Charles Savage on boxing for the retail traders vs Buffett and Munger

Charles Savage, CEO of Purple Group – which owns EasyEquities – joined the BizNews Power Hour for a lively discussion on the recent unpopularity of Warren Buffett and Charlie Munger among retail investors. As both an ardent fan of Buffett’s investment philosophy as well as a member of ‘Team Reddit’, Savage is of the view that Buffett and Munger’s lifelong investing lessons are not to be thrown away. – Nadya Swart

Charles Savage on boxing for the retail traders vs Warren Buffett and Charlie Munger:

I’m with Team Reddit. The world is changing – it’s changing fast – and you can’t call people gamblers because they potentially behave a little differently to the way you did back almost 80 years ago. And I think both Warren and Charlie have got to remember that what they did is; they took high conviction bets on companies that they themselves fell in love with, and this Reddit crowd are doing the same and, I guess, getting accused as gamblers. So, the one thing I’ve got some sympathy with Charlie on is that; in Robinhood, you’ve got some gambling mechanisms and products, which I would describe more towards gambling than investing. So, you know, some of those option ladders and option structures and the more derivative products and then the margin lending – those are not, for me, typical investing products. But in our experience, about 5% of the base behave like gamblers and 95% of the base are investing exactly as Charlie and Warren would want them to behave. And I think the key is; if we opened up that Robinhood community and let Warren or Charlie look inside, I think they’d find that 95% are behaving exactly the way you would want them to.

On comments that there’s a new world and that Buffett and Munger are to be dismissed:

I don’t buy that. Firstly, what did they teach us and are those lessons still relevant? What they taught us is to start young – I mean, Warren was 11 when he started. Secondly, they said; buy stocks you fall in love with and don’t sell them until you fall out of love with them – so, marry them for a long time. And thirdly, in their own portfolios; Warren has had about 50% gearing in his own portfolio over the life cycle of his portfolio. So, he’s geared himself as well, but he’s geared himself very responsibly into high conviction bets. So, no, their lessons are not to be thrown away. Those are lifelong investing lessons. And for me, it would be very short sighted to throw it away just because technology’s got involved.  They’re the best of the best, and the lessons that they’ve taught all of us will be time tested.

On Munger’s view that ‘Bitcoin is disgusting and contrary to the interests of civilization’:

Neither Warren nor Charlie have been fantastic tech pickers. They were very slow adopters of tech and eventually in on Apple and made 100bn, I think, on Apple in the last couple of years. But they are slow to adopt new technologies and I think they’re just a bit slow. For me, there’s no argument that can be made that doesn’t say that the future of money doesn’t look more like crypto. Is it Bitcoin? I don’t know. Is it Ethereum? I don’t know. Is it Dogecoin? I hope not. The bottom line is that I don’t know. But I think Charlie’s statement is ridiculous. I think paper money would have faced the same friction when it was invented all those years ago that crypto is facing. And yeah, maybe they are getting a bit long in the tooth when it comes to new technologies.

On the resilience of today’s retail investors:

The bottom line is that these guys have not had it easy. So, yes – the guys who arrived in March [2020] – they arrived in a storm. High volatility, very difficult market conditions and it took a lot to ride out something like Sasol. Just go look at what the Sasol share price did from March today. And they rode it out – they made hundreds of millions of rands riding out Sasol and a lot of them are still in it.

But, you know, for the first time – forget about the investors who arrived in March, because they’ve been arriving en masse for the last six, seven years. Robinhood is not an overnight success story, neither is EasyEquities. And in South Africa, this has been the toughest investment period that I’ve ever seen over the last five years. I mean, if you were an asset manager for the last five years – you’ve had your worst five years ever. And in that five year period, the average retail investor has outperformed the index – which puts him in the top 10% of asset managers.

So, this exclusive group of people that used to be able to beat the market used to be called asset managers – because they had front row seats to the shares, they had disproportionate access to CEOs, they had access to information and systems and low trading costs and all those kinds of things. Those things are all gone. Those advantages are gone. The retail investor has got the same advantage, and I’d argue that he is more incentivised to look after his money better than an asset manager because it’s his money and he knows exactly what he wants to do with it – because he’s now informed.

So, don’t worry about these retail investors – they’re smart, they’re savvy, they’re resilient – and they behave exactly the opposite way to what the textbook taught us they would behave. 

On Greg Abel being Buffett’s successor at Berkshire Hathaway:

I think people are going to sit and watch it closely, especially his first big decisions, and then make their choices ones they’ve lived alongside him. I don’t think anyone’s going to sell it [BH shares] for now.

On holding Berkshire Hathaway in the light of the unpopularity of Buffett and Munger among retail investors:

I’ll hold it. It’s not a big portion of my portfolio. I’m a huge fan of Warren Buffett and [more] his investment philosophy. So long as Berkshire beats me at investing in the market, I’ll keep holding it. But if I start to perform it, then I might reduce my holdings. For me, it keeps me honest on my portfolio. It’s a good benchmark portfolio against which to track your own performance, and I’ll be watching it closely.

I think, in this instance, you couldn’t get bigger characters than Charlie and Warren. So, I think there is quite a lot of risk in that succession planning. But I’ll keep it for now and watch with interest very closely.

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