Charlie Munger on the secret fee structure that made him and Buffett MILLIONS! | DJ 2017【CCM Ep.269】

 

[Transcript]

AUDIENCE MEMBER: Do you believe that the 0/6/25 market — sorry the 0/6/25 high watermark fees structure that the Buffett Partnership popularized is the fairest structure for both limited partners and the manager themselves? And could you also touch upon what fee structure you employed during your partnership? Thank you.

 

CHARLIE MUNGER: Well, I did copy the Buffett formula more or less, and I do think it’s fair and I think it’s still fair. And I’m looking at Mohnish who still uses it.

 

I think it is fair and I wish it was more common. I basically don’t like it where they’re just scraping it off the top. If you’re advising other people, you ought to be pretty rich pretty soon. Why would I take a lot of advice from somebody who couldn’t himself get pretty rich pretty soon? And if you’re pretty rich why shouldn’t you put your money alongside your investors? And go up and down with them. And if there’s a bad stretch, why should you scrape money off the top when they’re going down enough?

 

So I like the Buffett system. And I think it's a — But it’s like so many things I like, it’s not spreading very much. My net influence in the world, even Warren’s, has been pretty small.

 

Imagine how much copying we have in our executive compensation methods. (Laughter) It’s about three examples.

 

Yes, so I think it’s a fine system.

 

(Source: https://youtu.be/BLctqhNClqY)

 

[YAPSS Takeaway]

Why 0/6/25?

"If you’re advising other people, you ought to be pretty rich pretty soon. Why would I take a lot of advice from somebody who couldn’t himself get pretty rich pretty soon?

 

And if you’re pretty rich why shouldn’t you put your money alongside your investors? And go up and down with them.

 

And if there’s a bad stretch, why should you scrape money off the top when they’re going down enough?" ~Charlie Munger