Buffett reflects on his first meeting with Munger: 'I'm not going to find another guy like this'

Business

CNBC 29 June, 2021 - 08:01pm 34 views

Before Warren Buffett and Charlie Munger became known as iconic business partners, steering the Berkshire Hathaway empire, they were just two guys from Omaha, Nebraska, who, apparently, were a lot a like.

They discovered that thanks to a well-known doctor in town, Dr. Edwin Davis, who told Buffett in a 1957 meeting he trusted him to manage money because the investor reminded him of someone named Charlie Munger.

"Well, I don't know who Charlie Munger is, but I like him," Buffett responded to Davis, the investing legend recalled in an interview with CNBC's Becky Quick, which aired Tuesday as part of a special, "Buffett & Munger: A Wealth of Wisdom."

Davis and his wife, Dorothy, made it a goal to eventually connect Buffett and Munger, Buffett said. It happened over dinner two years later, in 1959, when Munger, then a lawyer in Los Angeles, was back in Omaha after his father, Alfred, died.

"About five minutes into it, Charlie was sort of rolling on the floor laughing at his own jokes, which is exactly the same thing I did," Buffett, 90, said. "I thought, 'I'm not going to find another guy like this.' And we just hit it off."

"We got along fine," Munger, 97, said, adding: "What I like about Warren is the irreverence. We don't have automatic reverence for the pompous heads of all civilization."

Their friendship and business relationship blossomed from there, as Buffett continued building his investment firm and Munger toiled in law.

In the early 1960s, Munger said he finally heeded Buffett's advice about his career path. "It took me a long time to wise up that [Buffett] had a better way of making a living than I did. But he finally convinced me that I was wasting my time."

Munger started his own investment firm, which would go on to post an average annual compound rate of 19.8% between 1962 and 1975, far better than the Dow Jones Industrial Average's 5% over that span, according to Buffett's famous 1984 essay, "The Superinvestors of Graham-and-Doddsville."

Buffett said he remembers having long phone conversations with Munger back then. Added Munger: "We had fun in the early days because it was like hunting expeditions."

Buffett began to buy shares of Berkshire Hathaway in 1962, ultimately taking control of the company three years later and building it into the influential conglomerate it is today. He serves as chairman and CEO.

In 1978, Munger became vice chairman of Berkshire Hathaway, a position he still holds.

"I just knew instantly Charlie was the kind of guy that I was going to like, and I was going to learn from," Buffett said, reflecting on their initial meeting. "You know, it wasn't anything calculated, a decision or anything like that. It was natural. And we have had nothing but fun."

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3 Buffett Stocks You'll Never Have to Sell | The Motley Fool

Motley Fool 30 June, 2021 - 05:06am

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Few, if any, investors have been more consistently successful over the long run than Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett. Folks might find his buy-and-hold tactics a bit boring, but they certainly can't argue against the results. Since he took control of Berkshire Hathaway in the mid-1960s, the company's Class A shares (BRK.A) have averaged an annual return of 20%. Including Berkshire's almost 21% year-to-date share price appreciation through June 27, 2021, we're talking about an aggregate return of almost 3,400,000%! 

The Oracle of Omaha, as Buffett has affably come to be known, has a knack for spotting companies with plain-as-day competitive advantages. Of the four dozen securities that currently make up Berkshire Hathaway's $307 billion investment portfolio, the following three are stocks you're never going to have to sell.

Even though healthcare conglomerate Johnson & Johnson (NYSE:JNJ) is a relatively small holding in Buffett's portfolio, it's a company that investors can confidently buy and never have to worry about selling.

Just how confident can you be that J&J is a rock-solid company? According to credit ratings agency Standard & Poor's, only two publicly traded companies hold the highest rating possible (AAA). One of those two is Johnson & Johnson. This means S&P has more faith that J&J will be able to repay its debt than it does that the AA-rated U.S. government will be able to make good on its outstanding debt.

What makes Johnson & Johnson such a special company is its three operating segments, each of which brings something important to the table. For example, J&J's consumer healthcare products division is slow-growing. However, it generates highly predictable cash flow and sells inelastic products that are purchased no matter how well or poorly the U.S. economy is performing.

