STREET DOGS

From Charlie Munger at the Daily Journal Annual Meeting 2019

Another issue, of course, that’s happened in the world of stock picking is that we’ve had a really horrible thing happen to the investment counselling class. And that is these index funds have come along and they basically beat everybody So you have a whole profession that is basically being paid for accomplishing practically nothing. This is not the case with bowel surgery but it is very peculiar when a whole profession that works so hard just can’t do what it is trying to do, which is get better than average results.

How is that profession handling this terrible situation, as index investing gets more and more popular? Well, it’s a very simple answer, they’re handling it with denial. They have a horrible problem they can’t fix, so they just treat it as non-existent.

This is a very stupid way to handle a problem to have all these people doing what they always did year after year and hoping that the world would keep paying them for it even though an unmanaged index is virtually certain to do better. It’s a very serious problem and of course it’s unpleasant. Big investment counselling shops are shrinking and some are going out of business.

And the value investors, many of who I know because we came from that tradition, who were honourable are quitting. Boom. Boom. Boom. What worked for them for years stopped working and they just quit. And they’re also rich, which makes it easy. But those who aren’t rich and whose game is money management have a serious problem.

I don’t have any solution think that index investing, if everybody did it, won’t work. But for another considerable period it is going to work better than active stock picking where you try and know a lot.

I do