On Feb 27, 2017, cnbc.com presented a commentary written by Tim Armour, CEO and Chairman of Capital Group regarding Warren Buffett’s claimed that he could receive better investment returns than hedge fund managers simply by passively investing in an S&P 500 passive index fund. Buffett also backed up that claim with a bet. He would contribute $1 million to charity if he achieved this goal. And the way it looks, he will be giving that $1 million away to charity.
But according to Timothy Armour, Buffet’s claim needs a closer look. Armour counters Buffet thoughts with the following analysis:
Index funds according to Armour do not provide any type of cushion when the markets are down. In fact, index funds will expose those passive index funds to 100% of the volatility and the losses that will follow.
According to Buffet, 40 years ago an investor could put $10,000 in an index fund and would see more than half million dollars after that 40 years. That said, Armour counters that if someone invests $10,000 in the best five active funds from American Funds they would achieve more wealth.
According to Timothy Armour you must look a two simple filters for higher returns.
The fund must have low expenses
The fund must have high manager ownership
Thus, investors must throw out high-cost funds and find fund managers who actively invests their own money in the same funds as their investors. This will give investors higher returns and peace of mind.
Timothy Armour is chairman and CEO of Capital Group. His 32 years of investment experience comes totally from Capital in different investment positions. In fact, after he obtained a BA degree in Economics from Middlebury College, he joined Capital in their Associates Program.