We all admire Warren Buffett when it comes to equity investing and wealth creation. What are his views on Index Investing? What did he tell during Berkshire Hathaway Annual Meeting 2020 – Warren Buffett on Index Fund?
Berkshire Hathaway Annual Meeting 2020 – Warren Buffett on Index Fund
Warren Buffett and Berkshire Hathaway held their 2020 annual shareholders meeting on 2nd May 2020. During this meeting, he again supported the Index Fund. I am sharing the annual meeting transcript with respect to Index Funds.
“If you bought into a business, it’s going to deliver what the business produces. And the idea that you’re going to outsmart the person next to you, or the person advising you can outsmart the person sitting next to you is, well, it’s really the wrong approach.”
So find businesses. Get a cross section. And in my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it for them if they do. And I’m not saying that that’s a conscious act on their part.
Most good salespeople believe their own baloney. I mean, that’s part of being a good salesperson. And I’m sure I’ve done plenty of that in my life too, but it’s very human if you keep repeating something often enough. That’s why lawyers have the witnesses keep saying things over and over again, that by the time they get on the witness stand, they’ll believe it whether it was true in the first place or not.
Next he defend Index Funds and its important of diversification.
We started a company called diversified retailing, which merged into Berkshire, became part of Berkshire and started with a department store in Baltimore. And department stores looked good in 1966 but the world has gone against them. And we had a trading stamp business at one time, and we stayed longer than anybody else but the world left trading stamps behind. And that’s going to happen with some businesses. That’s capitalism. And it will happen to some Berkshire businesses over the next 10 years and the next 50 years. We think we’ll find more of them that will grow. And net, that Berkshire will grow. But we do not think if you own a great many businesses that every one is destined for success. That’s why I suggest to people they buy an index fund. I do not, with the exception of Berkshire, I would not want to put all my money in any one company, although there’s a few, I wouldn’t mind being very close to that. But, you get surprises in this world and there will be businesses that we think are very good that turn out not to be so good, and there will be other businesses that turn out better than we think and it’s up to the world to judge our batting average, over time.
Now many are questioning or doubting the Index Funds and their importance in today’s market. Many think that Index Funds lost their shine. To this, his reply was as below.
Question from Becky Quick-Warren, a moment ago you mentioned that you still are recommending that people invest in an S&P500 index fund. Let me ask this question that came in from Kevin. He says “The last few weeks we’ve been hearing from active money managers that the day of passive investing is over. The historical safety of investing in an index fund longterm is gone. Would you please provide your thoughts on this topic, particularly in regards to an investment time span of 10 years?”
Warren Buffet’s reply to shis question is as below:-
Well, I can tell you I haven’t changed my will and it directs that my widow would have 90% of the funds in index funds and I think it’s better advice than people are generally getting from people that are getting paid a lot to give other advice. You don’t make a lot of money advising an S&P 500 index fund. And how you can say “The D day of index funds is over.” I mean, if you say “The day of investing in America is over.” I would disagree quite violently. And then is there’s something special about index funds being a terrible way to invest, I just don’t think… it’s very hard to have evidence of that. I mean, if the index funds reflect the market and one side has high fees that think they can pick out stocks and the other side has low fees, I know which side is going to win over time.
You can read the complete Warren Buffett Berkshire Hathaway Annual Meeting Transcript 2020 HERE.
Conclusion:-By sharing Berkshire Hathaway Annual Meeting 2020 – Warren Buffett on Index Fund, I am not saying that you have to adopt Index Funds BLINDLY. However, my idea of sharing this information is that active funds may be BEST for a few days or years. But beating the benchmark CONSISTENTLY throughout MY INVESTMENT JOURNEY (MY=INVESTORS) is impossible for any fund manager. Even if they beat also, it should be more than 1%. Otherwise, there is no value to pay a higher fee to the active fund manager. Think and decide. Refer my choice of Index Funds at “Top 10 Best SIP Mutual Funds to invest in India in 2020“.
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