that not even the Fed itself knows or can agree on whether or not they themselves will decide to hold interest rates steady, raise interest rates, or lower interest rates.

6:44The Fed is meeting one more time this year. they are meeting December 12th and 13th. So we will know in less than two weeks, we will know by December 13 what the outcome of that particular meeting is going to be. But as far as what's going to happen in 2024, the contradictory remarks issued by two Fed governors show that even the Fed itself is torn on where we currently stand with inflation and what the Fed is going to do about interest rates accordingly. Speaking of rising prices, let's take a look at the housing market. National home prices have seen a year over year increase. On a year to date basis, the national composite has risen by 6.1%.

7:29That is way above the median based on 35 years of data. Breaking that down into various cities, Detroit is leading the pack with gains of 6.7%. San Diego, home prices rose 6.5%. New York rose 6.3%. Now all of this is according to the S &P CoreLogic Case-Shiller Index. In terms of other metro areas, Boston and Miami are both doing very well, or by doing well, I mean home prices are rising. So in Boston and Miami, home prices went up 5.3 % and 5 % respectively. Cleveland, home prices rose by 5%. But there are a couple of cities that actually saw price declines. So Portland, Oregon saw a decline of seven tenths of a percent.

8:21And Phoenix dropped by 1.2%. And the worst performer of all is, of course, one of the cities where I hold a rental property, Las Vegas. Las Vegas experienced a 1.9 % decrease in home values. So what's going on Vegas? So that's where we are in terms of the housing market overall. And that's also a reminder that every market is local. Detroit in particular has a very, very low inventory of homes that are for sale. That is a major contributor to the rising home prices in Detroit. By contrast, in Las Vegas, homes are sitting on the market for longer. There's a metric called average days on market, and it's a metric that measures how long a home sits on the market before it's sold, once it's publicly listed.

9:11In Las Vegas, homes are sitting on the market for more than two months on average. And what that does is it puts pressure on sellers to lower prices in order to get houses sold. So inventory is lingering on the market longer in a place like Vegas, and that puts a downward pressure on prices. By contrast, in a place like Detroit, you have homes sitting on the market for an average of 35 days, half the amount of time in Detroit as compared to in Vegas. And the average days on market of 35 days in Detroit means that homes are selling faster now in Detroit than they were last year. Last year, the average days on market in Detroit was 42 days.

9:52Now it's 35. So a lesson for anyone who wants to buy a home, particularly if it's an investment property, take a look at the average days on market in the city in which you want to buy. Take a look at what that number is, how it compares to the national average, how it compares to other nearby cities or cities of a similar size in the region or across the country and take a look at how it compares with previous years data because that metric average days on market can give you a lot of information as to how quickly inventory is moving and therefore the direction that prices are taking.

10:39You know, when you're a kid, you dream about being an astronaut or working with wildlife life or all these cool things. And then when you grow up, you think about not just what you want to do, but also you think about this other layer to it, which is how do I want to impact the world? What legacy do I want to leave behind? And how do I want to do that through my work? For a lot of people, that's when you start dreaming about owning your own business. But to do that, you're going to need a website, a payment system, a logo, a way to find new customers. And that can be really overwhelming and it's a big workload.

11:10That's where today's sponsor Shopify comes in. Shopify is the commerce platform behind millions of businesses around the world and 10 % of all e-commerce in the US, ranging from household names like Mattel and Gymshark to brands that are just getting started. If you need a website, Shopify's got you from the get-go with beautiful ready-to-go templates. You can get help with everyday tasks like writing product descriptions, generating discount codes. Shopify can help you find your customers with easy-to-run email and social media campaigns, and they have award-winning 24-7 customer support. Turn those dreams into and give them the best shot at success with Shopify.

11:49Sign up for your one month,$1 per month trial period and start selling today at Shopify.com slash Paula. Go to Shopify.com slash Paula. Shopify.com slash Paula. This year, give a gift that goes far beyond the moment, an Invest 529 account. Whether it's a child, grandchild, or someone just starting out, you're helping them safe for education that can open doors for a lifetime. Invest529 is a tax-advantaged way to help save for college, trade school, or even apprenticeship programs. It's flexible, easy to start, and you can contribute any amount, big or small. Because the money can grow tax-free, it's a gift that can really build value over time.

