Charles Munger: The Overarching Problem With The Money Management Industry

Johnny HopkinsCharles MungerLeave a Comment

During the 2003 Berkshire Hathaway Annual Meeting, Munger and Buffett discussed the overarching problem with the money management industry, and why it’s impossible for most money managers to succeed. Here’s an excerpt from the meeting:

CHARLIE MUNGER: Yeah. We have this simple, old-fashioned discipline, which Warren likens to Ted Williams waiting for a fat pitch.

I don’t know about Warren, but if you said to me, “Charlie, you can go into the business of managing money the way other people do, where you’re measured against indexes and you got consultants choosing consultants that are reviewing you to committees,” I would just hate it.

I would regard it as being put into shackles. And shackles where the very system was preventing me from delivering value. Warren, how would you feel about that —

WARREN BUFFETT: Yeah, we wouldn’t


WARREN BUFFETT: — do it. We wouldn’t do it. We never did do it, as a matter of fact.

And one of the, you know, the initial — when we formed the partnership on May 5th, 1956, I passed out to the seven limited partners something called the “ground rules.”

And, you know, I said, “Here’s what I can do and here’s what I can’t do. And here’s some things I don’t know whether I can do or not, maybe.” It was fairly short.

But the idea of setting out to do something that you know you can’t do, that can’t be — you know, that’s got to lead to problems.

I mean, if somebody tells me I have to high jump seven feet, and we could even move that down to four feet now — (laughter) — you know, between now and sundown or I’ll be shot, you know, I will go out and buy a bulletproof vest. (Laughter)

CHARLIE MUNGER: Yeah, the general system for money management requires people to pretend that they can do something that they can’t do, and to pretend to like it when they really don’t. And I think that’s a terrible way to spend your life, but it’s very well paid. (Laughter)

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