Warren Buffett Wins His Multi-Million Dollar Long Bet

[Captain Save]

You make it sound like some grand conspiracy. The articles and blogs don't talk about volatility because that isn't what most people care about. I'd venture to guess that the vast majority of investors are focused on two things, returns and expenses (and mostly returns). Index funds have better returns and lower expenses, with the added bonus of being way more tax efficient.

Volatility is an entirely different issue. I'll take the higher returns over the lower volatility any day.

Now my answer might change when I'm retired and living on my investment income but until then, it's all about returns.

not a conspiracy.. but more so people feel that it has to be one thing or the other.. Team A or Team B ... I have most of my money on index funds as well.. so I am a fan... it takes a lot more research to invest in a managed fund.. I would probably find the numbers I alluded to earlier if I were that interested in putting my money there.

I'm sure you understand the issue of volatility and when it matters vs when it doesn't.. but not everyone reading some random blog understands that...and they're being taught to be on TEAM A .. .

[disneysteve]

I'm sure you understand the issue of volatility and when it matters vs when it doesn't.. but not everyone reading some random blog understands that...and they're being taught to be on TEAM A .. .

That's certainly a fair point. I'm not suggesting that volatility doesn't matter. It just isn't a driving factor in most people's investment decisions. If you are investing for the long term, 20 or 30 years, volatility matters far less than returns and expenses. As I said, if you are investing for current income, then volatility becomes extremely important.

[scfr]

"Managed Fund" covers a broad range of funds.
Buffets comments seem to be about hedge funds, but the conversation here seems to have morphed to cover all managed funds.

A fund like Vanguard's Wellesley Income Fund (my DH owns shares) is a managed fund. Admiral Shares 10-year return 7.18%, expense ratio 0.15%. Not exactly setting the investing world on fire, but not shabby either. And that's with a conservative 40/60 mix.

[TexasHusker]

I think the overriding lesson in all of this is that mutual funds, by their nature, are pretty mediocre. They have to be. If you are expecting them to deviate much from averages, you don't understand the math very well:

You can't take in $1 billion from your mutual fund customers and just do nothing with it. You have to buy shares in companies. And of course you can't be too overweight in this or that company, so you have to buy shares in OTHER companies. Compromises are then made - maybe the profitability of ABC Company is more questionable than XYZ Company, but we are supposed to be "fully invested" and we have all this new money lying around, so we have to buy shares of ABC Company.

In the end, the mutual fund owns shares of 100s of companies, and the returns are watered down commensurately.

[disneysteve]

I think the overriding lesson in all of this is that mutual funds, by their nature, are pretty mediocre.

the mutual fund owns shares of 100s of companies

"Mediocre" is in the eye of the beholder. My largest holding, which I've been in for over 20 years, is a mutual fund that has posted an average annual return of over 16% for more than 30 years. I've made a ton of money with that investment. Is 16+% mediocre? I don't think so.

There are plenty of funds out there with long track records of averaging 10%/year or more. I think most people would be quite satisfied with a 10% annual return even if it doesn't measure up to what you aim for with your investments.

As for a fund owning hundreds of companies, that's not necessarily true. Certainly there are funds that own hundreds or even thousands of companies. But there are also funds that own as few as a couple dozen.

There are over 9,500 mutual funds in the US alone. It's hard to make broad generalizations about what they are or aren't.

[TexasHusker]

"Mediocre" is in the eye of the beholder. My largest holding, which I've been in for over 20 years, is a mutual fund that has posted an average annual return of over 16% for more than 30 years. I've made a ton of money with that investment. Is 16+% mediocre? I don't think so.

Awesome! Which mutual fund as returned over 16% annual for the last 30 years?

I think I want in on that one!

[disneysteve]

Awesome! Which mutual fund as returned over 16% annual for the last 30 years?

I think I want in on that one!

Since the fund's inception in 1984, VGHCX has had an average annual return of 16.39% through 2/28/18.

I'm actually now in VGHAX since we qualify for the preferred Admiral share class. That gives us a 0.05% lower expense ratio and, of course, approximately a 0.05% higher average return.

I'd have to check exactly when we bought in but it had to be around 1995. I can tell you that in 2013 when the fund was up 43.27% and 2014 when it was up 28.57%, our portfolio saw a nice bump because by that point we had a pretty substantial position in the fund.

Obviously most mutual funds don't have this kind of track record, but great funds are out there. And, as I said, getting over 10%/year over the long run isn't hard at all (though I still think Dave Ramsey's 12% figure is a little too high. If he preached 10%, I'd fully support him).

[TexasHusker]

Since the fund's inception in 1984, VGHCX has had an average annual return of 16.39% through 2/28/18.

I'm actually now in VGHAX since we qualify for the preferred Admiral share class. That gives us a 0.05% lower expense ratio and, of course, approximately a 0.05% higher average return.

I'd have to check exactly when we bought in but it had to be around 1995. I can tell you that in 2013 when the fund was up 43.27% and 2014 when it was up 28.57%, our portfolio saw a nice bump because by that point we had a pretty substantial position in the fund.

Obviously most mutual funds don't have this kind of track record, but great funds are out there. And, as I said, getting over 10%/year over the long run isn't hard at all (though I still think Dave Ramsey's 12% figure is a little too high. If he preached 10%, I'd fully support him).

That's a mighty strong annual return. My luck I'd buy and it would be down for the next 10 years, settling back into that 10% range that you speak of.