Munger's Musings, the SPAC Bubble Burst, and the Art of Dividends

I. Introduction

Welcome to this week's edition of?Market Mavericks, where we'll dive into the turbulent waters of the SPAC bubble, discuss the wisdom of Charlie Munger, share tips on dividend investing, and highlight our thoughts on the dangers of a cashless society. So, buckle up and join us for a wild ride through the twists and turns of the ever-evolving financial world.

II. Maverick Spotlight

This week's maverick is none other than Charlie Munger, the 99-year-old vice-chairman of Berkshire Hathaway, and longtime partner of Warren Buffett. Munger recently made headlines when he shared his candid views on the brewing storm in the US commercial property market and the potential risks banks face with bad loans.

Munger, known for his straight talk and wise investing philosophies, has been a significant influence on Berkshire Hathaway's long-standing investment success. He remains deeply involved in the company's decision-making process and has helped shape the investment strategies that have led to compounded annual returns of nearly 20% since 1965 — twice the rate of the benchmark S&P 500 stock index.

In a recent interview, Munger discussed the turmoil in the financial system due to falling property prices and the challenges faced by banks. While he acknowledged that the current situation isn't as severe as the 2008 financial crisis, he emphasized that banks often fall into bad habits during good times, leading to significant losses during downturns. It's as if they're partying on a sinking ship, only realizing they need lifeboats when it's too late.

The legendary investor also shared his concerns about the difficulties of investing in the current environment. With higher interest rates, a crowded field of investors, and a glut of investment managers, Munger believes that the golden age of investing has come to an end, and investors will have to settle for lower returns. It's like trying to find a needle in a haystack that has tripled in size while wearing a blindfold.

Despite his concerns, Munger remains optimistic about America's future, though he acknowledges that the success of American democracy shouldn't be taken for granted.

Charlie Munger's legacy will likely be remembered for his relentless determination to develop and use what he calls "uncommon sense" in investing. As we spotlight Munger this week, we are reminded of the importance of staying vigilant in the ever-changing financial landscape and learning from the wisdom of those who have navigated it successfully, like a seasoned captain steering his ship through stormy waters.

III. Market Maverick Moves

This week, let's dive into the investment strategy of the Oracle of Omaha, Warren Buffett, and his unwavering devotion to the sweet nectar of dividend-paying stocks. Much like a connoisseur of fine wines, Mr. Buffett has an uncanny ability to identify the most exquisite vintages, or in this case, stable businesses that consistently share their profits with shareholders.

Berkshire Hathaway, Buffett's powerhouse, is expected to guzzle down a staggering $5.7 billion in cash from its stock portfolio this year, thanks in part to the likes of Chevron, Coca-Cola, Apple, and Bank of America. Now, that's a dividend party I wouldn't mind crashing!

Buffett's secret recipe involves handpicking companies that have not only withstood the test of time across countless economic cycles but have also consistently raised their dividends. Think of these companies as the sturdy oak trees in the investment forest – their roots run deep, and their branches (dividends) continue to grow, providing shelter from financial storms.

One can't help but tip his hat to Mr. Buffett's patient and methodical approach. That said, always remember that dividends alone won't guarantee success in the unpredictable world of investing. A well-rounded portfolio and a disciplined strategy remain crucial ingredients in our quest for financial success.

So, though we may not become the next Warren Buffett, we can surely learn from his dedication to the art of dividend investing. Investing is akin to a masterfully composed symphony, and dividends are the melodious harmony that accompanies the crescendo of a well-executed investment strategy. Let us embrace this lesson and strive for our own financial masterpieces.

IV. Contrarian Corner

The Special Purpose Acquisition Company (SPAC) boom, once hailed as a game-changer in the financial world, is now facing a sobering reality as many of its formerly prized companies find themselves on a collision course with bankruptcy court. Picture a high-speed train, loaded with innovative startups and dreams of success, suddenly veering off course and heading straight for a cliff – that's the SPAC landscape right now.

Over 100 companies, including electric-scooter firm Bird Global, smart-sock baby-monitor maker Owlet, and electric-car startup Faraday Future, are running out of cash, according to a Wall Street Journal analysis of their cash and cash flow from operations data disclosed in regulatory filings. With shares trading under $1, these companies are in danger of being delisted, losing over 90% of their market value since going public, and now desperately seeking cash infusions to stay afloat.

