Larry Swedlow, considered one of the most respected researchers in the market, believes Warren Buffett's investing style no longer works.
He points to the number of professional Wall Street firms and hedge funds currently participating in the market.
“Warren Buffett was generally considered to be the greatest stock picker of all time. And what we now know from academic research is that Warren Buffett wasn't actually a great stock picker at all. That's true,” Swedlow told CNBC's “ETF Edge” this week. “What was Warren Buffett's 'secret sauce'? He figured out what was behind the excess profits 50 or 60 years earlier than academics.”
Mr. Swedlow suggested that index funds could help investors looking to emulate Mr. Buffett's performance.
”[Investor] Cliff Asness and the team at AQR have done some great research showing what impact Buffett has on the leverage he applies through his reinsurance companies. “If you bought a stock index with these same characteristics, you would essentially match Mr. Buffett's returns,” Swedlow said. , you can now own the same types of stocks that Mr. Buffett has purchased through his companies.” Apply this academic research to companies like Dimensional, AQR, Bridgeway, BlackRock, Alpha Architect, and more. ”
Mr. Swedlow is the author and co-author of approximately 20 books, including “Enrich Your Future – The Keys to Successful Investing,” which was released in February.
In an email to CNBC, he explained that this is “an extremely difficult question to understand about how markets actually work, how prices are set, and why it is so difficult to consistently outperform through active management.” “A collection of stories and analogies to help investors understand.” [stock picking and market timing,] And how human nature makes investing mistakes [and how to avoid them]. ”
In the ETF Edge interview, Swedlow added that investors can also benefit from momentum trading. He argues that market timing and stock selection often don't factor into long-term success.
“Momentum is certainly a factor that works over the long term, but just like everything else underperforms, it's a constant over a long period of time. There will be a period, but momentum will work.” . “It's purely systemic. You can run it on your computer, you don't have to pay a lot of money, you can access it cheaply.”
In his latest book, Swedlow compares the stock market to sports betting and active managers to bookmakers. He suggests that the more investors “play,” or invest, the more likely they are to underperform.
“Wall Street needs users to trade a lot in order to make big profits on bid-offer spreads. Active managers need users to believe they are likely to outperform. And we're making more money,” Swedlow said. “It's mathematically virtually impossible for that to happen because they just have more expenses, including higher taxes. They just want you to play. And… That's why they tell you active management is a winning game.”
