Munger has discussed multiple times over the years that competition has gotten so much smarter. For example, he said this recently:
"but the times when we had idiot competition when we were young—now we’ve got tough competition scrounging every area and little niche with massive—no, it’s way harder."
Part of me thinks, there are still idiots in large caps, that's why Apple was at $142 less than 6 months ago and now is over $210, basically a 50% move in the largest company in the world.
But, the other part of me wonders, where are the areas where the competition might be less smart, more idiotic, like when Munger and Buffett started out.
Any thoughts?
I really think that the vast majority of investors (including Charlie Munger) are too focused on gaining an informational advantage. This makes sense because if you've spent a formidable portion of your career utilizing and capitalizing on an info edge, and that edge has gone away, then it's understandable to lament the disappearance of this edge. But this misses a glaring edge that can still be exploited by mere mortals (i.e. those of us who are far less talented investors than the All-time First Team NBA types such as Munger and Buffett). And that glaring edge is what Roark mentions... the fact that the largest publicly traded company in the world can go up and down by $200 billion or more in market value in a matter of weeks. Basically, this edge is just capitalizing on the fact that stocks fluctuate more than values do. No, there is nothing I know more than the market does about Apple. Yet the stock traded for $90 a share not that long ago and has compounded at close to 30% annually for three years. How is that possible? Either the business value appreciated that much (which it did not), or the market wrongly discounted recent trends (possible), or simply that the market overreacted to near term noise. I think it's a combination of 2 and 3.
This happens all the time in the stock market, and it happens now more than it did in the 50's and 60's when Buffett and Munger dominated. This is because the reasons for why the info edge is gone (access to information, the speed of news, noise, etc...) is actually the reason why stocks fluctuate probably even more than they once did. Humans overreact.
I think this game is now one of capitalizing on time arbitrage and assuming that you don't have any info edge. Because even with small caps where you think you have an edge, it's very likely that you don't. I think large caps and small caps can get mispriced obviously, and small caps get more mispriced than large caps, but it's far, far more likely to be because of sentiment and emotional swings than because of information that can be obtained.
I think it's useful to keep this in mind when looking at ideas, because if you assume that the market already knows everything you're uncovering as you evaluate an idea, you'll look at it differently, and maybe (hopefully) avoid a few mistakes.