Five Cent Nickel (after inflation, it’s only worth a penny) uses these wise words of Warren Buffett’s teacher/mentor – and the ‘father’ of Value Investing (the art of buying a stock for less than its ‘real’ or ‘intrinsic’ value) to teach us about the value of index funds:
The recommendation to track an index rather than pick stocks may sound somewhat surprising coming from the man who wrote one of the most well-respected books ever written about picking stocks. However, as more and more investors are learning every year, index funds make a lot of sense compared to the alternatives.
5c’s heart is in the right place, but it’s not what Benjamin Graham was suggesting at all; he simply suggested that analysts and untrained investors should invest via Index Funds …
… then dedicated his life to teaching others (and, practising what he preached) how to select common stocks that will give better than average results.
The trick is that you need to become a trained investor to do so … it’s a business and like any other business, it requires training, dedication and a certain degree of risk-taking (although, I fail to see how suffering a 15% loss – as I did – while the indexes all lost 50+% is more risky?!).
Phil Town reportedly turned $1,000 into $1,000,000 using Grahamesque ‘value investing/trading’ techniques, and Warren Buffett created a $40+ Billion monolith using similar techniques … and Graham himself made millions. And, studies have shown that this is due to skill, not luck (as is the case for most successful ‘businesses’).
By all means, realize that you don’t have the skills and stick to Index Funds … because, if you DO want to invest in stocks, these experts are telling you that you MUST first acquire the skills.