2007: What does Buffett think of managed futures funds?

AUDIENCE MEMBER: Hi. My name is Christian Baha from Superfund. I have a question for you, Mr. Buffett.

What do you think about managed futures funds?

WARREN BUFFETT: About which fund?

CHARLIE MUNGER: I didn’t quite get that. What kind of fund?

AUDIENCE MEMBER: Managed futures funds.

CHARLIE MUNGER: Oh, managed —

AUDIENCE MEMBER: Like a very diversified portfolio in stocks and bonds going long and short, all the different markets, based on the most natural human behavior, trying following a herd behavior?

CHARLIE MUNGER: Managed futures funds.

WARREN BUFFETT: Well, I would say that we think the most logical fund is the one we have at Berkshire where, essentially, we can do anything that makes sense and are not compelled to do anything that we don’t think makes sense.

So any entity that is devoted to a limited segment of the financial market we would regard as being at a disadvantage to one that has total authority if you have the right person in charge.

But you — that’s an assumption you’re going to make under any fund. So we would not want to devote our funds to something that was only going to buy bonds, something that was only going to buy futures, or anything of the sort.

We would — we buy futures at Berkshire. We buy bonds at Berkshire. We’ve bought — we buy currencies. We buy businesses.

So I think it’s a mistake to shrink the universe of possibilities. Ours is shrunk simply by size, but we don’t try to — we don’t set out to circumscribe our actions in any way.

But in the end, there’s no form that produces investment results.

Hedge funds don’t produce investment results. Private equity doesn’t produce investment results. Mutual funds don’t produce it.

If it was simply a matter of form, we’d all call ourselves, you know, whatever that form happened to be.

What really makes the difference is whether the person that’s running it knows what their limitations are, knows where their strengths are, plays when they have the opportunity to play advantageously, and stays out when they don’t see any opportunities.

Charlie?

CHARLIE MUNGER: Yeah. I’d go further. I’d say averaged out, I would expect that the return per dollar per year in managed futures funds would be somewhere between lousy and negative. (Laughter)

WARREN BUFFETT: And I would agree with that. Yeah.

Usually those are sales tools. I mean, people find out something that will sell, and it can be — you know, it can be bond funds at some point, it could be — but when they find something to sell, it will get sold to the public. That will be — it will sell until it stops selling.

And that means lots of money comes in and lots of competition for a limited number of opportunities.

And I think it’s a mistake to get sold something on the basis that here is a great area of opportunity.

Areas don’t make opportunities; brains make opportunities, basically.