Charlie Munger, the 99-year-old billionaire and vice chairman of Berkshire Hathaway Inc., is not one to hold back his opinions. In the last couple of years, he has taken aim at Bitcoin, labeled stock brokerages as “gambling parlors,” and compared meme stock traders to heroin addicts.
And in a recent interview with the Financial Times, he did not shy away from criticizing his own industry, claiming that investment managers are nothing more than “fortune tellers or astrologers who are dragging money out of their clients' accounts.”
Munger, who has spent 45 years as Warren Buffett’s right-hand man, acknowledged that Berkshire Hathaway’s success largely resulted from favorable market conditions during his tenure. But he cautioned that today’s investment managers face a much more challenging environment, with stubborn inflation, higher interest rates and rising competition making it difficult to achieve past returns.
“It's gotten very tough to have anything like the returns that were obtained in the past,” Munger said. “At the exact time that the game is getting tougher, we've got more and more people trying to play it.”
Munger also warned of trouble for banks because of the ailing commercial real estate sector, which could put further pressure on investment managers. He did note that the situation is not as dire as it was during the 2008 financial crisis.
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Munger and Buffett have long argued that financial advisers, hedge fund managers and other money managers aren’t worth the fees they charge, dubbing them “financial helpers.”
A recent S&P Indices Versus Active (SPIVA) scorecard delivered another blow to actively managed funds, revealing that 79% of fund managers underperformed their respective benchmarks in 2022. This marks a significant increase from just a decade ago when the figure was 42%, demonstrating the continued challenges faced by the active management industry.
Munger’s criticism had been especially pointed during the pandemic, as meme stock trading and risky investing had reached new heights.
As always, Munger’s words carry weight in the financial world, and his latest critiques may prompt some to rethink their investment strategies.
Be Your Own Money Manager
Fortunately, investors in today’s world don't need a money manager. Brokers like Robinhood and Webull allow anyone to quickly and easily buy shares in stocks they love or the S&P 500. As Munger noted, today’s investing environment is getting tougher. But thanks to changes in federal law, retail investors now have a new tool at their disposal as well. The JOBS Act allows anyone to invest in early-stage companies and high-growth startups on platforms like StartEngine and Wefunder, including owning a stake in StartEngine itself. Investors can browse hundreds of best-in-class startups backed by top venture capitalists. For example, Gameflip recently crossed the $1 million raised mark and is backed by $10 million in venture capital.
With all of these tools at retail investor’s disposal and their consistently poor performance, money managers might slowly be becoming a thing of the past.
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