The investing world is mourning the loss of investing sage Charlie Munger, who passed away at age 99. In addition to being Berkshire Hathaway’s vice chairman and Warren Buffets right-hand man and best friend, Munger was a real estate attorney, chairman and publisher of the Daily Journal, a member of the Costco board, a philanthropist, and an architect. In early 2023, his fortune was estimated at $2.3 billion. But his greatest legacy may be his wit and wisdom that has influenced great minds across many industries. Here are some favourite Charlie Munger quotes:

“Show me the incentives and I will show you the outcome.”

"The big money is not in the buying and the selling, but in the waiting.”

“People calculate too much and think too little.”

“Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted independence. I desperately wanted it.”

“A majority of life’s errors are caused by forgetting what one is really trying to do.”

“We have three baskets for investing: yes, no, and too tough to understand.”

“I would argue that passion is more important than brain power.”

“Someone will always be getting richer faster than you. This is not a tragedy.”

“99% of the troubles that threaten our civilization come from too optimistic accounting.”

“Knowing what you don’t know is more useful than being brilliant.”

“Investing is where you find a few great companies and then sit on your ass.”

“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments.”

“Necessity never made a good bargain.”

Rest in peace, Mr. Munger.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(~) Bank of Montreal (BMO-T) BMO delivered earnings that came in light relative to expectations. They announced a 3% increase in the dividend. BMO’s capital improved on a sequential basis and the bank is trading in-line with peers on Price-to-Book. We like the setup for BMO here and would be buyers for those looking to add to bank positions. Owned in Cash Flow Portfolio.

(~) Berkshire Hathaway (BRK.B-US) We knew Berkshire Hathaway Vice Chairman Charlie Munger's passing was imminent, as he was nearly 100 years old and not in the best of health the past few years. It is certainly a spiritual loss for Berkshire Hathaway and for Munger's investing partner of the past 60-plus years, Chairman and CEO Warren Buffett. In accordance with contemporary corporate operations, we don't expect the event to have too significant of an impact on Berkshire's shares. We have always believed that that the company would survive the eventual departures of Buffett and Munger, as the groundwork for a successful transition has existed since the start of the millennium, with Berkshire dedicating more and more capital to companies that could absorb the cash flow thrown off by its disparate operations, either through capital expenditures or bolt-on acquisitions. The key to Berkshire's success over the years has been Buffett's ability not only to find fruitful ways to put the firm's excess capital to work, but also in paying close attention to culture and fit when acquiring companies. We expect this to continue even after Buffett no longer runs the show, and we believe that Berkshire's culture of management autonomy and entrepreneurship has to a large degree become institutional. Owned in Core, ESG+ and US Portfolios.

(+) Costco (COST-US) Citi raised price target to $585 per share from $530, citing an acceleration of November sales. Keeps neutral rating. Barclays keeps a neutral-equivalent rating and also boosts price target to $547 from $510. In releasing monthly sales on Wednesday evening, Costco acknowledged the passing of board member Charles Munger, who was also Warren Buffett's righthand man. "No one loved Costco more than Charlie. The Company benefited greatly from his wisdom over the last quarter-century plus. We at Costco extend our deep condolences to his family." Owned in Core and ESG+ Portfolios.

