Here's Where Charlie Munger Saw The Stock Market Going In 2024

Charlie Munger, the vice chairman of Berkshire Hathaway, and long considered Warren Buffett's right-hand man, colleague, and friend died this week at 99. Munger left behind a long financial career and a reputation for his own personal investing genius. Ahead of the launch of the latest edition of his book "Poor Charlie's Almanack," Munger spoke with Stripe publishing company's CEO John Collison about the current state of the stock market. Specifically, Munger told Collison that the stock market had "gotten so hard that most of the people who are in wealth management have almost zero chance of outperforming an unmanaged index like the S&P."

Between brutal competition and manias surrounding the latest hot stocks, Munger predicted that the good (and decidedly less chaotic) investing times he enjoyed throughout much of his career wouldn't be back for at least the next hundred years. Before he passed, Munger had been vocal about many of the changes that have happened on Wall Street, including how the market has shifted into something unrecognizable from his heyday. Munger was especially vocal about the liquidity of the market, even proposing a tax on short-term gains in order to incentivize long-term holdings (a strategy Munger was famous for). While the man had a lot of financial wisdom to offer, there were a few specific predictions he had for the stock market's future that could be worth listening to.

Despite artificial intelligence becoming Wall Street's latest big bandwagon, Charlie Munger only had stock holdings in banking and e-commerce at the time of his death. Munger was particularly vocal about his opinions of AI. In fact, at Berkshire Hathaway's 2023 annual shareholder meeting, he said, "I think old-fashioned intelligence works pretty well." He also noted that AI wasn't new, saying the concept of software creating software had existed since the 1950s, making him skeptical of why AI was now being touted as the next big thing.

Munger, and by extension Warren Buffett, are both known for prioritizing high-quality, long-term investments over fads and trendy assets, so Munger's less-than-excited approach to AI is not all that surprising. What is surprising was his determination to avoid AI despite the fact that the Magnificent Seven (Apple, Microsoft, Amazon, Google, Nvidia, Tesla, and Meta) have all poured large sums of money into wide-reaching AI projects and initiatives.

These companies, and projects, have been largely fueled by the injection of private equity interest (and investment) in AI technologies. According to an analysis by Apollo Global Management's chief economist Torsten Slok, the Magnificent Seven are up 80% this year while the rest of the S&P 500 index remains flat. The meteoric rise of these seven tech companies has drawn comparisons to the dot-com bubble, and we all know how that ended. With that in mind, Munger might have had a good point in avoiding the trendiness of AI.

Another fad Charlie Munger wasn't a fan of? Bitcoin, and by extension cryptocurrency. Despite the fact that Bitcoin had a resurgence in 2023 (with prices doubling), Munger told the Zoom Zoomtopia 2023 conference audience, "Don't get me started on Bitcoins. Most of those investments are going to zero." The collapse of Bitcoin exchange giant FTX, combined with the general volatility of the currency (and who can forget about inflation) all combined to cause a massive loss in value in 2022. This freefall scared off many would-be investors at the time.

However, despite its volatile recent history, many investors are increasingly finding cryptocurrencies more appealing than equities. This has led to a tentative resurgence (that is somewhat dependent on how much the Federal Reserve continues to increase interest rates). Even so, at the Daily Journal's 2023 annual shareholder meeting, Munger insisted, "It's massively stupid. It's very dangerous. [...] It's worthless, it's no good, it's crazy, it'll do nothing but harm." Munger even wrote an Op-Ed for the Wall Street Journal in which he called for a U.S. ban on all cryptocurrency.

One thing's for sure, 2024 is sure to be a messy time for the stock market. Between the worst banking crisis since 2008, and the S&P 500 bank index currently down approximately 11% in 2023 (and at an all-time low when compared with the rest of the S&P 500) things aren't exactly looking bright for 2024. A small positive? The Federal Reserve is holding off on further interest hikes, for now anyway.