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People interested in this topic should really read "Trillions" by Wigglesworth. Maybe the most consequential book I read in 2022, as someone who read about a bo

People interested in this topic should really read "Trillions" by Wigglesworth. Maybe the most consequential book I read in 2022, as someone who read about a book a month, mostly nonfiction. The book, first of all, does a good job of laying out the complete case for why index funds beat human managers, starting out by telling the story of an investor who made that very bet (literally), who ironically most people would put on the other side of that: Warren Buffett. Buffett bet a fund manager that an index fund would beat the best of any funds his opponent would select. A decade or so later, Buffett was proved right and declared the winner. https://www.advisorperspectives.com/articles/2017/11/13/ted-seides-why-i-lost-my-bet-with-buffett#:~:text=%E2%80%9CIf%20you%20told%20me%20the,hedge%20fund%20world%20has%20changed https://www.advisorperspectives.com/articles/2017/11/13/ted-.... If even Warren Buffett is betting on index funds as beating active investors, why are most people so reluctant to? But besides that... why are index funds - which you can also think of as 'fully automated/computerized investing' - so effective? There's a few reasons, but a really simple explanation is: over time, a bunch of fund managers are just going to recapitulate the market, and the advantage computers have is, they can duplicate that functionality but their fees are zero (or 0.001% per year, whatever is the tiny amount it costs to run the servers). Human fees are not zero. Therefore, the computers win. Another one is just that the whole market, diversified, ends up being the best hedge against... everything. Is Elon Musk a genius one day, and now getting pilloried as an idiot as the head of Twitter? If he's a big part of your portfolio, and you bought in a year ago, that really hurts. When you hold the whole market following impersonal computer rules, you are insulated from this. And it turns out, when you look at the full impartial record of active investor picks, it's pretty poor really. A final thought that book suggested to me: if you have over 10 million dollars, you probably can't beat what the market can do. Wave the white flag and throw it all in an index fund. The computers have won, and just as we acknowledge that with chess and Go (art's probably next), index funds are an extension of same.

user_named 4y ago
Buffett has never bought an index fund. His strategy is the exact opposite of indexing.
- kqr2 4y ago
  The OP was referring to Buffet's bet not investment : https://www.advisorperspectives.com/articles/2017/11/13/ted-seides-why-i-lost-my-bet-with-buffett#:~:text=%E2%80%9CIf%20you%20told%20me%20the,hedge%20fund%20world%20has%20changed https://www.advisorperspectives.com/articles/2017/11/13/ted-...
- deleted 4y ago
  [deleted]
neilv 4y ago
> if you have over 10 million dollars, [...] throw it all in an index fund. Close to what I'd do. I'd first consult an expert about asset protection, then get a modest house and a different-city apartment, and then put everything remaining in three index funds (ITOT, IXUS, and a little AGG, or equivalents).
maria2 4y ago
Warren Buffet is not betting on index funds. If he was, Berkshire Hathaway would not exist. Buffet uses index funds to manage some of Berkshire’s money, and he famously bet a meager sum (for him) that actively managed funds wouldn’t beat the S&P, but if you look at what Berkshire does, then you would see they are still very much into active management. The success of Berkshire should really prove to everyone that it’s possible to beat the market. Will most beat the market? No. But it’s obviously possible if you have the talent.
- chii 4y ago
  > should really prove to everyone that it’s possible to beat the market none of the bogglehead investment advice claim that it's not possible to beat the market - the claim is that it's hard, and if you're average person (and face it, most people are average people), the best advice is to do what is more likely to succeed, rather than the small chance thing that might succeed beyond your wildest dreams. Therefore, the best advice for the average person is to buy index funds, rather than follow the path of Buffet.
- lotsofpulp 4y ago
  > The success of Berkshire should really prove to everyone that it’s possible to beat the market. Since 2008, BRK is just keeping up with SP500, and even that seems to be due to outsized bets on Apple, which offset earlier mistakes of not investing in Apple, Microsoft, Alphabet, Amazon…and instead going with IBM/Heinz. That is a lot of risk for no gain over 15 years. Obviously, Buffett is playing with money he can afford to lose, but he is smart enough to advise others who cannot afford to lose to invest differently.
  - maria2 4y ago
    Are you sure? Just some back of the napkin math: S&P 500 is 5.17 times higher since the bottom of 08. BRKB is 6 times higher. And performance this year is even more dramatic. S&P is down 20%. BRKB is up 3%. In 08, too, the decline in Berkshire was much less than the S&P. Clearly Berkshire has been a better bet at most points in time.

user_named 4y ago

Buffett has never bought an index fund. His strategy is the exact opposite of indexing.

kqr2 4y ago
The OP was referring to Buffet's bet not investment : https://www.advisorperspectives.com/articles/2017/11/13/ted-seides-why-i-lost-my-bet-with-buffett#:~:text=%E2%80%9CIf%20you%20told%20me%20the,hedge%20fund%20world%20has%20changed https://www.advisorperspectives.com/articles/2017/11/13/ted-...
deleted 4y ago
[deleted]

neilv 4y ago

> if you have over 10 million dollars, [...] throw it all in an index fund. Close to what I'd do. I'd first consult an expert about asset protection, then get a modest house and a different-city apartment, and then put everything remaining in three index funds (ITOT, IXUS, and a little AGG, or equivalents).

maria2 4y ago

Warren Buffet is not betting on index funds. If he was, Berkshire Hathaway would not exist. Buffet uses index funds to manage some of Berkshire’s money, and he famously bet a meager sum (for him) that actively managed funds wouldn’t beat the S&P, but if you look at what Berkshire does, then you would see they are still very much into active management. The success of Berkshire should really prove to everyone that it’s possible to beat the market. Will most beat the market? No. But it’s obviously possible if you have the talent.

chii 4y ago
> should really prove to everyone that it’s possible to beat the market none of the bogglehead investment advice claim that it's not possible to beat the market - the claim is that it's hard, and if you're average person (and face it, most people are average people), the best advice is to do what is more likely to succeed, rather than the small chance thing that might succeed beyond your wildest dreams. Therefore, the best advice for the average person is to buy index funds, rather than follow the path of Buffet.
lotsofpulp 4y ago
> The success of Berkshire should really prove to everyone that it’s possible to beat the market. Since 2008, BRK is just keeping up with SP500, and even that seems to be due to outsized bets on Apple, which offset earlier mistakes of not investing in Apple, Microsoft, Alphabet, Amazon…and instead going with IBM/Heinz. That is a lot of risk for no gain over 15 years. Obviously, Buffett is playing with money he can afford to lose, but he is smart enough to advise others who cannot afford to lose to invest differently.
- maria2 4y ago
  Are you sure? Just some back of the napkin math: S&P 500 is 5.17 times higher since the bottom of 08. BRKB is 6 times higher. And performance this year is even more dramatic. S&P is down 20%. BRKB is up 3%. In 08, too, the decline in Berkshire was much less than the S&P. Clearly Berkshire has been a better bet at most points in time.