Charlie Munger: I think the Chinese stock market is cheaper than the American stock market

Myles Udland

Berkshire Hathaway vice chairman Charlie Munger thinks stock market investors might find better investment opportunities overseas right now.

Speaking at the Berkshire Hathaway annual meeting on Saturday, Munger said, “I do think the Chinese stock market is cheaper than the American stock market. And I do think China has a bright future.

“There will be growing pains of course,” Munger added.

Berkshire Hathaway CEO Warren Buffett quipped after Munger’s comments, “Charlie has created a headline.”

The S&P 500, the benchmark U.S. stock market index, currently trades at 25 times trailing earnings, according to data from Yale professor Robert Shiller. This is among the most expensive valuations in the market’s history. Stocks in China were trading closer to 8 times earnings as of the end of March.

Munger’s comments followed a question asked by a shareholder on whether he thought it was possible for someone investing in Chinese stocks to re-create the success Buffett, Munger, and the Berkshire team have enjoyed over the last several decades.

Munger did not address that specific part of the question. One imagines the answer is “No,” but simply on the basis of there being no reason to expect Berkshire’s performance to be replicable. Since 1965, Berkshire Hathaway’s compounded annual gain is 20.8% annually. Over that same period, the S&P 500 has gained 9.7% including dividends.

Berkshire Hathaway vice chairman Charlie Munger visits the shareholder shopping day in a golf cart as part of the Berkshire Hathaway annual meeting weekend in Omaha, Nebraska, May 5, 2017. REUTERS/Rick Wilking

Just before Buffett and Munger were asked about the Chinese stock market, Buffett opined at some length on the value of investing in a low-cost index fund rather than trying to find a hedge fund or other manager who charges more fees but beats the market over time.

In his comments, Buffett largely echoed what he wrote in his most recent letter to Berkshire shareholders.

“There are no doubt many hundreds of people — perhaps thousands — whom I have never met and whose abilities would equal those of the people I’ve identified,” Buffett wrote.

“The job [of investing], after all, is not impossible. The problem simply is that the great majority of managers who attempt to over-perform will fail. The probability is also very high that the person soliciting your funds will not be the exception who does well.”

At the outset of the meeting, Buffett said Vanguard founder Jack Bogle — considered the godfather of low-cost index fund investing — would save investors “hundreds of billions” in the future.

Follow our Yahoo Finance’s coverage of Berkshire Hathaway’s annual meeting at Finance.Yahoo.com/BRKLiveStream.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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