Warren Buffett and his famous business partner, Charlie Munger, have often cautioned against short-term stock investments. Buffett’s favorite holding period for a stock is “forever,” he has said.
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In a YouTube interview with Berkshire Hathaway Investment Officer Todd Combs, Munger compared short-term investments, day trading and meme stocks to addictions like heroin and gambling.
Combs agreed, noting that gambling on stocks without market knowledge and a long-term view is “like taking heroin.”
Munger said, “What earthly good is it for our country to make the casino part of capitalism more and more efficient, and more and more attractive and more and more seductive? It’s an insane public policy.”
He mentioned problems inherent in letting day traders share the market with long-term investors seeking solid returns rather than fast money. He recalled his early years in Harvard Law School, when you would rarely see 1 million shares traded in a single day. Today’s stock market sees billions of trades per day, regularly.
Munger has also called Bitcoin “stupid and evil,” according to an article in Yahoo! Finance.
While Munger sees no solution to the perceived problem of people trying to get rich quick from day trading, he advises that the “patient investor” will do better than gamblers in the long term.
However, the GameStop stock frenzy of early 2021 yielded plenty of millionaires when GameStop stock rose and smart retail investors sold at the right time. Some of those investors did, indeed, compare it to a natural high.
Arzel Rodriguez, a 23-year-old software engineer, had invested $28,000 in GameStop. When he woke up on the morning of Jan. 27, 2021, and sold those shares just in time, he became a millionaire with $3.8 million in his account before taxes. “I’ll probably never feel like that again,” he told Forbes, exclaiming, “the high!”
It’s entirely possible that Munger’s analogy is appropriate. Chris Cordaro, an investment officer in New Jersey, agrees that you have to be “damn lucky” to achieve those kinds of gains and recommends that people avoid speculative investing, especially in companies that seem to be struggling.
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Instead, speak to a financial advisor to build a well-balanced portfolio of stocks, ETFs and mutual funds representing companies you believe in with strong fundamentals.
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