Charlie Munger, Vice President of Berkshire Hathaway, explains why most investors aren’t able to outperform the market. Munger claims that on average, people should invest in passively managed index funds and avoid stock picking.
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26 Comments
It would have been nice if he answered it or is it even true?
I admire the financial independence of people, But you can live better if you work a little more. After watching this I think there are people out there, on the extreme, who plan to die early just to be able to retire early. To each their own but to me, retirement isn't just about not having to work, it's about having the freedom to do whatever you might reasonably want, such as travel, buying things, enjoying life, etc. I don't think I could retire with less than $3m in income-generating investments, maybe $2m at the very minimum. I plan to work until I'm at least 45
Even Berkshire Hathaway has lagged the indexes for the last 25 years and yet people wait with bated breath to hear their newest purchases and sales. Imagine that, do you want to buy the same thing as somebody who can’t beat the indexes, but has already pushed the prices of that asset a bit by moving billions of dollars in or out. My favorite trade is to do the opposite when the news is announced. I can make a couple percent and then trade back out.
In fact, I do this a lot with people who have a big following on Twitter, they don’t beat the indexes either, but when they get a crowd all frothy and hyped up and push prices I fade the mania. It’s easy money, eventually, everybody else will pick up on it.
Professors (humanities) r left wing because they r irrational. They think they r always right and forget to question themselves about their thoughts. They become a political master piece.
Is it VERY easy to outperform the market. I don't believe most investors cannot outperform the market. It might be true they don't outperform it, but they certainly can. I think he means with the current knowledge they have.
Munger dishing out wisdom!!
What really Munger was saying is that the blindness caused by 20 some mis-judgements make it difficult for even smart people to beat the market. Market goes up and down. Without the right temperament, one tends to jump in and out, incurring lots of transaction costs (fees and taxes).
Answer is incentives.😂
I repeat this below, but this is my answer to Charlie's question.
When you ask a bunch of super smart people to separately come up with complex solutions to a problem that isn't that complicated, you sometimes get a messy bunch of over complicated garbage. This is because working separately will make them over complicate the solution even more than if they worked together. Buying great stocks is a mildly complicated task that needs a little bit of logic and a lot of emotional control. It doesn't require a lot of abstract logic and a little emotional control. Buffett has talked about this numerous times. Peter Lynch has too. Listen to some of their common sense advice.
Finally, you can’t create a perfect alchemist type formula for buying stocks anymore than you can for turning lead into gold. The future has random events. Can we predict every tornado? No. So use effective and logical (but not overly fancy) techniques to buy companies that are great and that are highly likely to be in huge demand for a long time. Read about the companies on a regular basis make sure there are no disasters in the companies. Don't panic if there are small problems. Stop over complicating your investment life. Leave the super complicated formula to a field that deserves it like rocket science.
This is why I do nothing but SP500 indexing.
I disagree: the diversified portfolio is not an act of denial, on the contrary, it's an act of surrendering and accepting that they don't know.
So why cant an average investor beat an index fund? Where is it in this video, did I miss it?
Dear investor centre
Mr Charlie's pronunciation of words is simply incomprehensible for a common Indian like me.
It would be far better if you could please run his sentences in writing below the video.
Thanks
Usually professors are partially correct. In my life, I have learned this. During My mba days, my finance teacher came very close to incite me towards investing, but then because he never completed the idea, I failed to grasp it. Much later in my life, I understood that his message was incomplete.
Great
In the end of the day, SPY did better the BRK for the last 10 years…
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I'll bet that I out preformed you percentage wise this year.
And yet Berkshire Hathaway doesn’t buy index funds for their portfolios….
What year is this from?
The answer is that when you get a person to give their best idea, they don't give the best idea objectively, they give you the idea that they spent the most time on. And each analyst specializes in a sector, so they will just give you one idea from their sector. You cannot get the best idea from doing this.
I've known this for a long time. This is one of the reasons I invest in total market index funds. Works very, very well. And, yes, I can live with the downside of market cap weighting emphasizing the top few companies. The advantages far outweigh this small disadvantage.
I don’t really understand what he means! Value investing is dead he says?
I feel like I sat through a lot of rambling and two ads only to find out he didn't actually have an answer.
Love Charlie, but I can’t help but think him and Warren just don’t understand the innovation taking over the world.
something he is wrong about, is that there are tons of right wing professors at places like harvard, cal, wharton. I think Munger is just a Republican who has seen the world progress passed where he stands and he doesn't move anymore because thats how stubborn old men are lol
great investor though