Where Warren Buffett Goes Wrong
Warren Buffet is a longstanding vocal critic of active investing. However Buffett’s critique conflates active investing with high fees, and high fees with an unhealthy and unproductive culture of greed among “Wallstreeters”. It ignores the free rider problem, which is a situation in which those who benefit from resources, goods or services don’t pay for them. The model of index investing relies on the assumption that other investors are doing the job of following individual company results and deciding when a company was over or undervalued. As long as active investors are doing their job well, market prices will be good representations of value and index funds can just come along for the (free) ride. However too much passive investing can lead to unintended consequences. Read more at Rutgers Center for Real State Blog of April 20, 2017.