J&J is also a global leader in medical devices. While near-term margins remain under pressure due to increasing competition, the long-term outlook for devices is particularly bright. As the U.S. and global population age, devices will be leaned on to a greater degree over time to improve quality of life.

Johnson & Johnson's third operating segment is brand-name pharmaceuticals. This is where the company currently generates the bulk of its sales and earnings growth. But since brand-name therapies have a finite period of exclusivity, medical devices and consumer healthcare products can step in to fill the gaps, so to speak, when exclusivity issues arise.

As the icing on the cake, J&J is riding a 59-year streak of increasing its base annual dividend.

Healthcare stocks simply don't get safer than Johnson & Johnson.

Another Warren Buffett stock you'll never have to sell is payment-processing giant Visa (NYSE:V).

Visa is the beneficiary of a numbers game where long-term investors pretty much never lose. On one hand, recessions and economic contractions are inevitable. As a cyclical company that's dependent on higher spending, Visa is not impervious to pain. The thing is, recessions and economic contractions tend to be very short-lived. Comparatively, periods of economic expansion usually last for multiple years, if not a decade. Buying and holding Visa allows you to take advantage of these disproportionately longer periods of expansion in the U.S. and global economy.

Visa is also the kingpin in the highly lucrative United States. As of 2018, it controlled 53% of U.S. credit card network purchase volume. That's more than double that of its next-closest competitor, Mastercard. With approximately 70% of U.S. gross domestic product driven by consumption, Visa is at the heart of U.S. economic growth.

Interestingly, the world's top payments processor isn't a lender. Although some of its peers have chosen to lend in order to collect interest income and fees, this has never appealed to Visa. It might sound like an opportunity, but Visa avoids having to set aside capital when those inevitable economic contractions or recessions arrive. This avoidance of credit delinquencies is precisely why Visa is so quick to bounce back from recessions, and it perfectly explains why its gross margin is regularly 50% or higher.

But perhaps the greatest thing about Visa is that its growth story is nowhere near complete. A vast majority of the world's transactions are still being conducted in cash. Expanding to underbanked regions of the world, or using acquisitions as a pivot to grow in developed markets (e.g., the Visa Europe acquisition in 2016), are all ways Visa can maintain its superior growth rate for a long time to come.

The final Buffett stock you'll never have to part ways with is e-commerce juggernaut Amazon (NASDAQ:AMZN). It's worth pointing out that while Amazon is part of Berkshire Hathaway's portfolio (ergo, a Buffett stock), it was added by two of the Oracle of Omaha's investing lieutenants, Todd Combs and Ted Weschler, and not Buffett himself.

What makes Amazon such a rock-solid company is that it's absolutely dominant in two niches. First, as almost everyone is probably aware, Amazon is the leading online retailer in the United States. An April 2021 report from eMarketer pegged its share of U.S. online sales at 40.4%, or more than five times higher than the next-closest competitor.

Although retail margins are generally nothing to write home about, Amazon has been able to use its utter dominance of the online retail space to sign up north of 200 million people to a Prime membership. Prime members tend to spend a lot more than non-Prime shoppers, and the fees Amazon collects from Prime help it to buoy its thin retail margins.

What folks might not realize is that Amazon sits atop the cloud infrastructure services industry, as well. Amazon Web Services (AWS) controls almost a third of the infrastructure-as-a-service (IaaS) market. More importantly, cloud services boast considerably higher margins than retail or advertising. Even though AWS only accounts for an eighth of the company's total sales, it's been consistently producing roughly 60% of total operating income.

Between the higher fees Amazon is generating from Prime, the steady uptick in online sales market share, and AWS's rapid growth, Amazon could triple its operating cash flow by mid-decade. In other words, it's an unstoppable growth stock.

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Why Warren Buffett's $5 Billion Airline Debacle Wasn't Actually a Mistake | The Motley Fool

The Motley Fool 30 June, 2021 - 04:05am

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Warren Buffett might be one of the most successful investors in stock market history, but he doesn't hesitate to admit that he makes mistakes. In his long history at Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Buffett has had plenty of time to make moves that in hindsight have cost the insurance conglomerate and its shareholders billions of dollars.

