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‘Buffett really was not a great stock picker’: Financial researcher Larry Swedroe on how investors can emulate the billionaire investor
- SUMMARY
Warren Buffett, hailed as a legendary investor, has long been considered the master of stock picking.
However, according to Larry Swedroe, one of the market’s leading researchers, Buffett’s investment style is now largely obsolete.
Swedroe believes that the market landscape has evolved significantly since Buffett’s heyday.
Today, there are countless Wall Street firms and hedge funds actively investing, making it much harder for individuals to identify undervalued companies.
Swedroe’s research indicates that Buffett’s exceptional returns were not solely due to his stock-picking abilities but also to other factors, such as leverage and investing in companies with specific characteristics.
For investors seeking to replicate Buffett’s success, Swedroe suggests considering index funds that invest in stocks with similar attributes.
He cites research showing that such index funds have historically matched Buffett’s returns.
Furthermore, Swedroe advocates for momentum trading, which involves identifying and investing in stocks that are trending upwards.
He argues that this systematic trading strategy can be effective in the long run, despite occasional periods of underperformance.
Swedroe also criticizes active management, claiming that it is inherently disadvantageous due to higher expenses and taxes compared to index funds.
He likens the investment industry to a sports betting operation, where Wall Street firms benefit from active trading.
Lastly, Swedroe warns against emotional investing, which he believes leads to poor investment decisions and underperformance.
He encourages investors to approach investing with a disciplined and evidence-based mindset.
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“He cites 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 have learned in the academic research is Warren Buffett really was not a great stock picker at all,” Swedroe told CNBC’s “ETF Edge” this week.”
““Momentum certainly is a factor that has worked over the long term, although it does go through some long periods like everything else will underperform”
““Active managers make more money by getting you to believe that they’re likely to outperform,” said Swedroe.”
“He sees active management getting more efficient in pulling in emotional investors – which he calls “dumb retail money.””
““They just need you to play, and so, you know, that’s why they tell you active management’s a winner’s game.””