12:32So instead of giving something that gets used up or set aside, give the gift that can change a life. Start an Invest 529 account today. Go to invest529.com to learn more and get started. Investments involve risk. Results vary. Consult with your financial and tax professionals. Administered by Commonwealth Savers Plan. If you're someone who's been meaning to get a real handle on your retirement plan, I want to point you to something that I think is genuinely worth your time. Bolden. It's a modern retirement planning tool that takes all the confusion out of figuring out your financial future. So most calculators give you a quick estimate and call it a day.

13:11Bolden goes way deeper. You can model different scenarios, test real choices, and see exactly how things like saving more, retiring earlier, or adjusting social security timing impact your plan. Bolden doesn't just give you numbers. It's visual. It can give you clarity and helps make it easy to get real answers without needing to hire a financial planner. I've looked into what they're building and it's one of the smartest, most accessible tools out there to help you take control of your retirement plan. One thing I like about them is the dashboard is really easy to see. At a glance, you see your projected net worth, you see your current net worth, you see your chance of retirement success.

13:49It's like at a glance gives you a ton of information. And you can look at the effect of taxes, state modeling, depending on where you might live. You can look at the impact of Medicare and long-term care and calculate the what-ifs. So if you want a simple way to get confident about your future, check out go.boldin.com slash afford. That's go.boldin.com slash afford. Go take a look. It could make a big difference in how you think about your financial future. Boldin is for informational and education purposes only and does not constitute investment advice.

14:35Turning our attention to the world of credit card rewards, Chase just put out a new survey that shows that one-third of American consumers are spending their credit card rewards on holiday gifts. And one-fourth are spending their credit card rewards on buying groceries to make big, elaborate holiday meals. So credit card rewards, which kind of have the connotation of a nice to have for a lot of consumers are core pieces of their budget. When something big comes up like the holidays and consumers need additional money for things like gifts or for, you know, a big holiday meal, it's going to cost a lot more money than just your standard, ordinary, run-of-the-mill, weekly grocery shopping.

15:24For those types of periodic expenses, credit card rewards are increasingly something that people are relying on. According to this Chase study, parents are more likely than non-parents to view credit card rewards as either extremely helpful or very helpful when it comes to covering holiday expenses. It's not just families, small businesses also. 42 % say that they're spending it to reward employees and another 31 % say that they are spending it in order to just kind of get a handle on their overall spending. Now, all of that relates to how ordinary individuals and small business owners are using rewards, but there is, and I mentioned this in the previous First Friday episode, there is proposed legislation that if passed would likely significantly reduce if not eliminate a lot of credit card rewards so this legislation is called the credit card competition act the proponents say that the passage of this act would break up the dominance that visa and MasterCard have over the market visa and MasterCard together control more than 80 percent of the credit card market and proponents of the CCCA the credit card Competition Act, say that Visa and MasterCard are using that market dominance to block competition.

16:52The proponents of the act are largely big name merchants, the Amazons and the Targets of the world. And so it's Amazon and Target versus Visa and MasterCard. The merchants say that the lack of competition inside of the credit card market is ultimately bad for consumers. But by contrast, the opponents of the act say that if this act were to pass, it would pose a threat to credit card rewards, to data security, and to access to credit. Recently, a few weeks ago, I went to a conference called CardCon. It's a conference for credit card media. And I heard a very lively debate about the Credit Card Competition Act.

17:37And one thing that struck me is that there's one particular category, airlines. And airlines are in this very strange in-between space because they are simultaneously merchants. They sell airline tickets, which makes them merchants. But they are also co-branded on credit cards. I was particularly interested in finding out where the airlines land on this topic because they are both merchants and technically they're not card issuers, but they are co-branded on cards. So technically they have a foot in both camps. But when it comes to the Credit Card Competition Act, the airlines are firmly opposed to it.

18:24And they're opposed to it because it's widely agreed that the passage of this act would likely put an end to credit card rewards. And many people use airline miles in order to book travel. Airline miles and mileage rewards are a big piece of how airline loyalty is built. in addition to that, both major banks, the big banks, as well as really small credit unions and community banks are also opposed to it. And that was one thing that struck me being at Card Con is it's very unusual that big banks and small community banks and credit unions and airlines and Visa and MasterCard would all be on the same side of a given issue.

19:12But that is the unexpected assortment of allies that have formed in opposition to the Credit Card Competition Act. We will at some point in the future probably dedicate an entire bonus episode to this really interesting issue that has caused unexpected alliances to form across this very wide gamut of airlines to credit unions to data security experts. So that is where we are with the Credit Card Competition Act. Turning to tax matters. The IRS has delayed the 1099K reporting. They are treating 2023 as an additional transition year. This move is trying to reduce confusion for taxpayers with reporting only required for transactions exceeding$20 ,000 and 200 transactions.

