Buffett’s Will and Munger’s Death Mark the End of America’s Best Investment Era

Buffett's Final Wishes and Munger's Passing Signal the End of America's Legendary Investment Era

Author: Xiao Lei Views the World

A few days ago, Buffett designated an executor for his will (donating 99% of his wealth), and not long after, his soulmate Munger passed away.

I once read a news report saying that some American institutions conducted a survey, asking who, aside from their fathers, the most respected American man was. Surprisingly, many people voted for Buffett.

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Whether this information is true or false, it is enough to show what Buffett and Munger mean to the United States.

Buffett and Munger were born, grew up, and passed away during the best times in America. That they have conquered numerous followers and disciples is not solely due to their wealth. Of course, if they hadn’t been consecutively named the world’s richest person for several years, they probably wouldn’t have gained such widespread fame.

If we knew nothing about how the world operates, it would surely be shocking to hear that the wealthiest, most frugal, intelligent, and patriotic person in the world was someone who disliked exercise, loved drinking cola, and “didn’t do real work” but instead fully focused on “stock speculation,” and that this person had lived for almost a century.

The 20th century, which has only recently passed, was undoubtedly America’s century. America participated in and won both World Wars, and the US dollar became a global currency. Then, in the decades-long Cold War with the Soviet Union, it eventually ended with the disintegration of the USSR. Throughout this process, America’s various technologies, businesses, currency, and military hegemony still have an impact on the world today. In such a huge torrent, Buffett and Munger, along with their personal growth and efforts, can be said to be representative figures of America in this era.

However, in an era when Buffett has designated an executor for his will and Munger has passed away (the 21st century), America is no longer confident. From a “dragon slayer” who passionately pursued and caught up with the British Empire a hundred years ago, they have turned into an aging dragon, obsessed with being “number one,” and suppressing their competitors.

Undoubtedly, what Buffett and Munger will take with them is the entire era that belonged to America.

So, what kind of American century made Buffett and Munger who they are?

Here, I will briefly mention a few points for everyone to discuss and chat about.

The first point is the era when the US dollar became a global currency.

Buffett entered the US stock market in 1941 when he was only 11 years old and bought his first shares.

In 1944, after confirming their complete victory in World War II, the United States convened a conference with nearly 50 countries, including Great Britain, to rearrange the global currency system after the war. The US dollar replaced the British pound and became the world’s only universal currency (other currencies were linked to the US dollar).

This means that all assets in the United States have become a “reservoir” for the world dollar system. When the whole world has dollars, buying American assets becomes almost the only reserve choice for the dollar. US Treasury bonds, US stocks, US real estate, etc., naturally become the largest dollar reservoir.

In other words, as long as there is a continuous increase in global demand for dollars, various assets in the United States can obtain a very stable and continuous reserve demand.

From Warren Buffett’s wealth curve, it can be clearly seen that the growth of his wealth can be divided into three distinct stages. The first stage was from the 1940s to the early 1970s, which was the initial period when the dollar became the world currency. Due to the constraint of the fixed exchange ratio with gold, the issuance of dollars was very restrained during this stage. The slope of Buffett’s wealth growth was not very high, with an annual growth rate of around 10% (considering that the wealth base was not large, this growth rate is not surprising); the second stage was the period after the collapse of the gold constraint on the dollar in the late 1960s, when the dollar was unleashed. Buffett’s wealth growth suddenly increased to an average of 20% per year; the third stage was the early 21st century, after the bursting of the dot-com bubble and the 9/11 terrorist attacks in the United States. In order to reduce global insecurity and various concerns about the United States, to stimulate capital and talent to return to the United States, and to prevent the economy from entering an irreversible recessionary cycle, the United States quickly embarked on a new dollar expansion. Since then, Buffett’s wealth has been growing at an average annual rate of nearly 30% (considering the enormous wealth base, this growth rate is quite alarming).

Therefore, it can be said that a significant portion of Buffett and Munger’s investment empire has benefited from the world’s dollar currency.

The second factor is the globalization of American-style business and consumer goods.

In 1964, Buffett bought shares in American Express, a company that primarily provides global payment and credit card services based on the dollar. American Express was also the first foreign financial institution to obtain bank card clearing business in China.

In 1988, the two also bought shares in Coca-Cola, and in 1995, they bought shares in McDonald’s. These enterprises, which have contributed the most to Buffett’s wealth growth, are actually the result of consumer goods and their brands going global after the development of strong American infrastructure and logistics.

After 2008, there was an increase in holdings of Moody’s ratings and heavy purchases of Bank of America. A sidebar to this is Buffett’s scathing criticism of Standard & Poor’s downgrade of US credit ratings in 2011. In 2016, Buffett bought shares in Apple, and in 2019, he bought shares in Amazon. These are both highly international consumer goods providers and platforms. He also had a significant stake in Walmart before.

This brings me to Charlie Munger’s influence on Buffett, including Buffett himself, who believes that Munger’s greatest impact on him is that prior to knowing Munger, he would always buy very cheap junk companies and quickly sell them when they made a small profit, like a smoker picking up cigarette butts off the ground, taking a few puffs, and then throwing them away. However, after getting to know Munger, Buffett started practicing value investing, which is buying undervalued good companies and holding onto them for the long term.

