At the latest Hearts and Minds Investments Ltd (ASX: HM1) investment conference, legendary investor Charlie Munger has said that the current share market valuations are crazy.

Hearts and Minds Investments is a listed investment company (LIC) which brings together the top picks of leading fund managers. At the conference, the managers pitch their best ideas and it also has famous guest speakers like Charlie Munger.

Charlie Munger is the business partner of Warren Buffett at Berkshire Hathaway, the investment business that they have been running for decades together. Mr Munger is widely seen as one of the wisest investors in the world and helped hone Mr Buffett's investing to be more effective by focusing on the long-term with great businesses.

Hearts and Minds fund managers provide their investment picks for free, so that the LIC can donate 1.5% of its net tangible assets (NTA) per year to a range of medical research beneficiaries.

Charlie Munger calls the share market valuations "crazy"

Mr Munger was quoted by various news sources, including the Australian Financial Review, who said:

The dotcom boom was crazier on the valuations even than we have now but overall, I consider this era even crazier than the dotcom era.

You have to pay a great deal for good companies and that reduces your future returns.

Berkshire Hathaway, under Mr Buffett's stewardship, has generally avoided technology businesses over the decades. Mr Buffett has been wise in the past to stick to investing in what he calls his "circle of competence" – only investing in what he understands.

However, a few years ago, Berkshire Hathaway bought a position in Apple and that's now the largest stock position in the Berkshire Hathaway portfolio.

Charlie Munger went on to say that whilst he has become more focused on great companies, the high valuations make investing mistakes more costly. He said about investing in those companies:

That is particularly hard for me because the great companies come at a high price.

You want companies that have high earnings on capital and have a durable competitive advantage, and if you can add to that they've got a good management instead of a bad one, that's a big plus too.

But what you'll find is that the great companies of the world have been discovered. They're very expensive to buy.

But stocks wasn't the only thing that Mr Munger commented on.

Not a fan of cryptocurrencies

The Sydney Morning Herald reported that Mr Munger said he wouldn't take part in the "insane" boom of cryptocurrency and didn't approve of promoters of cryptocurrency assets. He said:

I'm never going to buy a cryptocurrency. I wish they'd never been invented.

I think the Chinese made the correct decision, which is to simply ban them. My country – English-speaking civilisation – has made the wrong decision

I just can't stand participating in these insane booms, one way or the other. It seems to be working; everybody wants to pile in, and I have a different attitude. I want to make my money by selling people things that are good for them, not things that are bad for them," he said.

Believe me, the people who are creating cryptocurrencies are not thinking about the customer, they are thinking about themselves.

Inflation

Finally, on inflation, Charlie Munger reportedly said that over 100 years he doesn't trust any currency issued in the world. He said it's natural to reduce the purchasing power of currency. The best a government can hope for is slow inflation.

The post 'Crazier than the dot-com era': Charlie Munger on current share market valuations appeared first on The Motley Fool Australia.

Listed investment companies (LICs) are very similar to exchange-traded funds (ETFs), or real estate investment trusts (REITs).  In every case there is a standalone fund dedicated to a specific purpose. For example, the Charter Hall Retail REIT (ASX: CQR) is dedicated to convenience retail centres, including petrol stations. An example ETF would be the Magellan Global Equities Fund (ASX: MGE). This invests in 20 to 40 of the worlds largest companies.

However, the difference between a REIT or ETF and an ASX LIC is the structure of the business. LICs are generally limited companies, while ETFs and REITs are explicitly trusts. There are a range of differences but for me the most important is that a LIC is like any other company. Therefore, you buy shares not units. Meaning, you buy a part of the company rather than a unit in the underlying assets.

Hearts and Minds Investments Ltd (ASX: HM1)

Hearts and Minds is a great ASX LIC which listed during 2019. The fund managers forgo all fees, instead donating to leading Australian medical institutes. It has a concentrated portfolio in 25-35 Australian and global securities. These are based on the highest conviction ideas from leading fund managers.

In year to date trading, Hearts and Minds is up by 6.71% despite the coronavirus market crash in March. The company achieved a growth of 7.2%, compared to 3.4% in the MSCI World Net Total Return Index (AUD).

This LIC is currently trading at less than its net tangible assets (NTA) value per share of $3.71.

Ophir High Conviction Fund (ASX: OPH)

The Ophir High Conviction fund provides shareholders with a concentrated fund on companies outside of the S&P/ASX 50 Index (ASX: XFL). The company's investment philosophy is very fundamental. That is, a bottom up approach to identify under-valued ASX shares. Particularly those with existing and proven business models and large, or growing, addressable markets.

What originally attracted me to this ASX LIC is that both founders have all of their liquid investments here. In year to date trading, this ASX LIC's share price is up by 21.69%. It is trading at a price to earnings ratio (P/E) of 11.08, and at a slight premium to its NTA per share of $2.98.

The Ophir LIC portfolio uses the S&P/ASX Mid Small Index (ASX: AXMSA) as a benchmark. In FY20 the LIC delivered a growth rate of 12.7% against a benchmark growth rate of -5.3%.

WCM Global Growth Ltd (ASX: WQG)

WCM Global is a $200 million ASX LIC with an estimated NTA per share of $1.48 at the time of writing. This LIC also focuses on fundamental company analysis. However, it places a lot of value in the organisation's moat, or competitive advantages. In FY20, the LIC delivered a return of 17.6% for the year. Outperforming its benchmark MCSI All-Country World ex Australia Index by 12.9%.

This ASX LIC provides access to a range of giant global technology companies. For instance, it includes companies like Shopify Inc (NYSE:SHOP), Tencent Holdings Ltd (HKG: 0700), and Mercadolibre Inc (NYSE:MELI). At close of trading on Wednesday, this ASX LIC is selling for a P/E of 9.32.

The post 3 ASX LICs that are destroying the benchmark appeared first on The Motley Fool Australia.