One of Buffett's most recent moves to receive criticism from investors is his handling of Berkshire's holdings of airline stocks in the immediate aftermath of the COVID-19 pandemic. Many point simply to the terrible result of selling at which proved to be just about the absolute low point in the pandemic-driven sell-off. But results-oriented thinking can lead to misleading conclusions that in the end can keep you from becoming a better investor.

Buffett has long been a skeptic of airline investments, noting their history of bankruptcies and destruction of shareholder value. It was therefore surprising for many to see Berkshire build up significant positions in Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV), American Airlines Group (NASDAQ:AAL), and United Airlines Holdings (NASDAQ:UAL) starting in 2016.

By early 2020, Berkshire's stakes in a couple of his airline holdings had reached 10%. There was even speculation that Berkshire would buy an airline outright.

Yet as the pandemic brought air travel to a halt, Buffett made an about face during the spring of 2020. He made substantial sales of airline stocks in early April and then exited all of his positions by the 2020 shareholder meeting in early May.

Since then, airline stocks have recovered sharply. By one account, had Buffett held on to his stocks, then they would be worth nearly $5 billion more than the sales proceeds he actually got.

As big a blunder as that might seem, the apparent lost opportunity is only a mistake from the viewpoint of what actually happened. But as decision strategist and world-class poker player Annie Duke explains in her book Thinking in Bets, relying on results-oriented thinking can be dangerous.

Buffett has made his rationale for selling airline stocks quite clear:

Of course, Buffett couldn't be certain that his worst-case scenarios would come true. But again, that's not the right metric to use. As Duke explains, "What makes a great decision is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge. That state of knowledge, in turn, is some variation of 'I'm not sure.'"

In other words, there's nothing wrong with embracing the uncertainty inherent in any decision. Great decision-makers won't get great results every time, but their superior processes will lead to superior performance much of the time. In investing, that's all you need to succeed.

 Instead of spending time congratulating yourself for stocks that go up and beating yourself up over stocks that go down, the better path to become a smarter investor is to look more closely at your decision-making process to make sure it's as strong as it can be. The more you focus on putting the odds in your favor, the more likely it is you'll find the same investment success that Buffett is famous for.

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Warren Buffett Says Economic Impact Of Coronavirus Outbreak Not Over

Moneycontrol 30 June, 2021 - 12:52am

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The Berkshire Hathaway CEO told CNBC that small businesses have been disproportionately affected. "The economic impact has been this extremely uneven thing where...many hundreds of thousands or millions of small businesses have been hurt in a terrible way but most of the big companies have overwhelmingly have done fine," Buffett told the news channel.

"It's not over," the 90-year-old investor said. "I mean, in terms of the unpredictability...it's been very unpredictable but it's worked out better than people anticipated for most people and most businesses. And it's just, for no fault of their own, it's just decimated all kinds of people and their hopes."

Charlie Munger, Buffett's business partner and Berkshire Hathaway Vice Chairman, told CNBC that businessed such as auto dealerships saw an increase in profits.

"It didn't create just a return to normal; it created fabulous success they didn't anticipate," Munger said. "The auto dealers are coining money that they wouldn't have had except for the pandemic."

In many countries, including the US, COVID-induced lockdowns have hurt small businesses since their factories and stores were closed for weeks or months.

Berkshire's Munger says China right to clip Ma's wings By Reuters

Investing.com 30 June, 2021 - 12:00am

(Reuters) -Berkshire Hathaway Inc Vice Chairman Charlie Munger praised China's move to impose a sweeping restructuring on Jack Ma’s Ant Group, the fintech giant whose record $37 billion IPO was derailed by regulators in November.

The 97-year-old told CNBC in an interview alongside Berkshire CEO and billionaire investor Warren Buffett that the United States should take a leaf out of China's book and "step in preemptively to stop speculation".

