The following is classic Charlie Munger quote from a 2008 speech,- calling it like it is! The entire speech is attached below. It makes me laugh, but is so true.
“To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people.
I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him ‘My God, they’re purple and green. Do fish really take these lures?’ And he said, ‘Mister, I don’t sell to fish.’
Investment managers are in the position of that fishing tackle salesman. They’re like the guy who was selling salt to the guy who already had too much salt. And as long as the guy will buy salt, why they’ll sell salt. But that isn’t what ordinarily works for the buyer of investment advice.
If you invested Berkshire Hathaway-style, it would be hard to get paid as an investment manager as well as they’re currently paid – because you’d be holding a block of Wal-Mart and a block of Coca-Cola and a block of something else. You’d just sit there. And the client would be getting rich. And, after a while, the client would think, ‘Why am I paying this guy a half a percent a year on my wonderful passive holdings?’
So what makes sense for the investor is different from what makes sense for the manager. And, as usual in human affairs, what determines the behavior are incentives for the decision maker.”
