Warren Buffett can make investing sound easy: Buy stocks when they’re cheap and pretty much hold them forever. And Buffett constantly reminds us of this simple wisdom. Of course there’s a bit more to it than that. Still investors seem to make the same mistakes over and over.
Why is that?
I decided to put that question to Buffett himself during a recent interview at his headquarters building in Omaha, Nebraska.
But first I asked him if he thought people really learned from what he says and actually go out and successfully invest themselves.
“Well, I think some are helped,” Buffett says. “The main thing we wanna give them — Charlie and I feel this way — is the right attitude toward investing. You’ve got a big tailwind if you’ve invested in America over time. A huge tailwind.”
Unfortunately, most investors struggle to stay focused on the long-term and react to the short-term, unwittingly making money-losing decisions.
“People have certain habits, some proclivities that are self-destructive in investing,” he continues. “So I would say that I hope our main message is to stay away from trying to trade stocks or do things that are kind of self-destructive, and just let America do the work for ’em.”
And this lead to the question I mentioned initially, which is: What are the big mistakes people make? Why do people get it wrong?
“Well, the big mistake is thinking they know when to buy and sell stocks,” Buffett says with a chuckle. “That there are times to buy ’em and times to sell ’em. There’s times to buy ’em. And eventually maybe, when you decide to start dis-saving when you’re 70 or 80 years of age or something of the sort, at that time you may sell ’em.
“But basically any attempts to pick the times to buy or sell, I think, are a mistake for 99% of the population. And I think that even attempts to pick individual securities is a mistake for people.”
The attempt to beat the market by tilting asset class weighting and trading in and out of stocks is known as active investing. Buffett recommends passive investing through a “very, very low cost S&P 500 index fund.”
“They don’t need to do anything but that,” he says. “Then they’ll get a decent result over time. To some extent, the smarter you try to be, the worse you do in investments. Now, there’s a few professional investors that will do better than the S&P over time. But the average individual isn’t going to be able to find them. And they don’t need them. That’s the beauty of it.”
No mistaking that.