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And Now, Some Wacky Surf-Jazz From Snarky Puppy Spinoff Forq: "Cowabunghole"

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goddamnedfrank7/24/2017 1:47:07 am PDT

Somewhat relevant to the Nic Cage story:

I’m not going to say that what Buffett has achieved in more than a half century of investing is attainable by ordinary mortals. Last year his company’s stock price rose 23%, which is about double the return of the S&P 500 stock index. That’s incredibly tough to do in any year. Most of us never come close to that in any year.

But once you read down past the superior results of all the companies Berkshire owns stakes in — from Apple to Geico — you’ll find advice for the rest of us. In this year’s report, one had to venture to page 21 to find something really juicy: For most people, active fund investment management is a losing bet.

First, a little background on why Buffett reached this conclusion. Back in 2005, he made a bet with an investment manager that:

“Active investment management by professionals - in aggregate - would over a period of years underperform the returns achieved by rank amateurs who simply sat still. I explained that the massive fees levied by a variety of “helpers” would leave their clients - again in aggregate - worse off than if the amateurs simply invested in an unmanaged low-cost index fund.”

So far, Buffett is winning the bet by a large margin. At the time, Buffett used hedge funds as a model for active management. These “funds of funds” are vehicles for mostly high net-worth investors and charge an outrageous 2% annual management fee plus take 20% of the profits. There are only a handful of managers who justify that kind of compensation.

According to The New York Times, Buffett has been dead-on since 2005: “A standard S&P index fund overseen by Vanguard is up 85 percent, easily outpacing the hedge funds’ return of 22 percent. Annually, the gap is just as wide: 7 percent for the index fund and 2.2 percent for the hedge funds.

Basically the big takeaway is shun financial advisors like the plague. If you need someone to manage the day to day of a real business operation that’s one thing, but even the average amateur new to the market can do better by simply investing in an unmanaged fund that tracks the S&P than the vast majority of actively managed funds will ever return. And yes you can do a lot better if you do some research and invest in individual stocks, but the risk is also a lot greater. If all you’re looking for is a hands off approach with a solid track record, follow Buffet’s advice.