Charlie Munger’s Investment Wisdom: The S&P 500 is unrivaled ‘95% of people don’t have a chance to beat the S&P 500’

the late Charlie Mungerfamous investor and vice chairman Berkshire Hathaway BRKOnce asserted, 95% of investors have no chance of better than the S&P 500.

what happened: In an interaction a few years ago, Munger shared his thoughts on investors’ attempts to outperform the challenges the market faces. Munger died in 2023, Warren Buffetthis advice is still high in the investment world.

Munger acknowledges the dominance of index funds such as index funds (such as the S&P 500), which represents a large part of the market.

He warned not to be overly popular in index investment, which made the fifty eras similar in the fifties, where attention to select stocks was small, leading to unsustainable market conditions and subsequent downturns.

“95% of people don’t have a chance to beat the S&P 500. S&P’s index funding is about 75% of the market. But, in theory, does index funding not work properly? Of course. If everyone doesn’t buy index funding, the whole world won’t work as expected,” Munger said.

“If you get too much fashion in one field or a narrow index, then of course, you can get catastrophic changes like that before that era,” he added. “I can’t see this happening when the index is three quarters of the entire market. The problem is that the whole thing doesn’t work perfectly forever, but it lasts for a long time.”

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“One of the reasons you buy a big index like Standard & Poor’s is because if you buy a small index and it’s getting more popular, you’ll have a self-defense situation. When the beautiful 50 is anger, JP Morgan Speaking each person only buys 50 shares, they don’t care what the price is, they just buy 50 shares. Of course, in due course, their own purchases forced 50 shares up to 60 times, thus going bankrupt, everything fell, about two-thirds of the stock. ” he added.

“I don’t want to manage a trillion dollars on big stocks and try to beat the index. I don’t think I can do it.

With the popularity of index investment, Munger observed a downward trend in managing large portfolios. He highlighted the challenges facing investment professionals who must adapt to the ever-changing landscape of increasingly competitive expense structures.

“We may have beaten the index, but we haven’t done that by having a large portfolio of securities and having segments that manage drugs and segments, so indexing is a problem for you, but you know, why shouldn’t life be hard?” he said.

Why it matters: Munger’s insight highlights the huge challenges inherent in trying to beat the S&P 500. While index funds offer benefits such as diversification and cost-effectiveness, they also present obstacles for investors seeking to surpass the market.

The rise of index investment has resulted in a competitive expense environment that puts pressure on investment professionals to adapt and innovate.

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