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 at a time of global fundamental changes:
- Geopolitical power is shifting East.
- Climate change.
- Energy transitioning from fossil fuels to renewables challenges the dollar’s supremacy.
- Consumer spending, and therefore GDP growth, is limited by the K-economy.
- The US may finally deal with its fiscal problems and raise taxes, particularly by imposing a wealth tax plus a VAT-type consumption tax.
well, if you really want stocks to fall, you can try this:
ReplyDeletehttps://www.youtube.com/watch?v=E09NTEidzig
In the US 90% of all equities are owned by the top 10% of households. A wealth tax is absolutely necessary to bring back fiscal balance. And it should not be limited to households only: it should apply to all, including trusts, non-profits, etc. Onshore and offshore. Obviously, it should apply to holdings over a limit.
DeleteSounds extreme, but the US needs tax income to balance its books.
H.
"The problem with socialism is you eventually run out of other people's money" (M. Thatcher).
DeleteFederal spending in the United States was recorded at approximately 23% of GDP in 2025 (it was less than 3% in 1913). I guess DOGE was another failed promise.
I am no fan of socialism, but a huge fan of fiscal realism. Right now the US is running headlong into a debt trap spiral which, it left unchecked, will result in collapse. See Ray Dalio’s warnings.
DeleteSpending is almost 80% non-discretionary, consisting of Social Security/Medicare/Medicaid plus defense. Cutting the former is politically impossible. I am all for reducing defense spending, but this presumes that the US wishes to recede from global pre-eminence.
If neither is possible, the only thing left is increasing taxes and some kind of balanced budget agreement.
Given the incredible wealth disparity and the evaporation of the middle class, some sort of wealth tax makes sense.
H.