But how did we get here? SPACs were designed to provide a much-needed boost for young companies, giving them the capital and stock-market listing they needed to soar. Instead, the pressure to perform, combined with their vulnerability to rising interest rates and the unpredictable nature of public markets, left these fledgling firms gasping for air.

With first-quarter earnings reports just around the corner, many of these SPAC-backed companies are expected to reveal dwindling cash reserves and limited chances of turning a profit in time to dodge a financial catastrophe. In fact, a Wall Street Journal analysis found that on average, these companies have enough cash and short-term investments to cover spending for about five months. Many have already cut spending, and others are scrambling to raise cash.

As the SPAC bubble deflates, it serves as a stark reminder that all that glitters is not gold – and even the most promising financial vehicles can veer off course. The once-celebrated SPAC vehicle has transformed into a sinking ship, and the startups aboard are scrambling for lifeboats, forced to face the harsh reality that their supposed golden ticket to success may have been nothing more than fool's gold.

V. Maverick Mentality

This week's power play: Never underestimate the power of a billionaire when considering your short positions. Carl Icahn's investment firm, Icahn Enterprises LP, has recently been targeted by short-seller Hindenburg Research, resulting in a significant $6.3 billion market value wipeout. However, those betting against Icahn's empire have only made $9 million in mark-to-market profit, according to S3 Partners data.

The reason: Icahn Enterprises is one of the least shorted stocks among companies with market values above $1 billion. Betting against a billionaire like Icahn is like trying to out-swim a shark in its own territory – your chances of success are slim, and you might end up with more than just a few scrapes and scratches.

While short-sellers may be finding success through options trading, it's crucial to remember that going up against titans of industry can be a high-risk, high-reward endeavor. In the unpredictable game of finance, sometimes the smartest move is to avoid challenging the apex predator, especially if the predator is a billionaire investor with a proven track record.

So, the next time you're reading about shorting a stock, keep in mind that even the most tempting targets may not always yield the bountiful returns you're after. Approach with caution and strategy, lest you find yourself in a high-stakes game of financial cat-and-mouse with a hungry Wall Street tiger.

VI. Reader's Corner

Question: "What are your thoughts on the potential of a cashless society?"

Answer: The cashless society debate is like navigating a tightrope, balancing economic benefits with potential dangers. On one hand, a cashless society offers economic efficiency (think digital transactions as a sleek high-speed train), financial inclusion (a massive banquet with a seat for everyone), reduced crime (digital transactions swooping in like superheroes), and better monetary policy implementation (a high-tech toolbox for central banks).

On the other hand, a cashless society comes with privacy concerns (a real-life version of George Orwell's "1984"), a digital divide (leaving some stranded on the wrong side of the moat), cybersecurity risks (a shiny, new car that attracts thieves), and a loss of tangible culture (sandcastles washed away by the tide). There's also the dystopian potential of social credit nightmares, central bank misuse, unreliable digital infrastructure, and psychological impact on spending.

It's crucial to carefully consider the potential impacts of a cashless society and find ways to harness the benefits while addressing the dangers. This way, we can create a more inclusive, efficient, and secure financial system without sacrificing our freedom and privacy.

VII. Conclusion

As we wrap up this week's newsletter, we are reminded of the importance of vigilance and adaptability in the unpredictable world of finance. From the sobering reality of the SPAC bubble's burst to the wisdom of Charlie Munger, there are valuable lessons to be learned and strategies to be considered. Investing is an ever-changing game, and only by staying informed, embracing new ideas, and treading cautiously can we hope to navigate the complex maze of financial decisions that lay ahead. Until next week, may your portfolios flourish, and may your investments continue to be guided by wisdom and foresight.

Have an opinion or burning question? Leave a comment and join the conversation with fellow finance aficionados.

Disclaimer

Please note that this publication and its authors are not licensed investment advisors. Nothing produced in this newsletter should be construed as investment advice. Readers are advised to conduct their own research and consult with a licensed financial professional before making any investment decisions.