Buffett: Just Buy Index Funds

May 04, 2008

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We've heard it before. Play the odds and buy the market rather than try to beat it all of the time.

But when the man who most personifies the exception to the rule reinforces those views, it's always nice to note.

Well, this weekend featured another annual meeting for Warren Buffett and his Berkshire Hathaway faithful. Thousands turned out, apparently spurred by mixed economic signals and an interest in hearing the latest from a money manager who truly breaks the mold.

Here's how Jason Zweig of Money magazine reported it on Saturday:

"In the Q&A session Saturday morning at Berkshire Hathaway's annual meeting, CEO Warren Buffett and vice chairman Charlie Munger repeatedly warned investors to lower their expectations. When a shareholder asked whether Buffett's recent purchases of publicly traded stocks were likely to generate returns greater than 7% to 10% over time, Buffett promptly said no."

Zweig also quoted Buffett as saying:

"We are happy to invest in businesses that earn their money in euros in France or Italy or sterling in the UK, because I don't have a feeling that those currencies are likely to depreciate against the dollar. Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies.... I feel no need to hedge purchases of companies that earn profits in other currencies."

When asked about his predictions for the economy, Buffett said he didn't have a clue and doesn't care.

But here's the payoff for most of us average Joes with a taste for indexing:

When a shareholder asked for the single best specific investment idea Buffett could recommend to an individual in his 30s, Buffett said: "I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform ... and I could just go back and get on with my work."

So there you have it ... the dollar's slide isn't over, and buy index funds (does Warren realize exchange-traded funds are even cheaper and come in a wider assortment?) ...


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