"I don't want the, all of the Chinese system, but I certainly would like to have the financial part of it in my own country," he said in the interview aired on Tuesday in the United States.

Communist Party-ruled China "did the right thing" by reining in Ma, the founder of e-commerce giant Alibaba (NYSE:BABA) Group Holding, who has hardly been seen in public since he criticised regulators in a speech in October last year.

Chinese regulators pulled the plug on Alibaba affiliate Ant's IPO and forced it to turn itself into a financial holding firm, a move expected to curb some of its freewheeling businesses.

Alibaba was also hit with a record $2.75 billion antitrust penalty as China tightens controls on the booming “platform economy”.

"Communists did the right thing. They just called in Jack Ma and say, "You aren't gonna do it, sonny," Munger said.

He also praised China's response to the novel coronavirus. China imposed strictly enforced lockdowns and widespread curbs on movement, measures that would be less acceptable to Americans.

"They simply shut down the country for six weeks. And that turned out to be exactly the right thing to do," Munger said.

Buffett said the pandemic had hurt smaller companies the most.

"I don't know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly done fine, unless they happen to be in cruise lines or, you know, or hotels or something," he said.

By Thyagaraju Adinarayan LONDON (Reuters) -Retail investors currently account for roughly 10% of daily trading volume on the Russell 3000, the broadest U.S. stocks index, after...

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Buffett, Munger on Zoom, Robinhood, and Lessons From the Pandemic

Barron's 29 June, 2021 - 09:38pm

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Unlike his longtime friend and business partner Charlie Munger, Berkshire Hathaway CEO Warren Buffett isn’t a huge fan of Zoom meetings.

“I did it once or twice, and they had a whole screen of people. I just didn’t figure it was adding to the experience,” Buffett, 90, said in an interview with CNBC that aired Tuesday. “I find the telephone a very satisfactory instrument.”

Munger, on the other hand, uses the service three times a day. “I think Zoom is here to stay,” Munger said. “It just adds so much convenience.”

“Well, particularly, if you’re 97,” Buffett quipped, referring to Munger’s age.

In an interview with CNBC filmed from Munger’s backyard in Los Angeles after Berkshire Hathaway’s annual meeting in May, the pair also discussed the uneven impact of the pandemic on small businesses, their negative views of trading platform Robinhood, and the dangers of excessive margin.

On the impact of the pandemic, Buffett said: “I don’t know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way. But most of the big, big companies have overwhelmingly done fine unless they happen to be in cruise lines or hotels or something.”

Munger said he believes a lot of business travel, among other things, won’t come back following the pandemic. “A lot of people have found they don’t need to be [in an office]. I think all kinds of things are going to happen that we don’t go back to what we did before.”

“Some people did better than [the U.S.],” Munger added, referring to China’s aggressive response to the virus and subsequent recovery. “They didn’t allow any contact. You picked up your groceries in a box in the apartment and that’s all the contact you had with anybody for six weeks. And, when it was all over, they kind of went back to work. It happened they did it exactly right.”

Much of the special was biographical, with Buffett and Munger reflecting on their first meeting and how their friendship-at-first-sight evolved into a decadeslong venture transforming the Berkshire Hathaway textile company into one of the world’s largest conglomerates.

Asked about Robinhood, Munger called the stock trading app “a gambling parlor masquerading as a respectable business.”

“[Robinhood] is not encouraging people to buy a very, very, very low-cost index fund and hold it for 50 years,” Buffett said. “I will guarantee you that you will not walk in there, get that advice. Instead, you’ll get advice on how you can trade options.”

Munger also suggested apps like Robinhood aren’t commission-free because the real costs—namely the process of payment for order flow—are hidden.

“It’s basically a sleazy, disreputable operation,” Munger said. “And the interesting thing about it is that some good people you would be glad to have marry into your family have backed it.”

Reached for comment, a Robinhood spokesperson referred Barron’s to a May 3 statement from when Munger and Buffett previously criticized the app. “Robinhood has made investing simpler and more accessible to more people — and the public has responded. We are proud of that fact,” Jacqueline Ortiz Ramsay, head of public policy communications at Robinhood, wrote at the time.

