Larry Swedrow, one of the most respected market researchers, thinks that Warren Buffett’s investment style no longer works.
He cited the number of professional Wall Street firms and hedge funds now participating in the market.
“Warren Buffett was generally 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,” Swedrow said this week. told CNBC’s “ETF Edge.” “What Warren Buffett’s ‘secret sauce’ was, he figured out 50, 60 years before all the academics, what were the factors that could make you extra profitable.”
Swedrow indicated that index funds could help investors trying to mimic Buffett’s performance.
“(Investor) Cliff Asness and the team at AQR did some great research and showed how you account for the leverage applied by Buffett’s reinsurance company. In practice,” Swedrow said. “Today, every investor can own the same kinds of stocks through ETFs or mutual funds that Buffett bought through companies that apply this academic research—companies like Dimensional, AQR, Bridgeway, BlackRock, Alpha Architect. And some others.”
Swedroe is the author and co-author of nearly 20 books — including “Enrich Your Future – The Keys to Successful Investing,” released 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, how the Why it’s so hard to consistently outperform through management (stock picking and market timing). And how human nature leads 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 says that market timing and stock picking often do not lead to long-term success.
“Momentum is definitely a factor that has worked in the long run, even though it goes through some long periods as everything else will underperform. But momentum works,” said Swedrow, who He is also head of economic and financial research at Buckingham Wealth Partners. . “It’s fully managed. Computers can run it, you don’t have to pay huge fees and you can access it at affordable speeds.”
In his latest book, Swedrow likens the stock market to sports betting and active managers to bookies. The more investors he advises to “play” — 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-offer spreads. Active managers make a lot of money to convince you they’re likely to outperform.” Swedru said. “Mathematically it’s practically impossible because they just have higher costs, including higher taxes. They just need you to play, and so, you know, that’s why they call you. Proactive management is a winner’s game.”
‘Dumb Retail Money’
He sees active management becoming more effective at attracting emotional investors — what he calls “dumb retail money.”
“(Emotional investors) do so poorly (that) they reduce the funds they invest in because they have the wrong stock picks and the wrong market timing,” Swedrow said. happens.”