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The 5 Value Stocks Charlie Munger Loves Most

Charlie Munger has been behind many of Warren Buffett’s biggest successes. So when he says these are his 5 favorite stocks, it’s worth noting.


One of the most successful and well-known investors in the world is Warren Buffett, chairman of Berkshire Hathaway. Not so widely recognized is his investing partner, Charlie Munger. Munger, 98, vice chairman of Berkshire Hathaway (BRK-B), is widely credited with helping make Buffett successful, by converting him from a “cigar butt” investor to one that buys great companies at good prices. With this approach, Berkshire Hathaway has acquired and now holds “forever” public and private companies that have generated one of history’s greatest accumulations of wealth.

Charlie Munger is also the chairman of the Daily Journal Corporation (DJCO), a small company that provides California lawyers with valuable legal information. The company’s software business is a leader in the growing industry of automated court reporting. Like Berkshire Hathaway, the Daily Journal Corporation holds public stocks – in its case, $174 million worth, about half its $370 million market cap.

Each year, Munger presides over the Daily Journal’s annual meeting. At this year’s meeting he shared his insights in a two-hour live-streamed (on Yahoo! Finance) session on value investing, bitcoin, gold, the Chinese economic system, bubbles, the SEC and optimism, among other topics. You can find the meeting transcript here, if you’d like to read more.


Here were some highlights of what Munger said:

  • On value investing: “The idea of getting more value than you pay for, that’s what investment is. If you want to be successful, you have to get more value than you pay for. So it’s never going to be obsolete.”
  • On two approaches to value investing: “Some people look for values in strong companies and some look for values in weak companies.”
  • On GameStop and cryptocurrencies: “Certainly, the great short squeeze in GameStop was wretched excess. Certainly, the Bitcoin thing is wretched excess. I would argue that venture capitalists are throwing too much money too fast. There’s considerable wretched excess in venture capital and other forms of private equity.”

Just last week Munger commented on the current state of the markets, saying, “I think eventually there will be considerable trouble because of the wretched excess. That’s the way it usually worked in the past. But when it’s gonna come and how bad it will be, I can’t tell you.”

Charlie Munger said he strongly favors owning only a few stocks, “You’re lucky if you got four good assets. If you’re trying to do better than average, you’re lucky if you have four things to buy. To ask for 20 is really asking for egg in your beer.” What stocks does Daily Journal currently hold that meet his high standards? Only five, two of which we initially recommended for our Cabot Undervalued Stocks Advisor subscribers last year. All five are listed below (in alphabetical order):

Charlie Munger’s 5 Favorite Value Stocks

Alibaba (BABA) – Currently trading at prices last seen five years ago, Alibaba shares are at a deep discount relative to its western peers. While it’s considered the Amazon (AMZN) of China, Alibaba’s shares trade at 30 times trailing earnings vs. Amazon which trades at 128 times trailing earnings. Munger was vocal about the value of building an economic partnership with China, and when asked about the investment in Alibaba, had this to say: “Well, we did it for a very, very simple reason. We got more strength per dollar invested in China. The companies we invest in are stronger relative to their competition and priced lower. That’s why we’re in China.”

Bank of America (BAC) – Under CEO Brian Moynihan since 2010, the bank has fully recovered from the devastating global financial crisis, which nearly ruined it. Today, Bank of America has a strong and diversified mix of businesses including traditional banking, wealth management and capital markets. Credit loss reserves are 1.17% of total loans, while credit losses are running at only 0.23% of loans. Capital is strong, with a risk-weighted capital ratio of 10.5%. The shares trade at 11x estimated 2022 earnings.

POSCO (PKX) – This Korean company, launched in 1968, is one of the world’s largest steel producers. The firm is exceptionally well managed and operates two of the most technologically advanced steel mills in the world. POSCO exports 63% of its production as its low cost and high quality make it globally competitive. The company’s balance sheet is sturdy, with cash nearly offsetting its total debt. PKX shares trade at 1.44x EV/EBITDA and 4.7x estimated 2022 earnings.

U.S. Bancorp (USB) focuses on traditional banking and wealth management. Unlike other majors, the company has almost no capital markets operations. The experienced and conservative leadership oversees its high quality and low-risk business model, including its under-appreciated payment services business. U.S. Bancorp has a 9.9% capital ratio that is bolstered by robust reserves at 1.88% of loans. The shares trade at 11x estimated 2022 earnings.

Wells Fargo & Company (WFC) never fully recovered from the 2009 financial crisis, made worse by a loose compliance culture that led to numerous reputation-tarnishing problems. Like all banks, Wells Fargo is struggling with low interest rates and the potential for high credit losses from the pandemic-weakened economy. However, under new CEO Charlie Scharf, the bank is aggressively overhauling its entire operation, most recently with the planned sale of its asset management business. The shares carry considerably more risk than Daily Journal’s other banking stocks.

The Cabot Undervalued Stocks Advisor portfolio no longer holds positions Charlie Munger’s favorite stocks, but to see the double-digit winners we have in our portfolio, click here.


*This post has been updated from an original version.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.