Regarding the blow-up of hedge fund Archegos Capital that resulted in market volatility and major losses at several banks earlier this year, Munger called for more strict margin requirements.

“The people who are making money out of this unreasonable extension of credit argue for it, and nobody’s speaking against it,” Munger said. “And last time around, we got the correct regulation that came and stayed for a long time on margin debt only because we had the worst depression in the history of the English-speaking world. That’s what it took to get a little sense into the politicians.”

Write to editors@barrons.com

Unlike his longtime friend and business partner Charlie Munger, Berkshire Hathaway CEO Warren Buffett isn’t a huge fan of Zoom meetings.

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Warren Buffett and Charlie Munger knocked Robinhood, discussed the Archegos fiasco, and reflected on their friendship in a new interview. Here are the highlights

Markets Insider 29 June, 2021 - 09:21pm

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Berkshire's Munger says China right to clip Ma's wings

Yahoo Finance 29 June, 2021 - 08:44pm

The 97-year-old told CNBC in an interview alongside Berkshire CEO and billionaire investor Warren Buffett that the United States should take a leaf out of China's book and "step in preemptively to stop speculation".

"I don't want the, all of the Chinese system, but I certainly would like to have the financial part of it in my own country," he said in the interview aired on Tuesday in the United States.

Communist Party-ruled China "did the right thing" by reining in Ma, the founder of e-commerce giant Alibaba Group Holding, who has hardly been seen in public since he criticised regulators in a speech in October last year.

Chinese regulators pulled the plug on Alibaba affiliate Ant's IPO and forced it to turn itself into a financial holding firm, a move expected to curb some of its freewheeling businesses.

Alibaba was also hit with a record $2.75 billion antitrust penalty as China tightens controls on the booming “platform economy”.

"Communists did the right thing. They just called in Jack Ma and say, "You aren't gonna do it, sonny," Munger said.

He also praised China's response to the novel coronavirus. China imposed strictly enforced lockdowns and widespread curbs on movement, measures that would be less acceptable to Americans.

"They simply shut down the country for six weeks. And that turned out to be exactly the right thing to do," Munger said.

Buffett said the pandemic had hurt smaller companies the most.

"I don't know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly done fine, unless they happen to be in cruise lines or, you know, or hotels or something," he said.

(Reporting by Maria Ponnezhath and Aakriti Bhalla in Bengaluru; Editing by Amy Caren Daniel and Stephen Coates)

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In an interview with CNBC, Warren Buffett and his business partner Charlie Munger discussed the uneven impact of the pandemic on small businesses, their negative views of trading platform Robinhood, and the dangers of excessive margin.

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Warren Buffett says the pandemic has had an 'extremely uneven' impact and is not yet over

CNBC 29 June, 2021 - 08:01pm

Legendary investor Warren Buffett said the economic consequences of the pandemic are falling disproportionately on small businesses and the unpredictability of Covid-19 is far from over.

"The economic impact has been this extremely uneven thing where... many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big companies have overwhelmingly have done fine," the Berkshire Hathaway CEO said during an interview with Becky Quick on CNBC's special "Buffett & Munger: A Wealth of Wisdom," which aired on Tuesday.

In March 2020, the pandemic cut a deadly swath across America, which led to a shutdown of a $20 trillion economy in full swing. Thousands of small businesses were forced to close their doors while big-box retailers and e-commerce giants took in those customers. Gross domestic product for the first quarter last year dropped 31.4%, which was unprecedented in post-Great Depression America.

"It's not over," the 90-year-old investor said. "I mean, in terms of the unpredictability...it's been very unpredictable, but it's worked out better than people anticipated for most people and most businesses. And it's just, for no fault of their own, it's just decimated all kinds of people and their hopes."

For some businesses like auto dealers, the pandemic even brought on windfall profits, said Charlie Munger, vice chairman of Berkshire and Buffett's longtime business partner.

"It didn't create just a return to normal; it created fabulous success they didn't anticipate," Munger said. "The auto dealers are coining money that they wouldn't have had except for the pandemic."