(-) Couche-Tard (ATD-T) adjusted EBITDA increased by 3.3% to US$1.48 billion in Q2-F24 due to higher fuel and merchandise gross profit, partly offset by a 1.5% increase in normalized operating expense. We believe management has started to reap savings from the cost optimization initiative that it announced at the October 2023 Investor Day. The US convenience store industry has 19 consecutive years of positive YoY sales growth, including 2009 (financial crisis), 2015 (significant decline in fuel price) and 2020 (the pandemic). During the last financial crisis, ATD reported negative merchandise SSSG for one quarter (-1.0%) in the US and one quarter (-0.7%) in Canada during 2008, and the merchandise SSSG was 3%-5% in 2009/2010. ATD should see the full EBITDA contribution (plus some synergies) in F2025 from the five acquisitions (including TotalEnergies' 2,200 sites) that ATD has made in the past year. Bottom line, we wouldn’t put too much weight on this report. We believe investors will continue to give ATD credit for its disciplined acquisition strategy, its strong balance sheet, and the ability to further consolidate the global c-store space. Owned in Core Portfolio.
(+) Crown Castle (CCI-US) Elliott Investment Management released a letter and presentation on the company's history of underperformance and calling for significant changes. Recommendations include new leadership, review of fiber business, optimized incentive plan, and improved corporate governance. This is Elliott’s second campaign at Crown Castle. In 2020, Elliott amassed a $1b stake to advocate for the company to reduce its fiber capex initiatives and to address the composition of its board of directors. The fiber/small cell strategy is a differentiating feature for CCI versus its peers SBC and AMT who have largely remained focused on the legacy towers business and is one of the biggest controversies around the stock’s investment story given the large upfront cost and still unproven long-term economics. We believe any success Elliott has in steering the company to reduce investments here would likely be met positively by the markets given the shares at present valuations impute a continued elevated pace of capex but not much value for the success of the fiber strategy. CCI represents an attractive long-term investment for total return and dividend-growth oriented clients at current levels. Owned in US Portfolio.

(+) Occidental Petroleum (OXY-US) The private corporate jet visited Warren Buffett's hometown Omaha, Nebraska, this week, Bloomberg reported Thursday, as the company is said to be in talks to buy Permian Basin oil and gas producer CrownRock for $10B. If the deal goes through, it would be the latest in a string of mergers and acquisitions this year, including Exxon Mobil’s $64.5 billion purchase of Permian giant Pioneer Natural Resources. CrownRock produces nearly 150,000 barrels of oil equivalent a day. Even assuming a conservative price tag of $11 billion, it implies Occidental would be shelling out at least $73,000 per flowing barrel of oil equivalent a day for CrownRock. Not that Occidental is averse to paying up. The company famously outbid Chevron to buy Anadarko Petroleum in 2019—a deal that seemed reckless back when oil prices plunged in 2020 but has paid off handsomely. Occidental was the top performer in the S&P 500 in 2022 and the company is in a much better spot financially now, having shed some $30 billion of long-term debt since its post-acquisition peak. Owned in Opportunity Portfolio.

(+) Royal Bank (RY-T) reported diluted adjusted EPS of $2.78 for Q4-F23, which was modestly higher than consensus estimates. Strength across the Capital Markets and Insurance segments was offset by a YoY earnings decline in Wealth Management and Caribbean and U.S. Banking segments. Overall net interest income increased by 4% YoY, driven by 4% YoY loan growth led by credit cards and business loans, partially offset by a 5bps decline in all-bank net interest margin. Modest revenue growth and a lower effective tax rate were offset by a significant rise in impaired credit loss provisions, materially higher employee expenses, and increased professional fees. RY's PCL ratio increased 16 bps YoY to 34 bps in Q4-F23 largely on higher impaired PCLs. RY's CET1 ratio increased 40bps sequentially to 14.5%, led by internal capital generation and share issuance under the bank's DRIP. Shares yield 4.52%. Owned in Core and Cash Flow Portfolios.

(++) Shopify (SHOP-T) What recession? That might be your reaction when you hear that Shopify’s Black Friday sales rose to an all-time high of $4.1B (+22% Y/Y). As a result, Q4 gross merchandise volume (GMV) is tracking to +18% Y/Y which would be approximately 100 basis points above consensus expectations. All-in, consumer strength appears to be better-than-feared. We continue to see value in owning SHOP for long-term money supported by underlying merchant growth, SHOP’s differentiated e-commerce platform, and improving profitability metrics. Owned in Core and ESG+ Portfolios.

(~) TD Bank (TD-T) No major surprises in TD’s Q4 results as the bank posted slight EPS miss on higher expenses. While high expenses have been an issue for a several quarters now, TD is taking actions to rectify the problem and announced a $363m restructuring program that is expected to result in $400m of pre-tax savings in F24. A similar sized restructuring charge is expected next quarter, bringing total F24 pre-tax saving to $600m. Investors should cheer this expense discipline. The Canadian and US retail segments posted steady results with mid-single-digit loan growth and QoQ NIM expansion. Wholesale banking (capital markets) was the one weak segment this quarter as net income declined 35% YoY to $178m. On credit, gross impaired loans (GIL) remained stable QoQ, resulting in PCLs coming in-line with expectations. Most of the reserve build was driven by provisions on impaired loans, (unlike BNS, which took sizeable provisions on performing loans), which we think is reasonable given the stability in GIL. Overall, a steady quarter, and the bank remains attractively value at 10.2x F24 P/E and 1.4x P/B. Shares yield 4.73%. Owned in Cash Flow Portfolio.

