If Buffett says individual investors would be better buying index funds then why should I buy stocks?
How can a regular retail investor make money in the market, especially when the most successful investor in the world says we can't?
Best Answer
1130 points
sundarkambam answered one year ago …
Buffet is addressing the ordinary investor who goes with the crowd and who does not bother too much on researching stocks.
He is not talking about himself or any other intelligent investor.
It is times like these when markets are down that one finds really good bargains which Buffet and other intelligent investors are after.
These are the times when Fortunes are made.
For example , In India we are having a scenario right now where some overvalued ( good) stocks have come to ground whose trailing P/E matches the growth rate of the last 10 years.
Examples include Infosys Technologies having a 10 year CAGR % of sales at 57.47 and a trailing P/E ratio of 21.63 . Another example is Dr. Reddy's laboratories 32.42 vs 16.95.
Isn't it a bargain , friends ?
Simple logic : A 10 year period has witnessed all types of business cycles, Jolts from the market and other external and internal factor and it proves the caliber of the company , its business and its management.
With an Indian economy expected to grow at 8%, it is a reasonable assumption that we will have better growth and profitability and consequent increase in shareholder wealth from these companies.
Answers
3680 points
MNSL answered one year ago …
I don not agree with that. If individual investor is intelligent he can make more profit by buying stocks than buying index. I prefer to put my all money if I know that this company is going to outperform market in the future.
If you are value investor and if you can understand volatility in the market you can buy stocks intelligently. Even now intelligent investors make money buy identifying and investing in correct stocks through out the world.
If you have good knowledge about market plus crowd behaviour and trend you can make money in any market. Currently some index fund are underperforming and some individual stocks are out performing the market and index funds through out the world.
2709 points
Oldman answered one year ago …
Buffet has a deep research team, dedicated to finding companies that appear to be "Cash Cows". But he's made some mistakes, notably with AIG & Greenberg, and buying Dexter Shoes, which cratered. I believe you have to be comfortable with the style and purpose of your investments, and be able to see general trends in sectors and the markets, worldwide.
A great example is Sundarkambam's response; he's familiar with Indian securities and companies. I'm not. So I invest in India and China via ETF's and mutual funds, the latter have experienced analysts ...which I'm not. I also agree with his long-term view of investments.
3970 points
EthanR answered one year ago …
Buffett may be right for most people, but isn't it more fun to try to beat the indexes?! I think a decent investor can do better than the S&P 500 or the DOW. The biggest reason that people don't always beat the indexes has more to do with their individual psychology than their stock picking ability. Greed and fear will destroy the returns of the average investor, by selling too soon, or selling too late, or selling at the bottom, or buying at the top. The index fund is just a robotic vehicle designed to mimic the S&P 500 or other index, and the investor has no control over their return, unless they do stupid things like buying more shares at the top or selling their shares near the bottom.
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