2008: How would 30-year old Buffett and Munger invest a million dollars with a full-time job?

AUDIENCE MEMBER: Hi. My name is Timothy Ferriss. I am a guest lecturer at Princeton University twice a year. And I’d like to touch on an earlier question about investing with small sums of money.

I’d like to ask both of you, if you were 30-years-old again and had your first million in the bank, how would you invest it, assuming you’re not a full-time investor, you have another full-time job, you can cover your expenses with other savings for about 18 months, no dependents, and it would be really helpful for my students, for myself and others here, if you could be as specific as possible about asset classes, percentages, whatever you’re willing to offer. (Crowd noises)

WARREN BUFFETT: Well, I’ll be very simple: I — under the conditions you name, I’d probably have it all in a very low-cost index fund, and it would probably be — you know might be Vanguard — somebody I knew was reliable, somebody where the cost was low.

And because you postulated that you’re not going to become a professional investor, I would recognize the fact that I’m an amateur investor, and I would feel that a — unless bought during a strong bull market, which this hasn’t been — I would feel that that was going to outperform, to a degree, bonds, under current conditions over a long period of time, and then I’d forget it and go back to work.

Charlie?

CHARLIE MUNGER: Yeah. It’s in the nature of things that you aren’t going to have a whole lot of screamingly successful professional investors.

You’ve got a great horde of professionals taking croupiers profits out of the system, most of them by pretending to be professional investors, and that is in the nature of things, too.

But if you don’t have any rational prospects of being a very skilled professional investor, of course you should compromise on some simple thing like an index fund.

WARREN BUFFETT: Yeah. And that — you will not get that advice from anybody because nobody gets paid to give you that advice.

So you will have all kinds of people telling you how much better they can do for you than that, and how if you just give them a wrap fee, or give them commissions, or whatever it may be, that they will do better, but they won’t do better.

On average, you know, if a thousand other people like you do the same thing, that group of a thousand will do worse if they listen to the people that make pitches at them.

And in the end, why should you expect — I mean, you’ve got a very perfectly decent return over a 30- or 40-year period by doing what I suggest.

And why should you expect more than that when you don’t bring anything to the party? The salesman will tell you that you’ll get it, but you won’t.

CHARLIE MUNGER: I would give you another word of warning: do not judge stockbrokers generally by the ones you meet at this meeting. We attract some of the most honorable, intelligent stockbrokers in the world. They are not representative of the class.

WARREN BUFFETT: (Laughs) The politician in him just came out