2020: Will index funds perform as well in the future as they have in the past?

Becky Quick: (03:05:51)
Warren, a moment ago you mentioned that you still are recommending that people invest in an S&P500 index fund. Let me ask this question that came in from Kevin. He says “The last few weeks we’ve been hearing from active money managers that the day of passive investing is over. The historical safety of investing in an index fund longterm is gone. Would you please provide your thoughts on this topic, particularly in regards to an investment time span of 10 years?”

Warren Buffett: (03:06:17)
Well, I can tell you I haven’t changed my will and it directs that my widow would have 90% of the funds in index funds and I think it’s better advice than people are generally getting from people that are getting paid a lot to give other advice. You don’t make a lot of money advising an S&P 500 index fund. And how you can say “The D day of index funds is over.” I mean, if you say “The day of investing in America is over.” I would disagree quite violently. And then is there’s something special about index funds being a terrible way to invest, I just don’t think… it’s very hard to have evidence of that. I mean, if the index funds reflect the market and one side has high fees that think they can pick out stocks and the other side has low fees, I know which side is going to win over time.

Warren Buffett: (03:07:21)
And, you have to recognize that it’s in a great many people’s interest to convince you that they can do something, that they may well even believe they can. And a certain percentage of them will do it from luck and a few people will do it from skill. And that’s what makes it so enticing that you can find the [Jim Simons 00:17:42] or somebody that’s going to produce extraordinary return. And Jim and his group have done it by brainpower, but that’s very unusual and incidentally they are going to charge you a lot of money and they’re going to actually maybe close up their fund if they do it because they can’t do it with really huge amounts of money compared to how the record has been established in the past. Just have to recognize you’re dealing with an industry where it pays to be a great salesperson and it pays even better if you’re a great salesperson and you can actually produce something. But the money is in selling. There’s a lot more money in selling than in managing, actually, if you look to the essence of investment management.