Warren Buffett is a name that is synonymous with success in finance. One would think his insight into investing would be beyond reproach, but Tim Armour from Capital Group Companies recently wrote an op-ed that exposes what he sees as a substantial flaw in Buffett’s method.
Buffett recently issued a charity challenge to other hedge fund managers, but claimed that by sticking to the S&P 500 passive index fund he could make more money that the rest. While Armour concedes that this may be a safe enough bet for one of the most successful investors in the world during an abnormally long bull market, it’s not how investor’s should think, especially with a bear market coming for us any day now.
Armour wrote that for investors returns are all that matters, and passivity can’t always guarantee that. Nothing can. But a strong indicator of a fund that returns higher than benchmark indexes are those where managers have personally invested.
It’s the same method Armour employs Armour employs and claims he averages returns 1.47% higher than benchmark indexes after fund expenses are calculated. For those entering into the market for the first time, Armour suggests sticking to funds where the managers have a personal financial stake in its success
About Timothy Armour
Timothy Armour is an American businessman and investor. After graduating from Middlebury College with a Bachelor’s Degree in Economics, Armour joined the Associates Program at Capital Group Companies.
32 years later, Armour became such an essential fixture within the company that he became Chairman and Principal Executive Officer of Capital Research and Management Company.