We talk frequently about the ongoing Active vs. Passive debate. Of course, we are among the silent majority who believe in the Passive/Index approach. And the facts over the past 40 years support that view. The case first argued by John Bogle in the 1970s is essentially closed. Nevertheless, the marketing machine on Wall Street and its friends in the media (at CNBC) continue to operate as if the security selection and market timing game is the only way to go. Well, their team took a couple of big hits last year. First, after telling us that 2014 was going to be a “stock-picker’s” year, it turned out that over 75% of active mutual funds failed to beat their benchmark (again!). And, even worse, they discovered that even Warren Buffett had abandoned them.
Here’s what Mr. Buffett wrote in his 2014 annual report letter: “My advice to (my) trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard’s). I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee mangers.”
In 2014, the world discovered that even Warren Buffet is on our side!