Warren Buffett: Low Cost Funds win out
Many people have argued about whether it is right to pay large fees for supposed outperformance. I think buffett sums it up best in simple logic:
Everyone expects to be above average. And those helpers – bless their hearts – will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group – the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the "know-nothings" – must win.
So do we quit active investing? I think not. Low Cost in funds are important, but being in the right asset class in the future is also another important determining factor.
Related posts:
- The conviction of Warren Buffett in USG,Kraft and Wells Fargo
- The ETF Book: All You Need to Know About Exchange-Traded Funds
- Warren Buffett interviews by CNNMoney
- Warren Buffett Finances Mars-Wrigley Deal
- Warren Buffett buys more Wells Fargo
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