Charlie Munger’s Only Outside Manager Just Sold a Bank to Buy the Companies That Rate Banks
Charlie Munger's only trusted outside manager just made a striking move in financial services, abandoning a position in one of America's biggest banks to load up on the companies that sit above the entire credit system and collect fees no…
Li Lu’s Himalaya Capital cut its Bank of America (NYSE:BAC | BAC Price Prediction) position by roughly 71% and redeployed the proceeds into the three companies that grade, index, and monitor the credit system itself. Moody’s (NYSE:MCO) was sized at approximately $51.4 million and S&P Global (NYSE:SPGI) at $51.7 million, a gap of about $300,000 that looks like a deliberate paired bet on the ratings duopoly. MSCI rounded out the rotation.
Li Lu is the only outside manager Charlie Munger ever trusted with his family’s money, and Berkshire has owned Moody’s for roughly 25 years. When a Munger disciple sells a big commercial bank to buy the toll operators sitting above it, that signals where durable pricing power lives in financial services.
What Got Sold
Bank of America is having a fine year on paper. Q2 2026 EPS of $1.21 beat consensus of $1.12, the fifth straight beat, and the stock is up 13% year to date and 39% over the past year. However, the earnings engine tilts increasingly toward markets and trading, and the balance sheet carries the classic problem.
A 100 basis point drop in rates would cut net interest income by roughly $2.2 billion over the next twelve months. Own a bank, and you own the yield curve and the credit cycle along with it.
What Got Bought
Moody’s put up 15.1% revenue growth in Q2 2026 with an adjusted operating margin of 55.3%, and its ratings unit generated a 68.3% operating margin on 25% revenue growth. Moreover, S&P Global posted 17% growth in its Ratings segment with a pro forma 68% operating margin.
MSCI (NYSE:MSCI) delivered Index segment growth of 17.5% with ETF assets linked to its indexes at a record $2.82 trillion. None hold credit risk on a balance sheet. None get told by the Federal Reserve how much capital to reserve against a bad quarter.
The Thesis
Rating agencies and index providers do not lend money and do not need regulatory capital buffers. Instead, they charge fees every time debt gets issued or an ETF gets funded, and the AI infrastructure buildout is one of the largest issuance events in a generation. Moody’s Public, Project and Infrastructure Finance revenue rose 38% in Q2 2026, most of it data-center paper. That is the same wave lifting commercial banks, monetized at a fraction of the capital intensity and at margins banks cannot approach. Rob Fauber put it plainly on the July call, saying “Moody’s is well positioned at the intersection of risk, data, analytics and technology.”
S&P Global is down 15.4% year to date, and Moody’s is off 3%, while BAC ran hard. Selling strength to buy weakness in higher-quality businesses is the standard Munger move, and Li Lu is executing it in size.
Should Retail Investors Follow
The takeaway is to understand what Li Lu is signaling rather than mirror position sizes at home. Rating agencies and index compounders survive credit cycles while banks participate in them. In addition, buybacks reinforce that discipline. Moody’s raised its 2026 authorization to up to $3 billion, S&P Global lifted its 2026 target above $7 billion, and MSCI has roughly $1.6 billion remaining on its authorization.
Moody’s trades at 29x forward earnings and S&P Global at 22x. Not cheap. But a value investor with a 25-year holding pattern is paying for durability. Worth following the thesis. Copying the trade is optional.
Contact [email protected] for any questions or corrections.
Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks.
