'This is the single worst time to be a passive investor': veteran value investor
Bill Smead, Chief Investment Officer of Smead Capital Management, sat down with Yahoo Finance's Jared Blikre to discuss how to trade like Warren Buffett in a post COVID-19 environment, as well as why now is a bad time to be a passive investor.
Video Transcript
BILL SMEAD: This is the single worst time to be a passive investor since they started passive investments. Let me say that again.
JARED BLIKRE: Yeah.
BILL SMEAD: I wrote recently that Warren Buffett should shift his widow back from going into an S&P 500 index fund to Berkshire Hathaway right now, OK, because the index is highly likely to not make money over the next 10 years. Whether you look at historical price earnings ratios, whether you look at the normalization of interest rates, whether you look at ridiculously high levels of participation by individual investors compared to household net worth going back for decades, it all points to the same thing.
The markets are not designed to make the majority succeed. Alpha comes from deviation. You have to be a deviant to outperform not a non deviant, OK? So it is fine, when stocks are trading average in the index to below average, to use the index. When they're trading way above average from a historical standpoint, you are dooming yourself. You know the South Sea bubble looked really attractive even to Isaac Newton, one of the most brilliant people that ever walked the face of the Earth, and he lost so much money in when the South Sea bubble broke that his employees in his office would get fired if they mentioned the South Sea bubble. And he was one of the nicest ever walked the face of the Earth.
