Warren Buffett Says That 99% Of Investors Should Not Even Try To Beat The Market

May 09, 2017 1:13 AM ET6 Comments

Is he right about that? Or is he overstating the case?

In a recent Yahoo!Finance interview, Warren Buffett said that 99% of investors should not even attempt to beat the market. He said they would be much better off investing in a low-cost S&P 500 index fund. Is this good advice? My view is that his message is right, but he overstates his case.

Here are a couple of Buffett pearls of wisdom from the interview:

Basically any attempts to pick the times to buy or sell, I think, are a mistake for 99% of the population. And I think that even attempts to pick individual securities is a mistake for people.”

They don’t need to do anything but (invest in a low-cost S&P 500 index fund). Then they’ll get a decent result over time. To some extent, the smarter you try to be, the worse you do in investments. Now, there’s a few professional investors that will do better than the S&P over time. But the average individual isn’t going to be able to find them. And they don’t need them. That’s the beauty of it.”

Buffett’s real message to investors

What Mr. Buffett is really saying to investors is important: beating the market is very hard to do with any consistency. But it’s far from impossible. In his view, only 1% of investors have what it takes to pull it off. He bases this on the fact that most investors lack the time, commitment, knowledge, and discipline to succeed at active investing.

And he’s right about that. Even those investors who diligently study the market and do hours of research before making any decisions, are prone to some hard-wired human biases that are extremely difficult to overcome.

Some examples of these hard-wired biases are…
• Confirmation bias

This article was written by

Erik Conley profile picture
A trading strategy uniquely combining fundamental and technical analysis.

Trader, analyst & portfolio manager, from 1975 - 2001. Former head of equity trading at Northern Trust Co. in Chicago. Now a private investor, founder of a nonprofit investor advocacy firm, and private investing coach.

It gives me great satisfaction to teach retail investors the same skills and strategies that I used with my high net worth clients as a private wealth manager. It may be a cliche, but giving something back to the community is more rewarding to me than helping very rich people get even richer.

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