Why Charlie Munger Is Right About Retail Investors and Brokers

This was because Charlie Munger, (a 97-year-old investor, a business partner of Warren Buffet, and vice chairman of Berkshire Hathaway)criticized brokerages for making money by selling gambling services to people and also compared retail investors who engage in momentum trading to gamblers betting on racehorses.

The time I lost $25000 in a single day a few years back to people who set up such businesses that take advantage of people's ignorance and mistakes ran through my mind and I found Charlie's concerns valid even though he came off a bit arrogant in presenting them. 

Phillip De Franco advised people to take care when taking part in trading but he quickly turned to Charlie and said he was just an old guy spewing disgusting elitism… I respect Phill but I find it hard to believe what he said. 

Maybe am so deluded here that I failed to see Charlie's motives that DeFranco talks about but hey, these are my thoughts and opinions and I would love to know yours. 

To understand why I think Charlie Munger is right, I have to explain this in two sections. 

1. retail investors. 
2. Brokerages

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Retail Investors

From Phillip's point of view, it's true that average people have the right and should take part in the stock market and this is also echoed by Charlie Munger when he says that you should approach the world of investing from a point of value. Meaning that whatever stock you buy much be cheaper than its true value and there are methods for finding that out.

Charlie Munger says that it is easier to find 5 than to find 100 when he was talking about stocks. That is why he said that it is absolute insanity to think owning 100 stocks instead of 5 makes you a better investor. 

He advised people to avoid justifying their investments as diversification simply because they are throwing their money into several stocks with little to no regard for the intrinsic value of these stocks. This is irresponsible. He called this term "diworsification".

If you buy into 100 lousy companies that end up losing money, you just make your portfolio worse with each investment. And this behavior would only make you money if you are lucky which sounds so similar to betting on horses. 

This is why Charlie Munger advised people to instead look for stocks they could understand even if they were just four or five. This doesn't fully eliminate the risk but will reduce it and increase your likelihood of having a desirable outcome. 

It is great to have a diversified portfolio of course. But this is only true if you know the value of what you are holding and that value is worth something in the market.

I have seen so many retail investors recently on apps like Robinhood buy stocks simply because they have used the company's products in the past and think that the company is cool.

Some people think that companies are too big to fail but that is not true.

Many make it a point to tell people that it is just money they are playing with and testing the markets since they know what they are doing is irresponsible but are not willing to put in the work to learn how to invest properly.

Those are the same people who never listen to advice from financial experts since they think the rich are evil manipulative bastards. 

They then look for information from youtube, Reddit, and other sites for hot tips. 

But the gurus on this platform also have agendas of their own. 

Most people on youtube, Reddit, and other sites that give these tips always do it with financial incentives in mind. 

Those who go further to claim that they are trying to fight for everyday people always do this with two objectives in mind. 

1. Screwing up the rich
2. Making a lot of money fast in that process.

None of them are selfless endeavors.

 So in regards to Charlie Munger's comments about retail investors, he was telling people to learn and be responsible when investing in the stock market rather than chase trends that always end in disasters. 

I think this is good and responsible advice to be giving people rather than telling them that they are free to use their money in investing the way they see fit. 

People are quick to dismiss health advice from non-health professionals. Even though finances aren't comparable to health, I think they are very important as well and people should take their information from people that are in the financial industry as well. 

Some financial professionals will indeed want to take advantage of you. It happens in all industries including the health industry.

That is why you should listen to several points of view that can help you make better judgments. 

Billionaires especially those that have made their billions from investing have a thing or two to teach us all and I always listen to them. Some are truly lizard aliens and others just want to contribute their knowledge to the world. 

Unfortunately, a lot of people have grown to hate rich people and they think that any suggestion they make is an attempt to control us. 

I choose to pay less attention to those distractions and take the information I need to improve my life. 

I can hate on Charlie Munger all I want. I don't think that at 97, he is concerned about world domination. (I'm not an ageist rather, I have more faith in humanity). I can think therefore that he is probably caring more about his legacy rather than trying to find a way of blocking people from trading the markets. That's my belief.

…he was telling people to learn and be responsible when investing in the stock market rather than chase trends that always end in disasters.

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Let's talk about the brokerages

"It is difficult to get a man to understand something, when his salary depends on his not understanding it." - Upton Sinclair

If you think that brokers always have your interests at heart, you should read Money Master the Game by Tonny robbins where he breaks down that myth and many others.

Some brokerages now give free stocks to people for signing up and depositing some money. But there is profit for them also in doing that. - Yes even those free trades are profitable

As much as I would like to believe that this is done in good spirit, it's highly unlikely. 

In marketing, I see people giving away free ebooks, courses, webinar training,… so that they can get you to their email lists and then sell you stuff. Oftentimes these courses, ebooks, and webinars are total sh*t and often regurgitations of already existing free content. - I don't think those free stocks are any different. 

Sure you may get a stock that ends up doing well but since you aren't the one that gets to pick and choose, there is no guarantee. 

It doesn't matter how well or poorly you perform in the market. Somewhere between fees and profits, your broker will be made a bit richer with each transaction you make.

This has of course created a culture where a lot of brokers do not care about the results of your account. So they can package and give you the worst investments to take part in.

Here is what Charlie Munger had to say about brokers.

" I think you should try and make your money by selling other people things that are actually good for them. And if you are selling them gambling services where you make profits of the top like many of these new brokers, I think it's a dirty way of making money and I think it's crazy to allow it."

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Streaming my consciousness here…

When it comes to my personal development, I don't want to think that anyone holds all the solutions to my problems. Whether that person is rich or poor. 

So many people hate the rich forgetting that they are also people with faults just like everyone. Rich people will screw you up just as much as everyone can. They are human and they err. 

There is no doubt that there are rich people who flirt with ideas of elitism but that does not mean that you should blanket every "wealthy" person with the same evil.

The good thing is that we have a wealth of knowledge and technology to easily compare ideas from different perspectives. 

It doesn't serve you to ignore listening to someone just because they are billionaires. It is information that you should take without being judgemental and listen to what you think makes sense to you and throw away the rest. And do that for different perspectives regardless of their position in society. 

Phillip De Franco is the YouTuber I go to for my news. Anything he doesn't cover rarely makes way to the news I consume since the PDS is the only news show I watch. I cannot say that he is entirely wrong. This is only an article to discuss a contrasting opinion from a person I trust when it comes to learning about what is going on in the world.