But what kind of companies are actually undervalued good companies? Buffett likes to look at financial statements, but the problem is that it doesn’t really explain anything or reveal any patterns. However, upon closer observation, after getting to know Munger, the stocks that Buffett’s team bought overall have two common characteristics, which is worth considering. The first is that the purchased companies are highly internationalized, meaning they have a very strong international competitiveness. This forms the basic “moat” that won’t easily be broken down by any single factor or even a single country. The second characteristic is that the purchases are lagging (otherwise it would not be a complete cycle judgment, whether it is a true good company or undervalued).

In other words, how do we measure the degree of internationalization? It’s not just about one or two years of international performance, but rather a sustained and stable trend of internationalization over several years. For example, Buffett’s team only bought Apple in 2016 and Amazon in 2019. For many investors, this was already late. Early investors had already made hundreds of times their investment. But it was only after the tide of capital chasing short-term dramatic growth receded that Buffett’s team slowly bought those internationally proven international companies.

What does this mean? It means that in the process of Buffett’s wealth growth, the main contributors are actually inseparable from various internationalized American companies, especially those in the consumer-related sectors. Without the internationalization granted to American companies by this era, Buffett would have a hard time finding attractive investment targets. Even if he did find them, they might not work out. For example, some companies he bought earlier that were completely based on local labor and business sources, like the shoe company, all performed terribly. You can go and look at Buffett’s failed cases.

The third characteristic is catching up with the era of strengthened compounding at the national level in the United States.

We all understand compounding, which is known as the “eighth wonder of the world.” We have all heard the story of “putting grains of rice on a chessboard,” which actually illustrates the power of compounding (exponential growth).

Of course, when I mention compounding here, it is not just about growth on that level.

What Buffett and Munger caught up with was the “compound interest” of the entire American national fortune. Various reinforcing cycles were formed here. For example, with the victories of the World War I and World War II, there have been large-scale advancements in social construction, land development, and the acceptance of immigrants in various aspects of society such as residence, education, healthcare, and employment. As the US dollar became the sole “hard currency” in the world, countries and investors holding dollars have shown a strong “patience” towards the United States.

What does this mean? It means that capital and talent have a very high tolerance for “instability” in the US market. Many investors, in other countries, quickly sell off their assets and flee at the slightest sign of crisis, causing permanent and lasting damage to these countries. Economic recovery becomes extremely lengthy. However, these investors in the United States immediately change their behavior. They can patiently wait (because they have settled in the United States), until the United States overcomes the crisis.

So where did this phenomenon originate? One important reason is that when an investor resides or settles in the United States, their tolerance for the United States is very high. Investors settled in the United States are not likely to have the same tolerance for investing in other countries. This leads to a situation where everyone can wait and put their money into US assets when the United States encounters a crisis, but if it were any other country, everyone would immediately sell stocks or bonds and run away.

This is a reinforcing cycle. For example, there is an investment guru called Soros, who has always been a “value investor” in the United States, but adopts a “destructive” mode of short-selling and arbitrage for other countries globally (including the UK). He would leave the moment he’s done, and even scold these places, saying “flies don’t bite seamless eggs”.

We often see this phenomenon domestically as well. Some international investors have optimism about the Chinese market and a long-term commitment to invest in China. However, if more investors can come and “settle” in China (this is just my personal opinion, please don’t criticize), they will naturally become true long-term investors in China. Their tolerance for various cyclical downturns will be higher, and they will become factors that help the economy quickly recover from each low point, instead of causing further damage by escaping destructively.

So what does this mean? It means that national fortunes also have compound interest. When a key factor is resolved, it brings more compound interest. For example, having more talent and funds “settling” in a country will increase their tolerance and resilience to economic cycles. They will naturally become long-term investors and value investors, rather than focusing on speculation. This will continuously drive the resources and abilities of the entire country to solve crises, and thus generate new competitiveness. This new competitiveness will then attract talent and funds in the next economic cycle, and more talent and funds will “settle,” forming new consumption and investment patterns. The crisis in this country will be resolved before other countries, creating a reinforcing cycle for the national fortune.

Buffett and Munger were born in the United States, and many people consider them to be very “individualistic,” meaning that individual interests are often more important than collective and national interests in their country’s perspective. But if you look, Buffett and Munger are both staunch defenders of national credit and reputation. Almost every time when people do not have a positive view of the United States, or when the U.S. credit is downgraded, they will come forward to refute with practical actions and persuasive knowledge logic.

Last time when S&P lowered the U.S. credit rating, Buffett said, “I would give the U.S. five A’s” (the highest sovereign credit rating is three A’s), and at the same time, Buffett significantly increased his purchase of U.S. treasuries. During the Biden administration, when there was almost a government shutdown due to the budget, both S&P and Moody’s downgraded the U.S. credit rating. Buffett said, “There is no need to worry, we all know that the U.S. dollar is the world’s reserve currency.”

The reason is that people like Buffett and Munger have chosen to permanently “settle” in America, forming a collective destiny, and they can endure multiple economic crises and stock market crashes in the U.S., which eventually leads to long-term gains after economic recovery. This itself strengthens the cycle.

