Mr Buffett remains highly critical of the traditional investment system that mainly results in an enormous wealth transfer away from savers to the industry. This system promotes hundreds of different (often complex) investment products, managed by (mostly) underperforming fund managers, and hedge funds with high fees that are endorsed (under the guise of independent advice) by investment consultants. The net result is that most investors UNKNOWINGLY underperform the index, pay high fees and retire poor, while the industry prospers.
Mr Buffett explains this far better. Here are quotes from two articles, the first from Bloomberg:
After telling shareholders that he would offer “probably the most important investment lesson in the world,” he said Wall Street salesmanship has masked poor returns for years.
Consultants, he added, have steered pension funds and others to high-fee managers who, as a group, underperform what you could get “sitting on your rear end” in index funds. The arrangements “eat up capital like crazy,” he said.
Buffett was building on an argument he’s been making for years about why backing U.S. businesses in aggregate, through low-cost funds, is the more certain way to prosper over the long haul. To make his point, he made a bet that a Vanguard Group Inc. fund that tracks the S&P 500 Index could beat a basket of hedge funds from 2008 through 2017. Proceeds will go to charity.
On Saturday, he gave an update: The bundle of hedge funds picked by Protege Partners had returned 21.9 percent in the eight years through 2015. The S&P 500 index fund had soared 65.7 percent.
From Business Day:
- Buffett told shareholders that some of the keys to successful investing are avoiding envy and costly fees: “You don’t want to get envious of somebody who bought an IPO (initial public offer) or won a lottery,” Mr Buffett said. “You have to do what makes sense to you.”
- Buffett’s single-biggest piece of investment advice: “Don’t pay for investment advice, buy a low-cost S&P 500 index fund instead. The basic idea is that while there are some people who might be good investors, there’s no way to identify them. So don’t even bother.”
At 10X we are proud to say that our investment model is fully aligned with Mr Buffett’s views.
However, as Mr Buffett points out, most investors are seduced by slick sales pitches and marketing promises that are seldom delivered. Hopefully more people will heed Mr Buffett’s advice and create their own wealth by investing in low cost index funds for long time periods, therefore avoiding the traditional system’s salesmanship and empty marketing promises.
We’d love to help you to do so – please contact us to see how we can do this.
