Warren Buffet is unquestionably the greatest value investor of all time. Yet, he may have unwittingly recommended the worst investment strategy to individual investors: buy and hold index funds.
It was done with the best intentions, of course, since most active money managers routinely underperform broad indexes and charge high fees.
His advice, among others, led to a massive influx in index funds which now amount to $14 trillion in US equities alone (ETFs plus index mutual funds). That’s 25% of the market capitalization of S&P 500.
Combine this with algo trading and we now live in a world of “passive investing” - an obvious oxymoron and the very antithesis of Mr. Buffett’s own strategy.
Index investors trust that markets will always perform as usual. They are akin to warriors who use “fire and forget” weapons, sure that their missiles will find the target no matter what. That’s a grave mistake.
No comments:
Post a Comment