Beating the Market Depends “on Your Ability to Be a Reader of People”

(p. B1) The person who helped inspire the passive-investing boom, the late economist Paul Samuelson, became wealthy from his active investments.

The greatest active investor of our time, Warren Buffett, advocates investing passively.

. . .

(p. B6) Prof. Samuelson’s decisions show why investors shouldn’t become so doctrinaire about index funds that they completely cut themselves off from any chance, however rare, of doing better.

In 1970, the same year he became the first American to win the Nobel Prize in economics, Prof. Samuelson began buying stock in Mr. Buffett’s Berkshire Hathaway Inc., at a cost that eventually averaged about $44 per share. (Berkshire’s A shares traded this week at approximately $290,000 apiece.)

. . .

In an interview this week, Mr. Buffett says Prof. Samuelson believed the same thing he does: that markets are “generally very efficient but not perfectly efficient.”

Mr. Buffett adds, “I do think if you know something about finance and about people, you may be able to identify someone out there who can overperform. But for every one you identify who can, there’ll be 1,000 others who don’t turn out to be able to.”

Continues Mr. Buffett: “You’re betting enormously on your ability to be a reader of people, even more than your ability—or theirs—to select securities. They’re all promising overperformance and spending a lot of money on selling it very persuasively. Overwhelmingly this is a world of salespeople.”

For the full commentary, see:

Jason Zweig. “THE INTELLIGENT INVESTOR; From a Skeptic, a Lesson on Beating the Market.” The Wall Street Journal (Saturday, December 22, 2018): B1 & B6.

(Note: ellipses added.)

(Note: the online version of the commentary has the date December 21, 2018, and has the title “THE INTELLIGENT INVESTOR; What You Can Learn From One of Warren Buffett’s Smartest Investors.”)

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