20:08As we approach the end of the year, the IRS has also made some pretty significant adjustments for the 2024 tax year. The income thresholds for tax brackets have been increased by 5.4%, and the standard deduction for income tax filings in 2024 will also be 5.4 % higher. This move is not expected to dramatically alter most Americans' tax budgets. It is trying to instead maintain taxpayers in their same current brackets by acknowledging that any additional income that taxpayers have might merely be keeping pace with higher living costs. So basically, it's an inflationary adjustment. Also, because it is December, we should point out some common mistakes that people make when doing your end-of-year tax planning.

21:00I know you're not making these, but people will forget to maximize retirement account contributions. I know that you haven't done that, but just in case you've got a friend or a family member, remind them to maximize their retirement account contributions. Don't forget about your HSAs. Don't forget about your 529s. Those are big, big pitfalls. Don't forget about deductions, credits. Remember to maintain your records. You know, and I'm guilty, I'm very guilty of having kind of a scattered, disorganized record keeping system. But keeping really good records is how you take advantage of tax deductions that you legitimately, legally are totally entitled to get.

21:47Okay, now our last story for today is about JP Morgan's S &P 500 outlook for 2024. So JPMorgan Chase just put out their expectations for how they think stocks are going to perform in 2024. And it wasn't a very positive story, but they expect, and again, who knows if they're going to be right or not, it's always challenging to look at a crystal ball. They put out a pretty gloomy forecast expecting the S &P 500 to drop by 8 % from its current level by the end of 2024. According to JPMorgan Chase, they attribute this to the deceleration of global growth, to the shrinking of household savings, and to various geopolitical risks, as well as the national elections in the United States.

22:41So all of that could add to some volatility. Now, we should state that year to date in 2023, year to date, the S &P 500 is up nearly 19%. And that's because economic data is really strong, as we covered in the November First Friday bonus episode. Unemployment remains at a historic low at right around 3.8%, 3.9%. GDP growth for the third quarter of 2023 was 4.9%. That's the highest rate that it's been, annualized 4.9%. That's the highest rate that it's been since 2021 in two years. So we've got really, really strong economic data. Inflation is falling. Although, of course, as we just discussed, even the Fed governors are divided as to whether or not that's a permanent thing.

23:33But overall, there's wide agreement among financial observers that the Federal Reserve is probably pretty close to being done raising interest rates. They might hold interest rates steady for a little while longer. If they do have to raise interest rates, it probably won't be too many more times and it probably won't be by too much. That seems to be the general consensus. And so based on all of that, the S &P 500 is up nearly 19 % this year. So this has been a very, very positive year for the stock market. JP Morgan is saying that next year, according to them, they're predicting that next year is not going to be as good.

24:17They're predicting a little bit of a drop next year. It is, of course, very dangerous to try to make predictions about the future. One year from now, we will be able to look back and know whether or not that prediction came to be. What we do know is that there is a large disconnect right now between the economic data and consumer confidence. Consumer confidence is quite low, despite the fact that economic data is really strong and despite the fact that the markets are roaring. I mean, a 19 % increase is a roaring market. And yet, consumer confidence is weak and largely that is attributed to inflation.

24:59So that's a snapshot of where we are as we close out 2023 and an interesting set of questions about what lays ahead for the year to come. Well, thank you for tuning in. This is the Afford Anything podcast. This is a bonus episode. So I hope you enjoyed it. And we will be back with our usual formatting in our Wednesday episode. By the way, this upcoming Wednesday episode is an interview with former NASA astronaut Mike Masimoto, who is also on the Big Bang Theory. He is going to talk about his experience going to space, his experience as a NASA astronaut, and the lessons that he learned that you can apply in your own life when you take your own moonshot.

25:46So make sure that you are subscribed to the Afford Anything podcast in your favorite podcast playing app, open up Spotify, Pandora, Apple Podcasts, whatever it is that you're using, and make sure that you hit the follow button so that you don't miss any of our fantastic upcoming episodes, including this interview with NASA astronaut Mike Masimoto. He was the guy who sent the very first tweet from space, and he tweeted, launch was awesome. So if you're wondering what beautiful, eloquent wording was first tweeted from space, it was, launch was awesome. Make sure also that you are subscribed to our show notes.

26:27You can get those by going to affordanything.com slash show notes. Thank you so much for tuning in. My name is Paula Pant. This is the Afford Anything Podcast, and I'll catch you in the next episode.