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Managed Futures

In the 2007 Meeting, Warren Buffett and Charlie Munger addressed the rise of Managed Futures funds, providing a skeptical assessment of their long-term value for investors.

📖 The "Lousy to Negative" Verdict

When asked about managed futures funds (which use quantitative and trend-following signals to trade across stocks, bonds, and commodities), Munger’s response was characteristically blunt:

"I’d say averaged out, I would expect that the return per dollar per year in managed futures funds would be somewhere between lousy and negative." — Charlie Munger, 2007 Meeting

🧠 Strategic Objections

1. The Disadvantage of Narrow Mandates

Buffett argued that funds committed to a limited segment of the market (like only futures or only bonds) are at a disadvantage compared to holding companies like Berkshire, which can "do anything that makes sense."

  • Shrinking the Universe: Buffett believes it is a mistake to circumscribe actions. "We buy futures at Berkshire... but we also buy currencies and businesses."

2. "Sales Tools" vs. "Investment Tools"

Buffett characterized many special-purpose funds as "sales tools" rather than investment vehicles.

  • Competition for Opportunities: When a certain asset class becomes a popular "thing to sell," massive amounts of money flow in, increasing competition for a limited number of opportunities and predictably lowering returns.
  • Brains vs. Areas: Buffett concluded that "Areas don’t make opportunities; brains make opportunities."

🏛️ Context at Berkshire

While critical of managed futures funds, Berkshire itself uses futures. Buffett and Munger differentiate between the instrument (which can be a useful tool for a wide-ranging allocator) and the fund structure (which often charges high fees for a rigid strategy).

🔗 Connections