Charlie Munger on Fund Managers

At the annual meeting for the Daily Journal Corporation, Charlie Munger shared that there is too much money out there and it won’t end well.

And of course, what’s happening in America of course, is that software has grown enormously. If you take every big college in the engineering department, the most popular course is computer science. And if you went to venture capital, the most popular investment in some kind of software. And I do not find venture capital’s backing of software companies pretty because it’s just so much of it and there’s some wretched excess and folly and high prices and so on. It’s not a scene that attracts the normal Berkshire Hathaway type. I’m not saying it won’t work for a great many, very well, but there’s also going to be a lot of casualties.

And I don’t like it when bad stuff comes in. I don’t like it when investment bankers talk about EBITDA. Which I translate as bullshit earnings. [Audience laughter] I don’t like all those talking about J curves and all these private sales of software companies on one venture capital to another and mark opposites. It looks like a daisy chain to me, so I think there’s a lot of wretched excess in it, but it reflects an underlying sound development, which is this huge growth of software changing the technology of the world. But it’s going to have some unpleasant consequences because there’s so much wretched excess in it.

Watch: Charlie Munger speaks at the Daily Journal annual meeting, CNBC

There are just too many fund managers.

I think what people in the investment management industry ought to do is prepare for tougher times ahead. I think this indexing thing is going to run and run and run. And I think that there are wretched excesses in a lot of the well-paid hedge funds and private equity businesses that will in due time result in a lot of the troubles that give pain.

Everywhere I see the endowment managers have the same mantra. They want fewer and better investment managers. That’s not going to be good for investment managers and the rest of the people are indexing. Now, do you want any other cheery news? The cheery news is that if you think the way we nerds think and keep at it long enough, you’ll do all right. But what if you go with this crowd, I think there’s pain ahead.

You can download and read the transcript of the annual meeting here.

Daily Journal Corporation Annual Meeting – February 12, 2020

Photo by Markus Spiske on Unsplash

Post by Marcelino Pantoja