By Jonathan Stempel
(Reuters) - Charlie Munger, the longtime business partner of Warren Buffett at Berkshire Hathaway (NYSE:BRKa) Inc, on Thursday criticized active fund managers, bankers and even Elon Musk as he urged investors to court simplicity and temper expectations for future returns.
Munger, 95, often provoked laughter as he fielded questions at the annual meeting of Daily Journal Corp, the Los Angeles newspaper publishing company he chairs, though he is better known for his four decades as a Berkshire vice chairman.
Berkshire now owns more than 90 businesses in the insurance, energy, railroad and other sectors, along with dozens of stocks. Many critics have said its girth has made it tougher for the Omaha, Nebraska-based company and its stock to outperform.
Munger said that is also true in the stock market, where the average professional stock picker does not outperform lower-cost funds that track indexes such as the Standard & Poor's 500.
"For another considerable period, index investing is going to do better than active stock picking," Munger said at the meeting, which was webcast by CNBC.
Berkshire has performed better than average because "we've tried to do less," Munger said, though he expects even its stocks holdings will not return a blowout performance.
"Warren thinks that Berkshire can do a little better than the S&P from this point. I don't think many people can, but he may be right about himself and the team he has," Munger said, alluding to portfolio managers Todd Combs and Ted Weschler. "It won't be by huge margins, that I confidently predict."
Munger offered repeated endorsements of investing in China, saying the country offers more opportunities than the United States, including BYD Co, a Berkshire investment he said will become "much more huge" in electric cars.
He also endorsed hedge fund manager Li Lu, the founder of Himalaya Capital Investors. Munger said he is the only outside manager he has given money to, calling him "the Chinese Warren Buffett" and that "he's hit it out of the park."
In criticizing banks, Munger said they still "present temptations to their managers to do dumb things," and that stupidity can still creep into the industry.
Munger did not single out individual banks for criticism. One of Berkshire's largest investments is Wells Fargo (NYSE:WFC) & Co, which has faced many scandals over its treatment of customers.
Musk, the chief executive of electric car company Tesla (NASDAQ:TSLA) Inc, became a target when Munger was asked about his own oft-stated preference to hire someone with a 130 IQ who thinks it is 120, instead of someone with a 150 IQ who thinks it is 170.
"You must be thinking about Elon Musk," Munger said, prompting raucous laughter.
Tesla declined to comment.
Munger also made many direct and oblique references to age, including when answering a question about investment performance in current markets.
Investors "have to accept less," he said, "just as an old man has to expect less of his sex life than when he was 20."