One of the best resources for investors are the Daily Journal Annual Meetings chaired by Charles Munger. During the 2015 Annual Meeting Munger was asked the following question regarding indexing and what it might lead to:
Klarman 2017 letter on
- the danger of Chinese leverage
- Discipline while value investing in bubby times
- Value investing is not dead
- Radicalization of politics
- Dangerous FAANG valuations
“Indexing has grown a lot in the last thirty years or so as a form of investment management for a lot of good reasons. You said a few years ago that if we ever get to the point where everybody’s indexing, it’s not going to work very well. I’d love you to explain a little more about that and what would that lead to.”
Following is Munger’s response:
“It’s far enough away from happening so that I don’t spend much time thinking about it. I think human nature is such that it will never happen. So, I don’t spend much time thinking about what is almost certain never to happen.
In the world as it is, indexing has gained a lot. It probably should have gained a lot, because it’s quite rational. It’s bad for a lot of people who would otherwise be earning money as stock pickers. It probably should have been bad for those people. It doesn’t make it pleasant to have it happen any more than it helped Japan have a pleasant time when Korea came up so fast as a competitive powerhouse, and even more so when China rose. But I think indexing is here to stay. I think it’s a fact of life.
If you stop to think about it, civilized man has always had soothsayers, shamans, faith healers, and God knows what all. The stock picking industry is four or five percent super-rational, disciplined people, and the rest of them are sort of like faith-healers or shamans. And that’s just the way it is, I’m afraid. It’s nice that they keep an image of being constructive, sensible people when they’re really would-be faith-healers. It keeps the self respect up.”
You can listen to the entire meeting here:
Article by Johnny Hopkins, The Acquirer's Multiple