Due to factory shutdowns and a global shortage of semiconductors, automakers and dealers have experienced wider, if not record, profits and even selling vehicles before they arrive at dealerships.

Berkshire Hathaway Automotive is one of the largest dealership groups in America, with over 78 independently operated dealerships. The conglomerate also owns the BNSF Railway and NetJets, a private business jet charter and aircraft management company.

"All of the dealers that we have partners in each dealership, they very sincerely felt that they were gonna have one hell of a problem in March and April," Buffett said. "Some might have wanted to go in for the assistance from the government, but we wouldn't let them, because they had a rich parent ... we didn't know what was gonna happen with NetJets in terms of the demand."

Buffett said the biggest lesson he learned from the unprecedented pandemic is how ill-prepared the world can be for emergency situations that are bound to happen.

"I learned that people don't know as much as they think they know. But the biggest thing you learn is that the pandemic was bound to occur, and this isn't the worst one that's imaginable at all," Buffett said. "Society has a terrible time preparing for things that are remote but are possible and will occur sooner or later."

More than 600,000 people have died of Covid in the U.S., and countries are grappling with new variants amid vaccine rollouts. The delta variant, now in at least 92 countries, including the United States, is expected to become the dominant variant of the disease worldwide. In the U.S., the prevalence of the strain is doubling about every two weeks.

"There'll be another pandemic, we know that. We know there's a nuclear, chemical, biological, and now cyber threat. Each one of those has terrible possibilities," Buffett said. "And we do some things about it, but ... it's just not something that society seems particularly capable in fully coming to grips with."

A steady uptick in sweeping cyberattacks this year has directly impacted Americans and hampered logistics and services in the United States. In May, a ransomware attack on Colonial Pipeline forced the U.S. company to shut down approximately 5,500 miles of pipeline.

"Charlie and I have been ungodly lucky in many ways. But the luckiest thing was actually being around at this time and place," Buffett said. "How do we actually do this so that mankind, 50 and 100 and 200 years from now, should enjoy the incredibly better life that could be enjoyed while not screwing it up?"

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Charlie Munger says he's in love with Zoom, thinks the videoconferencing trend is here to stay

CNBC 29 June, 2021 - 07:59pm

Charlie Munger, vice chairman of Berkshire Hathaway, revealed he is fond of Zoom, saying the videoconferencing software will keep thriving even as life goes back to normal after the pandemic.

"I have fallen in love with Zoom," Munger said during an interview with Becky Quick on CNBC's special "Buffett & Munger: A Wealth of Wisdom," which aired Tuesday. "I think Zoom is here to stay. it just adds so much convenience."

The 97-year-old investor said he uses Zoom at least three times a day, and he made a deal in Australia via a video call.

Zoom stood out as a big pandemic winner as millions of stay-at-home users globally turned to the app for video calls and other capabilities. Shares surged a whopping 395% in 2020 as revenue exploded amid the surge in demand. Earlier this month, the company reported another blowout quarter with sales growth of 191% in the period ended April 30.

"I'm just not a Zoom guy," the 90-year-old investor said. "I don't see any plus to it, particularly. I did it once or twice, and they had a whole screen of people that... I just didn't figure it was adding to the experience. I'd rather have my, you know, feet on the desk, and I find the telephone a very satisfactory instrument."

Munger's bull case for Zoom is based on his belief that business travel is unlikely go back to pre-pandemic levels. Meanwhile, he said office demand will stay low as many workers will likely have the flexibility to work from home.

"I think a lot of business travel will never come back. Just corporation after corporation deciding one meeting a year, two meetings a year in person, and the rest Zoom. And I think that's here to stay," Munger said.

"What's happened to office demand is just... think of the agonies in that field now. A lot of people have found they don't need to be there," Munger added. "And I think a lot of people are going to decide that they can work three days a week and stay home the other. I think all kinds of things are gonna happen that... we don't go back to what we did before."

During the first-quarter report, Zoom did warn of a coming slowdown as expansion drops from the pandemic-fueled 2020. The company now sees 50% revenue growth for the full fiscal year.

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