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A Conversation with Charlie Munger & John Collison - [Invest Like the Best, EP.355]
Invest Like the Best with Patrick O'Shaughnessy
The Difficulty of Investing and Historical Returns
Investing has become significantly more challenging, with the majority of wealth management professionals unlikely to outperform unmanaged indexes like the S&P. The difficulty arises from managing larger sums of money, higher transaction costs, and increased competition in the market. Additionally, market behavior can become irrational during periods of mania. Historically, returns comparable to 10% before inflation were achieved during a unique period of economic growth and stabilization following the Great Depression, which may not be replicated in the future. This extraordinary performance was not the norm, as evidenced by historical returns, such as the 2.5% return from British Consols in 1900, which reflected the risks of that era. Thus, the assumption that average returns of 8% after inflation will continue indefinitely is overly optimistic, considering the evolving economic and investment landscape.
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