Larry Swedroe, considered one of the market’s most respected researchers, believes Warren Buffett’s investing style is no longer effective.
He cited the number of professional Wall Street firms and hedge funds currently participating in the market.
“Warren Buffett is often considered the greatest stock picker of all time. And, we know in academic research that Warren Buffett is actually not a great stock picker at all,” Swedro told CNBC’s “ETF Edge” this week “. “What’s Warren Buffett’s ‘secret sauce’ is that he figured out 50, 60 years before all the academics what factors can get you outsized returns.”
Swedro said index funds can help investors imitate Buffett’s performance.
“[Investor]Cliff Asness and the AQR team have done some excellent research and shown how the leverage Buffett applies through his reinsurers is calculated. If you buy a stock index with these same characteristics, you will be on par with Buffett’s The returns match that actually,” Swedro said. “Now, every investor can own the same types of stocks through ETFs or mutual funds that Buffett purchased through companies applying this academic research, such as Dimensional, AQR, Bridgeway, BlackRock, Alpha Architect and others.”
Swedroe is the author and co-author of nearly 20 books, including “Enrich Your Future – 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 active management (stock picking and market timing) consistently outperforms The Market Is So Hard,” ) and how human nature leads us to make investing mistakes (and how to avoid them). “
Swedroe added in his “ETF Edge” interview that investors can also benefit from momentum trading. He believes that market timing and stock picking generally do not affect long-term success.
“Momentum is really a factor that plays out over the long term, although it does go through some very long periods, just like everything else does,” said Swedro, head of economics and financial research at Buckingham Wealth Partners. It’s the same as underperforming. But momentum does work.” “It’s purely systemic. Computers can run it, you don’t have to pay a fortune, and you can access it with cheap power.”
In his latest book, Swedro compares the stock market to sports betting and active fund managers to bookmakers. He suggested that the more investors who are “in” or invested, the more likely they are to underperform.
“Wall Street wants you to trade a lot so they can make a lot of money on the bid-ask spread. Active managers make more money by making you believe they can beat the market,” Swedro said. “Mathematically, it’s almost impossible to happen because their expenses are higher, including higher taxes. They just need you to be involved, so, you know, that’s why they tell you active management is the winner. game.”
“Stupid retail currency”
He believes active management has become more effective at attracting emotional investors – what he calls “silly retail money.”
“(Emotional investors) underperform and the funds they invest in underperform because they pick stocks wrong and time the market wrong,” Swedro said.
