Warren Buffett In Harmony with Evidence Based Investing

February 10th 2016, Robert Wilcocks

You Can Ignore Whatever I Say...

Maybe not everything, but when it comes to investing who I am to argue with a Godfather? Read how Warren Buffett, arguably the most successful 'active' investor in history, instructed his executors to invest when he's gone here.

Although Buffett is probably the renowned and indeed successful active investor in history, he simply wants his estate to be managed in a simple index fund, mixed with 10% in government bonds for cash flow. Complex derivatives and options? Nope. Employing active managers to buy the market? Nope. Cost effective and sensible? Yes.

We can't all invest like Warren Buffett. See this book here.

The point is - keep things simple. A good financial planner who uses science/evidence/sense will be worth their weight in gold. If you are confident you can handle the emotions of investing; or say to all the shiny stuff that comes along, you could argue you could invest for yourself. But you need to be able to avoid making big mistakes - we are human after all, and we all make decisions (like it or not) based on emotion. We rationalise afterwards.

This is kind of, all you need to read really in the active vs passive debate. When the best active investor in history doesn't trust his active peers. Why? Costs. Hidden and explicit. Does it matter? Not really.


Now - there are very good active managers out there. I know some of them. I like them. They are very clever and articulate. I just don't believe I can bet on them to beat all the other active managers over time. It's too difficult. I would rather buy all of their collective expertise - which is what evidence based investing is all about - and de-risk our portfolios as a result through diversification.

But why can't we all invest like Mr Buffett ?

Because he's Warren Buffett.
He buys whole companies and restructure them, has access to all the 'inside' information in the world - the best traders and entrepreneurs come to HIM with the best deals and ideas. He simply picks the best. He vets companies in minute detail. Its not insider dealing, but he has people coming to him saying 'please Mr Buffet, invest in our company, and he is first to market so to speak, in the know, and completely engaged in the process. - aaanddd... you could argue that he is one of the shrewdest businessmen that ever lived.

Buffett is one of the 0.1% who are just really, really good at buying companies. Even he makes mistakes - don't quote me on the exact amount but he lost something like £500mil on Tesco not too long ago.

For the rest of us folk, this is simply impossible.

In summary:

Warren buffett, arguably the world's best active investor ever, says: buy and hold low-cost diversified index funds as they will beat most of the active managers over time.

For anyone who is interested enough and wants to read further, just do a Google search of other experts in this space - John Bogle, Eugene Fama, passive vs active. Best of luck reading this!

Instead, why not speak to us over a coffee to learn more about Evidence Based Investing - and, more importantly, how financial planning can add value for your life.

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