Warren Buffett and Charlie Munger: The Exceptions Who Prove the Rule

Who are the world’s best investors? You might say Warren Buffett, the Chairman and CEO of Berkshire Hathaway, or his vice chairman Charlie Munger.

Neither would be illogical. Buffett is worth $71.5 billion today,1 give or take a few million dollars for daily market movements. Charlie is worth $1.6 billion. Across the financial world they are lauded for their “market beating strategies”, which have made them giants in the world of investments.

Buffett and Munger have been investing for three quarters of a century. At the age of 32, Buffett was worth $2 million. He is now almost 90, while Munger is 96. Their longevity in the game is a major reason for their legendary status.

More than 40,000 avid followers attended Berkshire Hathaway’s annual shareholders’ meeting. Referred to by some as “Woodstock for capitalists”, the style of investing pioneered by Berkshire Hathaway is known as “Buffettology”.

Have the Wizards Lost their Wands?

A good reputation can outlive current realities. Certainly, the perception of Buffett and Munger’s investing skills does not seem to match the current situation.

Berkshire Hathaway has underperformed the S&P 500 Index over the last one, five, and ten-year periods. An investor starting out in 1996 would have seen better returns if they had invested in the S&P 500 index. According to Yahoo Finance, in 2020 Berkshire Hathaway’s share values fell twice as hard as the S&P 500.

“I set out to have more common sense than most, and I’m pleased I did as well as I did. If I had to do it all over again, I think it’d be a lot harder.” Charlie Munger

The Conflict of Concentration

Buffett and Munger are the exceptions who prove the rule. Although Berkshire Hathaway owns a concentrated pool of companies, the two men show traits more in common with a systematic approach. This includes a belief in the power of capitalism to create wealth over time, which requires discipline, patience, and courage to capture.

Both investors are comfortable going against the market. In the late 1990s they famously avoided buying into technology companies because they did not understand them. Buffett’s first major tech buy was Apple in 2016, years after his competitors.

In early 2020, the FAANG companies (Facebook, Amazon, Apple, Netflix, and Google) were valued at over $4.1 trillion and made up 18% of the S&P 500. Despite this, Buffett and Munger seem to prefer cheap companies in traditional sectors.

Capital has a huge amount of respect for Warren Buffett and Charlie Munger. And yet there is room for an alternative narrative that reinforces how difficult it is to beat the relentless, upward march of the markets.

So, what’s the alternative? Currently, would-be investors should look to hold a well-diversified portfolio made up of the best performing global companies. They should also have a blend of high-quality government bonds and gilts, containing 8,000 to 10,000 single holdings. There is no need to worry about buying FAANG stocks, because the portfolio holds them already.  

It’s Getting Tough Out There For Wizards

Increasingly, Berkshire Hathaway is struggling to beat the market. In the early days, there were fewer research analysts and fund managers in the market, and a far higher number of amateur investors playing the game2. Buffett was the shark in the pool. But, as the below chart shows, beating the market has become difficult.

Imagine that Buffett was persuaded to run a mutual fund, not a listed investment holding company. A manager with such a good initial track record would be justified in charging a 1% fee per annum.

In the past 24 years though, they would not have beaten the market. Even without these fees, Berkshire Hathaway’s shares have struggled to beat the markets over the past decade or so.

“Having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy.” Charlie Munger

The chart below illustrates Berkshire Hathaway’s annual returns from 1965 to the end of 2019.

Figure 1: Berkshire Hathaway annual performance relative to the US market (from 1965 to 2019)

Data source: Berkshire Hathaway Letter to Shareholders 2020

Buffett will always be celebrated for his investing prowess, financial advice,[1] and charitable giving (he has pledged to donate the majority of his wealth). But perhaps his real legacy is his enduring advice to all investors that remains simple and direct:

“When the dumb investor realises how dumb he is and invests in an index fund, he becomes smarter than the smartest investor. Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund which charges minimal fees.”


“It is not necessary to do extraordinary things to get extraordinary results.”

We agree. If you would like more information about how to own a well-diversified and low-cost portfolio, email hello@capital.co.uk or phone 0207 398 6600.

Risk Warnings

This article is distributed for educational purposes and should not be considered investment advice nor an offer of any security for sale. This article contains the opinions of the author but not necessarily the firm and does not represent a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.


  1. Forbes 
  2. Estimated at 90% of retail in the 1950s – see John C. Bogle, ‘Individual Stockholders RIP’, WSJ, 5th Oct 2005.
  3. If you are interested in some of his wisdom, click here

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?

Share this post


Leave a Comment

Your email address will not be published. Required fields are marked *

You might also like

Alan Smith

Life’s Big Questions

Our team enjoys meeting clients, discussing important subjects, and answering questions whenever possible.  Although we’re a financial planning company, we often discuss a range of other subjects that are top of mind with clients. These

Read More »
Capital News
Alan Smith

A 20 Year Overnight Success

32 Buckingham Palace Road, London, SW1. In a ‘glorified’ broom cupboard’ office above an electrical store (now a pizza shop!). One adviser, a personal assistant and two laptops. That’s where life began for Capital in

Read More »