Charlie Munger Slams Teaching Stock Trading To Young People: ‘It’s Like Trying To Induce Young People To Start Off On Heroin’

Charlie Munger, the longtime business partner of Warren Buffett, once voiced his disapproval of introducing young people to active stock trading, likening it to initiating them into heroin use.

What Happened: Munger expressed his contempt for active investment management during the yearly Daily Journal shareholder meeting in 2019. He proposed that it might be detrimental to novice investors.

Munger compared the contemporary world’s efforts to promote active stock trading among the youth to persuading them to start using heroin. Instead, he lauded large index funds as a superior choice for regular investors looking to gain exposure to the stock markets.

“If you take the modern world where people are trying to teach you to come in and trade actively in stocks, well I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin,” Munger said.

Also Read: Charlie Munger’s Four Life Lessons: ‘Consume Less Than You Accumulate, Invest Judiciously, Persistently Learn, and Uphold Discipline’

Furthermore, he lambasted many active stock pickers, implying they are in denial about the worth of their expertise vis-à-vis the fees they impose on clients. “They have a horrible problem they can’t fix so they just treat it as nonexistent,” Munger added.

“It’s wrong to have all these people in just a state of denial and doing what they’ve always did year after year, and hoping that the world will keep paying them for it even though an unmanned index is virtually certain to do better,” he said.

Despite his critique of active investment management, Munger conceded that it’s permissible for investors to hold a limited number of stock positions if their goal is to outperform the wider stock markets. He underscored the significance of investing in sectors where one possesses additional knowledge.

Why It Matters: Munger’s comments highlight the potential risks associated with inexperienced investors engaging in active stock trading. His comparison to heroin use underscores the addictive nature of trading and the potential for significant financial loss.

His endorsement of large index funds for everyday investors suggests a preference for more conservative, long-term investment strategies. His criticism of active stock pickers also raises questions about the value of their services in relation to their fees.

This could potentially influence how investors approach their investment strategies and who they choose to manage their investments.