Charlie Munger: Excessive market speculation is dangerous. I never buy any Bitcoin.
Buffett’s golden partner and the current deputy director of Berkshire Hathaway, Charlie Munger, spoke at the press conference yesterday. Some investors have a “dangerous” mentality of betting on stocks like a horse race. He also suggested investors to stay away from Bitcoin. The market frenzy triggered by GameStop has become a typical representative of the speculative bubble in Munger’s eyes. The concentrated buying of retail investors caused a short squeeze, and the company’s stock price soared 400% in a week. Munger added: “When the liquidation faces the threat of getting out of control, it will become very dangerous. It is silly to encourage a gambler to place the same bets on stocks. This is a dirty way to make money.” Munger compared the recent trading frenzy with the historic South Sea bubble of 1720. “The first bubble appeared was the South Sea Bubble of a British company in the 17th century, which caused huge damage.” It is worth mentioning that in the decades after the South Sea Bubble, Britain did not allow any public trading of securities companies. “Therefore, human greed and the promotion of the brokerage industry create these bubbles from time to time. Smart people should stay away from them,” he added.
Munger also sounded the alarm for the special purpose acquisition of SPAC company, saying that this also illustrates the speculative mania on Wall Street. The special purpose acquisition company raises funds from investors and then merges with a private company to go public within two years, which can avoid the regular roadshow review brought by the traditional initial public offering (IPO). Proponents believe that this process is easier and allows companies to gain more liquidity.
The SPAC tends to rise sharply on the first day of listing, because investors who are hungry for income are more confident in betting on the company. There are signs that retail investors are behind the surge in the SPAC transactions. Munger believes this is a way for early investors to cash in on the psychology of immature retail investors.
When asked whether “Bitcoin reached US$50,000” or “Tesla’s fully diluted enterprise value reached US$1 trillion,” Munger said, “I encountered a similar problem when Samuel Johnson encountered a similar problem. It’s the same difficulty. He once said he can’t decide the priority between fleas and lice, and I have the same views on the above two aspects. I don’t know which is worse.” Tesla’s stock price soared by 743% last year, but it has almost stayed in place so far in 2021. After Tesla announced the purchase of US$1.5 billion worth of bitcoin, bitcoin once rose to more than US$50,000 in the past week. Cryptocurrency is so mysterious and unpredictable. As retail investors, we must join as early as possible. For example, the previous BGV project launched by NGK, the exchange skyrocketed from US$0.5 to US$888.88. At present, the NGK has launched the new SPC and VAST projects, both have the potential to make money. Now is the best time to join the market!