From the recently published pages of Warren Buffett’s letter to Katherine Graham, whose family is in the news recently for selling the Washington Post to Jeff Bezos, some 38 years ago:

I am virtually certain that above-average performance cannot be maintained with large sums of managed money. It is nice to think that $20 billion managed under one roof will produce financial resources which can hire some of the world’s most effective investment talent.

Why the lack of optimism regarding such huge sums of money? Buffett offers this logic:

Down the street there is another $20 billion getting the same input. Each such organization has its own group of bridge experts cooperating on identical hands and they all have read the same book and consulted the same computers. Furthermore, you just don’t move $20 billion or any significant fraction around easily or inexpensively—particularly not when all eyes tend to be focused on the same current investment problems and opportunities. An increase in funds managed dramatically reduces the number of investment opportunities, since only companies of very large size can be of any real use in filling portfolios. More money means fewer choices—and the restriction of those choices to exactly the same bill of fare offered to others with ravenous financial appetites.

Buffett was advising Katherine Graham on the Washington Post’s pension fund and this letter was what saved it. Of course, the same case could be made for sovereign wealth funds of which, ahem, we have two.

PS: Actually, the headline is a little misleading. GIC’s 20 year real annual return is only 4% which seems to give truth to Buffet’s theory.

Source QuartzWarren Buffett, age 44, explains the futility of playing the market. (h/t: The Big Picture)