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Buffett: Don’t gamble on stocks

12/06/2021

We’ve written before about the investment principles that make Warren Buffett one of the world’s most successful investors. Because of his success, many investors follow his lead when it comes to picking stocks – but is choosing stocks over funds a wise idea for those who aren’t as experienced? 

In his annual shareholder meeting at the start of May, Buffett warned investors that “the average person cannot pick stocks”. Likening picking stocks to gambling, he described how it can be tough to pick individual winners, noting that nearly all of the 2,000 car companies that existed in 1903 failed, despite cars having transformed the world since then. So, with that in mind, what does he suggest is a better investment strategy?

Funds, not stocks

Individual stocks, says Buffett – a man known for his buy-and-hold approach rather than looking for quick wins – may not be the right approach, as it can be hard to predict with accuracy who will fare best in the long term. Instead, he suggests that most people will see better results by picking an S&P 500 index fund: a passive fund that replicates index performance, rather than being actively managed. 

A criticism of new approaches

When asked for his views on cryptocurrencies, Buffett skirted the question to avoid upsetting Bitcoin holders listening in to the virtual event. However, he was more outspoken when discussing the topic of Robinhood, claiming that the commission-free trading app – which was faced with scandal after limiting stock purchases in January – was playing on people’s “gambling instincts”. 

It’s clear that Warren Buffett prefers a more traditional, longer term approach to investing, rather than the fast and furious chases for instant gains using new technology that are becoming more and more popular. With a net worth of $109bn, it is clear that he has found an approach that has brought incredible success. 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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