(++) Victoria's Secret (VSCO-US) Sales came in in-line with expectations. October was the strongest month in 3Q and accelerated further to slightly positive sales NA in November through the Black Friday weekend. This is a major lift-off from levels seen in the past 7 quarters. We’re encouraged to see GM upside starting to emerge from foundational improvements in inventory management, supply chain efficiencies and merchandise mix. We expect tech investments to remain heavy in 2024. I believe the current consensus is behind the curve. Turnarounds take time, but it appears things are moving faster at VSCO. The potential of VSCO’s turnaround plan is significant. But the two key things we much watch are low visibility and the need to get real investor buy-in and signs that the brand is resonating across a much broader segment of the population. Owned in Opportunity Portfolio.

(+) Visa (V-US) This holiday season, the talk of the town is the global consumer. In the US, consumer spending is two-thirds of the economy. While many retailers have painted a cautious picture of the fourth quarter of 2023 and the beginning of 2024, some investors point to what they say is an obvious sign of strength. That is, Visa and Mastercard near all-time highs. These companies have told investors that consumers are continuing to spend. Whether it’s a sign of a robust economy or just strength in these individual companies’ businesses, these stocks remain on investors’ radars into year-end. Visa shares hit a new all-time high. Owned in Core and US Portfolios.

Weekend Reading

Why has U.S. consumer spending been so much more resilient than Canada's? Canadian household spending is already pulling back, and we expect the U.S. consumer will follow as savings run out. The drawdown of U.S. households' pandemic savings has delayed but not prevented a slowdown in consumer spending. The weakening economic growth backdrop is expected to push both the U.S. Fed and Bank of Canada to begin cutting interest rates next year. RBC

Charlie Munger’s Life Was About Way More Than Money Billionaire investor attributed his success to a mix of intelligence, hard work ‘and a lot of luck’. Excellent collection by Jason Zweig in The Wall Street Journal. WALL STREET JOURNAL

Charlie Munger (1924 - 2023) A life well lived Charlie Munger died this week at a California hospital just weeks short of his 100th birthday on January 1. Based on recent interviews, those of us who have admired Mr. Munger can be grateful for the fact that he clearly remained mentally sharp up to the very end. RATIONAL WALK

The Food, Water, and Climate Change Nexus The big issue we may be overlooking is the relationship between food, water, and climate change. What happens if changes in climate affect the availability of water resources? And with water already stressed in many regions, could climate change lead to pressures on food production? In this new report, Citi investigates the connections between water, food, and climate change — known as the water, food, and climate nexus — with particular attention given to the impacts that too much or too little water could have on food production. CITI GPS

Magnificence beyond the Magnificent 7 The fundamentals of the Magnificent 7 aren’t uniquely superior, and the breadth and depth of other growth opportunities seems historically large and attractive. We’ve described the attractiveness of the stocks outside the seven as a once-in-a-generation opportunity to invest in this broad and ignored group. BERNSTEIN ADVISORS

The Allergy to Uncertainty Why do we urge people to develop a false confidence about their future, when we could instead teach them how to develop a healthier relationship with the unknown? MORE TO THAT

This Nvidia Cofounder Could Have Been Worth $70 Billion. Instead, He Lives Off The Grid If Curtis Priem, Nvidia’s first CTO, had held onto all his stock, he’d be the 16th richest person in America. Instead, he sold out years ago and gave most of his fortune to his alma mater Rensselaer Polytechnic Institute. FORBES

Inside Foxconn’s struggle to make iPhones in India Apple’s latest iPhone was made not just in China, but also in India — the first time ever for a flagship iPhone. REST OF WORLD