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A Tribute to Munger With His Philosophy-Enriched ETFs

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Charlie Munger, the legendary vice chairman of Berkshire Hathaway, who just passed away at 99, had a distinct investment philosophy that has had a considerable impact on the world of investing, including ETFs. These philosophies have been reflected in his statements over the years. Here's a summary of his key philosophies and their implications for ETF investing:

Dodging Deworsification (Over-Diversification) (2021 Daily Journal Annual Meeting)

Munger coined the term "deworsification" to criticize the idea of excessive diversification. This principle suggests that ETFs should focus on a smaller number of high-quality investments rather than spreading too thin, as the availability of so many great companies at a given point in time is rather difficult.

Costco's Success (2022 & 2023 Daily Journal Annual Meetings)

Munger's praise for Costco's operational efficiency could be a guiding principle for ETFs to invest in companies with strong operational models. ETF investors who are fans of Munger may invest in Costco-heavy ETFs like Consumer Staples Select Sector SPDR Fund (XLP - Free Report) and Fidelity Covington Trust MSCI Consumer Staples Index ETF (FSTA - Free Report) .

Big Tech and Regulation (2023 "Acquired" podcast)

Munger’s reluctance to break up big tech companies and his appreciation of their 'niches' could be a reason for ETFs to continue investing confidently in big tech firms. This puts Roundhill Magnificent Seven ETF (MAGS - Free Report) up for gains.

Skepticism Toward New Technologies (2023 Berkshire Hathaway Annual Meeting)

His cautious approach to new technologies like electric vehicles and AI suggests that ETFs should also be prudent when including companies in these sectors. Munger fans should thus cautiously invest in Defiance Pure Electric Vehicle ETF (EVXX - Free Report) and AI Powered Equity ETF (AIEQ - Free Report) .

View on Cryptocurrencies (2023 Wall Street Journal op-ed, 2023 & 2022 Daily Journal Annual Meetings, 2021 Berkshire Hathaway Annual Shareholders Meeting)

His strong negative stance on cryptocurrencies might influence ETFs to be cautious or avoid including cryptocurrency-related investments. Crypto-haters have the options to play from Short Ether Strategy ETF (SETH - Free Report) and ProShares Short Bitcoin Strategy (BITI - Free Report) .

Cautious Approach to Meme Stocks (2021 Daily Journal Annual Meeting)

Munger warned against market excesses and speculative behavior, such as meme stocks. ETF investors can heed this advice by evaluating the composition and fundamentals of ETFs, avoiding those that may be driven by hype or excessive speculation. Investors who think like Munger may stay away from Roundhill MEME ETF .

Focus on Quality/Value (2020 Daily Journal Annual Meeting)

Munger highlighted the importance of investing in high-quality companies. He once said, “You want to fish where the bargains are.” Bargain or low P/E ETFs like Invesco S&P 500 Enhanced Value ETF (SPVU - Free Report) could be a good pick. The fund has a P/E of 8.60X and a Zacks Rank #1 (Strong Buy).

Capitalism and Failure (Tao of Charlie Munger)

Munger’s belief in the necessity of failure in capitalism might suggest that ETFs should not shy away from investing in companies that have faced setbacks but have strong fundamentals for recovery. SPDR Dow Jones Industrial Average ETF (DIA - Free Report) could be a great example of this statement. The key index is up only 6.9% this year, lagging both the S&P 500 and the Nasdaq and may be up for gains in 2024. The fund DIA has a Zacks Rank #1 (Strong Buy).

Long-Term Perspective (2021 Daily Journal Annual Meeting)

Munger advised investors to have a long-term outlook and endure market ups and downs. ETF investors can adopt this approach by choosing ETFs with a long-term investment horizon and resisting the temptation to sell out on short-term market fluctuations. To hold for the long term and stay calm, S&P 500 ETFs like SPDR S&P 500 ETF (SPY - Free Report) are probably the best bets.

(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)

 

 


 

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