Picking shares and coming out on top seems like a glamorous way to build wealth, but the work involved is might.
Even Warren Buffet, one of the world’s greatest investors, agrees that investing in funds is better for most ‘everyday’ investors than trying to pick specific shares or equities.
In 2021, at the Annual Shareholders meeting of Berkshire Hathaway, Warren Buffet shared a list of 20 stocks with the largest market capitalization as of March, which included Saudi Aramco, and all the top American tech firms of Apple, Microsoft, Amazon, Alphabet and Facebook.
He then asked the audience to pick which of those stocks would remain in these positions in 30 years. He remarked, "I would guess that very few of you would have said zero, and I don't think it will be, but as a reminder of what extraordinary things can happen; we were just as sure of ourselves, and Wall Street was, in 1989 as we are today. But the world can change in very, very dramatic ways."
He then revealed the 20 companies by market cap in 1989, which was very different and included several Japanese firms plus American industrial giants Exxon and General Electric, plus European chemicals firm Merck and tech was represented by IBM.
Mr Buffet pointed out that identifying these top brands would be surpassed by firms like Facebook is very difficult, "I do not think the average person can pick stocks….because there is… a lot more to picking stocks than figuring out what's going to be a wonderful industry in the future."
Instead of share picking, Buffett suggested investing in low-cost index funds.
I recommend the S&P 500 index fund, and have for a long, long time to people.
To underline his view, Buffett shared a slide that showed the vast number of automobile companies in the early 1900s.
"At least 2,000 companies… entered the auto business because it clearly had this incredible future, and in 2009, there were three left, two of which went bankrupt. It's a great argument for index funds," Buffett said, "If you just had a diversified group of equities, U.S. equities, that would be my preference, but to hold over a 30 year period."
Investor Weekly echoes Mr Buffets advice, but points out that for UK investors, the S&P 500 should be part of a balanced portfolio, which would also include other market trackers such as the top FTSE companies, and depending on the individual investor European, Japanese or even Chinese stocks.
