2023: How will disruptive technologies affect value investors?

AUDIENCE MEMBER: Hi. My name is (UNINTEL PHRASE), I’m from Santa Clara, California. And my question is to Charlie and Warren. Given the rise of disruptive technologies that can improve productivity significantly, and AI being one of them, how do you envision the future of value investing in this new era? And what adaptations or new principles do you think investors should adopt? And any recommendations for investors to remain successful in this rapid changing landscape? Thank you.

CHARLIE MUNGER: Well, I’m glad to take that one. I think value investors are going to have a harder time now that there’s so many of them competing for a diminished bunch of opportunities. So, my advice to value investors is to get used to making less.

WARREN BUFFETT: And Charlie has been telling me the same thing the whole time we’ve known each other. I mean, we get along wonderfully because —

CHARLIE MUNGER: Well, we are making less.

WARREN BUFFETT: Yeah. Well, but that mostly I think is (Laughter) (UNINTEL PHRASE) —

CHARLIE MUNGER: We did that when we were younger.

WARREN BUFFETT: Yeah, we never thought we could manage $508 billion.

CHARLIE MUNGER: No, we never did.

WARREN BUFFETT: You know, but I would argue that there are going to be plenty of opportunities. And part of the reason there are going to be plenty of opportunities, the tech doesn’t make any difference for any of that. I mean, if you look at how the world’s changed in the years since 1942 when I started, you’d say, “Well, how does a kid that doesn’t know anything about airplanes, that doesn’t know anything about engines and cars, and doesn’t know anything about electricity and all that?” But new things coming along don’t take away the opportunities.

What gives you opportunities is other people doing dumb things. (Laughter) (Applause) Well, the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number of people doing dumb things. And they do big, dumb things, and the reason they do it to some extent is because they can get money from other people so much easier than when we started.

So, you could start ten or 15 dumb insurance companies in the last ten years, and you could become rich if you were adroit at it, whether the business succeeded or not, and the underwriters got paid, and the lawyers got paid. And if that’s done on a large scale — which it couldn’t be done 58 years ago.

You couldn’t get the money to do some of the dumb things that we wanted to do, (Laugh) fortunately. And so, I think that investing has disappeared so much from this huge capitalistic market that anybody can play in, but that the big money is in selling other people ideas.

It isn’t outperforming. And I think if you don’t run too much money, which we do — but if you’re running small amounts of money, I think the opportunities will be greater. But then Charlie and I always differed on this subject. He likes to tell me how gloomy the world is, and I like to tell him, “We’ll find something.” And so far, we’ve both be kind of right. (Laugh) Charlie, would you budge an inch on that, or not? (Laughter)

CHARLIE MUNGER: There is so much money now in the hands of so many smart people, all trying to outsmart one another and out-promote one another, getting more money out of other people. And it’s a radically different world from the world we started in. And I suppose it will have its opportunities, but it’s also going to have some unpleasant episodes.

WARREN BUFFETT: But they’re trying to outsmart each other in arenas that you don’t have to play. I mean, if you look at that government bond market, at the Treasury bill market, I mean, you have this one bill that’s out of line with the others, and went (UNINTEL PHRASE) $3 billion of it the other day.

But the world is overwhelmingly short-term focused. And if you go to an investor relations call, they’re all trying to figure out how to fill out a sheet to show the earnings for the year. And the management is interested in feeding them expectations, so we’ll slightly be beaten.

I mean, that is a world that’s made to order for anybody that’s trying to think about what you do that should work over five, or ten, or 20 years. And I just think that I would love to be born today, and go out with not too much money, and hopefully turn it into a lot of money. And Charlie would too, actually. (Laugh)

He would find something to do, I will just guarantee you. And it wouldn’t be exactly the same as before, but he would have a big, big, big pile.

CHARLIE MUNGER: I would not like the thrill of losing my big pile into a small pile. (Laughter)

WARREN BUFFETT: But we might —

CHARLIE MUNGER: I like my big pile just the way it is. (Laughter)

WARREN BUFFETT: We agree on that, incidentally.

CHARLIE MUNGER: Yes, we do. (Laughter) You’re one of the most extreme lovers of the big pile. (Laughter)