Larry Swedroe, considered one of the most respected market researchers, believes that Warren Buffett’s investing style is no longer working well.
He points to the number of professional Wall Street firms and hedge funds that now participate in the market.
“Warren Buffett was widely considered the greatest stock picker of all time. And what we’ve learned in academic research is that Warren Buffett really wasn’t a great stock picker at all,” Swedroe told CNBC’s “ETF Edge” this week. “What Warren Buffett’s ‘secret sauce’ was, he figured out what the factors were that enabled you to achieve excess returns 50, 60 years before any academic.
Swedroe noted that index funds can help investors emulate Buffett’s performance.
“[Investor] Cliff Asness and the team at AQR have done great research showing Buffett’s leverage, which he applied through his reinsurance company. “If you had bought a stock index with the same characteristics, you would have achieved close to Buffett’s returns,” Swedroe said. “Today, any investor can own the same types of stocks through ETFs or mutual funds that Buffett bought through companies that exhibit these characteristics.” Apply this academic research – companies like Dimensional, AQR, Bridgeway, BlackRock, Alpha Architect and a few other.
Swedroe is the author and co-author of nearly 20 books – including “Enrich Your Future – The Keys to Successful Investing,” published in February.
In an email to CNBC, he called it “a collection of stories and analogies…that help investors understand how markets really work, how prices are set, and why it’s so difficult to consistently outperform through active management.” achieve.” [stock picking and market timing,] and how human nature causes us to make investing mistakes [and how to avoid them].”
During his “ETF Edge” interview, Swedroe added that investors can also benefit from momentum trading. He claims that market timing and stock selection often have no bearing on long-term success.
“Momentum is certainly a factor that has worked over the long term, although there are some long periods where everything else underperforms. But momentum works,” said Swedroe, who is also head of economic and financial research at Buckingham Wealth Partners. “It’s purely systematic. Computers can run it, you don’t have to pay high fees, and you can access it with cheap momentum.”
In his latest book, Swedroe compares the stock market to sports betting and active managers to bookmakers. He suggests that the more investors “gamble” – or invest – the more likely they are to underperform.
“Wall Street needs you to trade a lot so they can make a lot of money on bid-ask spreads. Active managers make more money by making you believe they are likely to outperform,” Swedroe said. “This is mathematically virtually impossible because they simply have higher expenses, including higher taxes. They just need you to play, and that’s why they tell you that active management is a winning game.”
“Stupid retail money”
He posits that active management will become more efficient at attracting emotional investors – what he calls “dumb retail money.”
“[Emotional investors] do this badly [that] “They underperform the funds they invest in because they make poor stock selection and market timing,” Swedroe said.
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2024-04-13 15:00:01
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