If you’re widely considered the greatest investor to ever live and you’re getting interviewed by CNBC about what the “average investor” should be doing with his money, how do you respond. Watch “Mad Money with Jim Cramer” every night… haha, not likely. What you would think the answer is likely that you should buy shares in Berkshire Hathaway. Well, it wasn’t (and even if it was, coming up with that $103,800 for one class A share can be tough for some of us poor folk). Even the best “stock picker” to ever live, The Oracle of Omaha, responded to that question saying that he should buy and hold low cost INDEX FUNDS for long periods of time. Thanks yet again to my favorite investing podcast, I invite you to click the play button and listen to the answer for yourself.
And speaking of “Mad Money” and “The Answer”, once again I must give mad props to the “Mad Money Machine” for yet another awesome podcast. Index funds are a bloody boring subject, so much less sexy than stock day trading and big money fund managers. Yet for 56 episodes, Paul manages to make the topic entertaining. Check him out at the http://www.madmoneymachine.com.
“Buy them and hold them for decades and you’ll do fine” says the Oracle. I like another quote that came later in this episode of the podcast when the point was made that “Market returns are superior returns.” We seek out big money brokers and managers, crazy guys on TV shows screaming BOOOOYYAHH!, etc., etc. all in hopes of earning better returns than the market (since earning market returns is so bloody easy). Yet somehow, on average we manage to earn between 1/2 and 1/3 the return of the market after expenses. There is no theory to any of the big return theories. And so… I must agree… that clearly the data shows that market returns are superior returns. Now get that money out of crap and into low cost index funds, then hold them for decades!
