Charlie Munger's Concentrated Portfolio Strategy: A Two-Year Performance Review

The Philosophy Behind Extreme Conviction Investing

When Charlie Munger, Warren Buffett’s longtime partner at Berkshire Hathaway, disclosed his wealth allocation strategy at a 2017 conference, the market took notice. The legendary investor’s portfolio told a compelling story: approximately $2.6 billion in net worth spread across just three vehicles. This wasn’t lazy portfolio construction—it was a deliberate rejection of conventional wisdom.

Munger famously dismissed diversification as a crutch for inexperienced investors, describing it as “a rule for those who don’t know anything.” Warren Buffett echoed this sentiment, noting that diversification made “very little sense for anyone that knows what they’re doing.” Before joining forces with Buffett at Berkshire Hathaway, Munger ran his own investment fund that generated 19.5% average annual returns from 1962 to 1975, demolishing the Dow Jones Industrial Average by a factor of nearly 4 to 1. He certainly had earned the right to his contrarian views.

This concentrated approach reflected Munger’s search for companies with durable competitive advantages—what investors call “moats”—that could maintain profitability through various economic cycles while protecting themselves from competitive threats.

How His Three Holdings Have Performed

Nearly two years and one month after Munger’s passing in November 2023, his three cornerstone investments present an interesting case study in concentrated conviction investing.

Costco Wholesale: The Retail Addiction

Munger served on Costco’s board for decades and made no secret of his affection for the membership-based retailer. In 2022, he declared himself “a total addict” of the company and pledged never to sell his stake. His position was substantial—over 187,000 shares valued at approximately $110 million at that time, making him the second-largest shareholder.

Since Munger’s death, Costco shares have climbed 47%, while the company simultaneously increased its dividend by 27%. Additionally, a $15-per-share special dividend distributed in January 2024 provided shareholders with a standalone 2.3% yield, further rewarding long-term holders.

Himalaya Capital: Betting on Value Investing Principles

In the early 2000s, Munger allocated $88 million to Himalaya Capital, a private investment vehicle founded by Li Lu, often described as “the Chinese Warren Buffett” for his disciplined application of value investing methodology. Munger’s confidence in Li’s approach proved justified—his initial capital deployment multiplied significantly as Munger himself cited the fund’s “ungodly returns.”

While Himalaya Capital maintains privacy regarding its precise track record, its portfolio composition offers clues to its performance. Alphabet, representing nearly 40% of the fund’s assets under management according to the most recent 13F filing, has surged 130% since Munger’s passing. Berkshire Hathaway, another major holding, has also delivered solid gains during this period.

Berkshire Hathaway: The Core Position

Perhaps most striking was that Berkshire Hathaway represented approximately 90% of Munger’s $2.6 billion net worth at the time of his death. He held 4,033 Class A shares valued at roughly $2.2 billion. This concentration reflected a lifetime commitment to the company he helped build.

Interestingly, had Munger retained all 18,829 Class A shares he owned in 1996—the earliest available records—instead of selling or donating roughly 75% of them, his net worth at death would have approached $10 billion. Regardless, his remaining Berkshire stake has appreciated 37% over the subsequent two-year-plus period.

The Broader Implications

Over the two years and one month following Munger’s death, Berkshire Hathaway Class A shares have returned 38% while Costco advanced 47%. These results trail the S&P 500’s 52% gain, suggesting that even concentrated excellence doesn’t guarantee outperformance in every market cycle.

Yet focusing solely on relative returns misses the point. What made these holdings attractive to Munger—their fortress-like business models, pricing power, and resilience—remain intact. For a conservative, principle-driven investor like Munger, these characteristics likely mattered more than temporary underperformance versus market indices.

The durability of value investing principles, even in an era when such strategies face headwinds, demonstrates that Munger’s conviction-based approach transcends market sentiment. His three holdings continue reflecting the timeless principles he championed: deep analysis, concentrated conviction, and unwavering commitment to quality businesses operating with sustainable competitive advantages.