'I'm outperforming everybody': Charlie Munger once roasted Jim Cramer for trying to get 'useful information' on 'all subjects' — what he and Warren Buffett did instead to crush the S&P 500

Try to 'do less'

As a credit to the Buffett and Munger’s investing acumen, from 1965 to 2023, Berkshire Hathaway has reported a 19.8% compounded annual return compared to the S&P 500’s 10.2% return over the same period.

Munger told the crowd of Daily Journal shareholders the secret to their success was that they took a different approach than other professional money managers.

“We tried to do less,” he said. “We never had the illusion we could just hire a bunch of bright young people and they would know more than anybody about canned soup and aerospace, utilities and so on and so on and so on.”

Instead of making daily stock picks, the Berkshire team prepared for a few big wins in a handful of sectors where they felt they had a genuine edge over the average investor.

“We always realized that if we worked very hard we can find a few things where we were right and the few things were enough,” Munger said. “That was a reasonable expectation. That is a very different way to approach the process.”

Ordinary investors can also benefit from this approach.

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Lessons for investors

Since Buffett and Munger’s approach was more simple and straightforward, it’s more accessible. Ordinary investors can easily “do less” and perhaps the best way to do so is to adopt a passive investing approach, such as investing in a low-cost index fund.

In 2024, assets managed by passive funds surpassed active funds for the first time, according to Morningstar. So this approach is certainly more popular now.

However, Morningstar’s analysis also found that some segments of the market were easier to outperform in. Actively managed bond funds, for instance, had a 53% success rate in 2023, while 51% of real estate funds and 41% of small-cap funds outperformed their passive peers over a 10-year period ending in 2023. These markets, however, can be less efficient or less transparent, which allows some managers to have an edge over others.

For self-directed investors like Buffett and Munger, it was important to pick industries or companies where you have genuine insights.