The fourth reason is the era of comprehensive development of American land and narrowing regional gaps.

At the beginning, Buffett mainly mingled in New York. In the earlier days, for example, when he was in school, Buffett believed that businesses with a probability attribute similar to gambling, such as slot machines, were the most profitable. Initially, Munger also found partners to open a securities company and suffered serious losses in the 1970s, losing almost all the money he had earned over the past decade.

Finally, the cooperation and changes between the two are very thorough. Buffett left New York and Munger also found Buffett. The two returned to their common birthplace, Omaha, a very inconspicuous city located in the Midwest of the United States. Since coming here, they have never left. It has now become a popular destination in the investment community and can be said to exist like a “pilgrimage”.

Nebraska’s GDP ranks 36th (out of 50 states) in the United States, which is not remarkable. In China, which province’s rank in the country is similar to this? It is similar to Inner Mongolia, which ranks 24th in GDP (China has 34 provinces and municipalities).

Actually, even in such an unknown state in the United States, and then to such an unknown city (which is actually a large rural area in the United States), in terms of living conditions, environment, and per capita productivity, it is not much different from the most developed areas in the United States. Per capita GDP in New York is $100,000, while in Nebraska it is $80,000.

If we ignore the uniqueness of Washington, D.C., the highest per capita GDP in the United States, New York, is only 50% higher than the lowest, Mississippi. This is similar to the disparity between regions in developed countries of similar scale, such as the highest per capita GDP in the central Tokyo area of Japan, which is only 50% higher than the lowest in the northeastern Hokkaido region.

This makes it so that in these countries, unless there are special other living environments and conditions, the overall difference between living in the areas with the highest per capita GDP and living in the areas with the lowest per capita GDP is not particularly large.

This is the result of continuous development and exploitation at the national level.

This is also why I always say that China’s challenge is the imbalance in regional development, but China’s opportunities also come from here. China doesn’t include Hong Kong, Macau, and Taiwan. Even within the mainland, the gap in per capita GDP between the highest and lowest provinces is more than three times. Let me give you an example to make it clear: Anhui and Jiangxi provinces are adjacent to developed areas like Jiangsu, Zhejiang, Shanghai, and Fujian, and they are also located along the golden waterway of the Yangtze River. However, the per capita GDP of these two provinces is lower than the national average. Another example is Guangxi, which is adjacent to Guangdong, the most developed province in China. The per capita GDP in Guangxi is less than half of that in Guangdong. This is also why they are building a canal and opening up a new transport route in the western region.

In the process of narrowing the gap in regional production capacity and living conditions, it actually creates a greater space for growth and a more balanced development model that actively allocates talent and funds, creating a sustainable economic cycle.

Of course, when the gap in regional production capacity and living conditions narrows to a certain extent, some reverse problems may arise. When everyone feels that living anywhere is the same, it may lead to a new round of stagnation in population mobility and economic development. Take Japan for example, population mobility there has become quite poor.

At this time, new stimulative forces need to be injected, such as actively planning international trade and various interactive modes to rebalance the allocation of domestic resources. The earliest core development region in the United States was in the Northeast because the entire North American continent had the most frequent interactions with Europe, from European colonization to expansion, and the Northeast region of the United States was closest to Europe.

Later on, with the rise of the Japanese economy in Asia, followed by the Southeast Asian economy and then the Chinese economy, the West Coast of the United States was also boosted. The flow of talent and funds within the United States shifted towards the West Coast because it is closest to East Asia and South Asia. Looking at it now, the United States has formed new external influences. The difference this time is that the level of control may be weaker. With the long-term stagnation of development in Latin America, the U.S. economy shows outstanding performance while various immigrants continue to flock to the southern United States, bringing not only ordinary labor, elites, and investment capital, but also overall lifestyle habits, which has a huge impact on the United States.

So, what does this mean? If the gap between regional production capacity and living conditions in the United States is enormous, it would be difficult for Buffett and Munger to calmly return to Omaha and achieve the success they have today. Without large-scale development covering the entire country and giving the public more choices and willingness to return, it would not be possible to create a larger base for growth, and the likelihood of more legends emerging would be lower. If it weren’t for the indiscriminate development of the country’s territory, Omaha would just be a place name, perhaps Buffett would be reluctant to leave New York and spend his whole life on Wall Street, and it would be possible for Munger to continue running a securities company and be busy raising investment capital.

Summary: In summary, Buffett and Munger caught the best times in America so well that Buffett has always emphasized this point. Buffett once said that he won the “ovarian lottery,” meaning he was born in America during this era.

So why do we say that with the departure of Buffett, Munger, and others of their generation, America’s best era is also ending? The reason is that the current America is no longer seeking answers to its own problems internally, but the external demands are becoming more and more outlandish. At the same time, the changing conditions for external development are incomparable to the shaping forces America has faced in the past hundred years. More importantly, at the level of talent and growth, there are no longer generations like Buffett, Munger, etc. who believe that America’s development has always been a given.

The above content is only for passing time and does not constitute a serious understanding of investment and related issues.

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