Investing lessons from Buffett and Munger

The shareholder meetings of Berkshire Hathaway have turned into an annual pilgrimage for stock investors, attracting fund managers and high-net-worth folks in droves. But this year, the jamboree and the open house Q&A session with Warren Buffett and Charlie Munger threw up many pearls of wisdom for mutual fund investors, too. Here are some we distilled for our readers. Not a good alternative Every bull market brings with it a new fad for high net-worth investors (HNI). In India, the current HNI fad is AIFs or alternative investment funds. In the last few years, quite a few whiz-kid fund managers have quit the mutual fund industry to start or manage new AIFs that dabble in long-short, long-only and derivative strategies. But if you've been ruing that you don't have `1 crore to invest in an AIF, you can take heart from this. Brent Muio from Winnipeg, who worked for a pension fund, asked for Buffett's take on alternative investments. Buffett's straight response was that he was not excited by alternatives. He cited three reasons. One, when you leverage to invest in equities, you can make extraordinary returns when the going is good, but you can also make some very damaging mistakes. Those mistakes are not really related to how smart the fund manager is. Buffett says, "We saw people with really extraordinarily high IQ destroyed by leverage. In Long Term Capital Management (a hedge fund which failed in America), you had people who could do maths in their sleep that I couldn't do during the day. But it all turned into pumpkins and mice in 1998." Two, return calculations on alternatives are 'not honest'. Alternative funds, being closed-end often don't realistically mark down their holdings if there's market panic. Three,

This article was originally published on July 25, 2019.