Charlie Munger says most fund managers are little more than fortune tellers, and the data backs it up – 79% of fund managers underperform

Charlie Munger says most fund managers are little more than fortune tellers, and the data backs it up – 79% of fund managers underperform

Charlie Munger, the 99-year-old billionaire and vice president of Berkshire Hathaway Inc.., is not one to hold back his opinions. Over the past two years, he’s taken on Bitcoin, called brokerages “gambling” and likened stock traders to heroin addicts.

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And in a recent interview with the Financial Times, he was not shy about criticizing his own industry, saying that investment managers are nothing more than “fortune tellers or astrologers making money accounts of their customers”.

Munger, who spent 45 years as Warren Buffett’s right-hand man, acknowledged that Berkshire Hathaway’s success was largely the result of favorable market conditions during his tenure. But he warned that today’s investment managers face a much tougher environment, with stubborn inflation, higher interest rates and growing competition, making it difficult to achieve past returns. .

“It’s become very difficult to have anything like the feedback that’s been had in the past,” Munger said. “Just when the game gets harder, we have more and more people trying to play it.”

Munger also warned of problems for banks due to the struggling commercial real estate sector, which could put additional pressure on investment managers. He noted that the situation is not as bad 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, calling them “financial helpers.”

A recent S&P Indices Versus Active (SPIVA) dashboard dealt another blow to actively managed funds, revealing that 79% of fund managers underperformed their respective benchmarks in 2022. This represents a significant increase from just a decade ago, when the figure was 42%, demonstrating the ongoing challenges facing the active management industry.

Munger’s criticisms had been particularly pointed during the pandemic, as stock trading and risk investing hit new heights.

As always, Munger’s words carry weight in the financial world, and his latest criticisms may cause some to rethink their investment strategies.

Be your own fund manager

Fortunately, investors in today’s world don’t need a fund manager. Brokers like Robinhood and Webull make it quick and easy for anyone to buy stocks they love or S&P500. As Munger noted, today’s investment environment is getting tougher. But thanks to changes to federal law, retail investors now have a new tool. The JOBS Act allows anyone to invest in start-ups and high-growth startups on platforms such as 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 passed the $1 million mark raised and is backed by $10 million in venture capital.

With all of these tools available to retail investors and their consistently poor performance, fund managers could slowly be a thing of the past.

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