Charlie Munger predicts a terrible economic crisis that has never been seen before

I hope every investor knows Charlie Munger, the vice chairman of Berkshire Hathaway and Warren Buffett's right-hand man. Even though Munger is a venerable 98 years old, he is still actively involved in Berkshire's investment decisions. He also likes to share his ideas, which should be set in stone. His views, given the behaviour of world governments in recent years, are quite frank and pessimistic.

Charlie Munger is critical of the way governments are trying to wipe out economic problems. That tends to be the easiest way. This means quantitative easing, in layman's terms printing more and more money. This will solve the problem temporarily, but it will make the problems all the more long-term. This leads to inflation, which can grow to monstrous heights. It will make the middle class poorer, which will lead to discontent. He gives the example of Hitler's rise to power in Germany. In the then Weimar Republic, hyperinflation reached an incredible 23 000% in 1923, and the Great Depression of the 1930s also played its part. Hitler took advantage of this to come to power in 1933, and what followed probably needs no mention.

The Roman Empire was also one of the causes of inflation. Munger calls inflation the greatest long term danger to mankind other than nuclear war.

Inflation in the US over the last 10 years, source:

According to Munger, passive investing, typically investing in index funds, has a huge impact on the valuation or appreciation of stocks. This, he believes, will have some massive negative impact. This is the growing power of index funds, which have large stakes in most US companies. By comparison, in 1980, the combined share of asset managers in US companies was 10%. In 2017, it was already 80%, and one can assume that this number will continue to grow, as nothing is stopping Vanguard, BlackRock and others from doing so. It will get to the stage that these asset managers will control the majority of the votes of all major companies.

This diagram illustrates how much of a monopoly the "Big Three" of BlackRock, Vanguard and State Street have built up. Source:

One of the big issues is the technological advancements and excess that are offered to humanity. This leads to basic human needs being very well met. Munger captures this with the example that the main problem of poor people in the US is that they are overweight. Humanity is less satisfied than before when things were more complicated. The reason is simple. The world is not run by greed, but by envy.

Besides enough negative observations, Charlie Munger also mentioned advice and his vision. I drew from this video which is very well done and I recommend watching it. Charlie Munger's answers may be from the first half of this year, but they are so universal and practical that they will always be relevant.

He mentions that there is no need to hold extra large cash and wait for the right opportunity. He never did that and just always invested right away in the company he believed was a good one. He also admits that Berkshire does have a lot of cash, but that is simply because they haven't seen or don't see good companies that are worth investing in.

He advises that there is no need to diversify. He himself owns all but four stocks. In his opinion, very few people have the skills to hold 20 good stocks at a time.

Do you agree with Charlie Munger and think we are heading for a giant crash? Or do you not see it that black? 🤔

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