Last week we had one of these rare opportunities to hear Charlie Munger directly speak to the public and as usual, he had plenty of wisdom as well as warnings to share. At this year’s Daily Journal’s annual meeting today he presides over he talked about China, and staying within your Circle of Competence among many other topics.

My colleague and personal acquaintance Gary Mishuris did an excellent job summarizing this year’s hearing. You can read it here:

Charlie Munger Return Expectations

One of the points Munger made at the conference stood out:

“If you have trouble finding good investments, join the club… My advice to the seeker of high compound interest is to reduce your expectations. Things are likely to be tough for a while.”

Munger talked about how the 10% nominal return achieved by U.S. stocks over the long-term is unlikely to be replicated in the future from the current starting point. He thought that a mid single-digit rate of return was much more likely given the starting level of valuation and lower inflation.

The message is clear, we need to drastically reduce our expectations of what stocks markets and most likely many other asset classes will be able to give us in terms of returns and that for a much longer time than most of us are willing to endure.

Only recently has Vanguard dramatically cut its expected rate of return for the stock market over the next decade.

“If we look forward for the next 10 years, our expectations around U.S. equity markets is for about a 5 percent median annualized return,” he told CNBC on Monday. “Five years ago, we’d have been somewhere in around 8 percent.”

And this is just a continuation of adjustments and projections of what late John Bogle already postulated years ago: Have lower return expectations!

Avoid The Sucker Rallies

What does that mean in the age of wild stock markets swings, V-shaped recoveries, and computer trading?  These swings might fool us in believing that making 10 or even 20% returns on your portfolios is easy, almost like a child’s play. But these swings usually go in both directions.

Timing these swings is a sheer impossibility, especially if you preside over a larger amount of money or you only sporadically look at the market as most us do – we do have better things to do than to stare at several monitors for 10h straight to chase some wiggly charts and price tables.

So you might feel richer one month and already project the next move up, while you get beaten down the next because markets will have corrected horribly for apparently no reason.

In short, you won’t be richer at all – on the contrary, the risk you might have timed these swing incorrectly has dramatically increased over recent months.

Whether you missed the next move up because you have been too conservative or you doubled down on missed returns chasing the leaving train only to get beaten down by the next correction.


These are very difficult times for stock market investors and you should head Munger’s advice to stay within your Circle of Competence. In other words, stay with what you are good at and that makes you money; either focusing on your profession or managing your own business. This is the 80/20 way to investing!

Having said this, there is one way to avoid “Charlie’s Conundrum” – this will be discussed in our next post – so stay tuned!

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