“Stock market investing, like basketball, is a zero-sum game.
If you had a choice between a fantasy basketball team for the next 5 years consisting of an index of the average NBA player, OR a team consisting of Kobe Bryant, which would you choose?
Similarly, given the choice between a stock market index fund, and having Warren Buffett invest on your behalf (by buying Berkshire Hathaway stock), which would you choose and why?”
The Harvard MBA says:
Nice try, but in fact basketball is not a zero-sum game.
Sure, the aggregate record of all NBA teams is always 1230-1230 (30 teams x 41-41), but you’re referring to stats, not wins.
The NBA’s lowest scoring game of all time ended up 19-18. The highest-scoring game finished 184-182 in triple-OT. Big difference.
At any rate, the two situations are not analogous. In basketball, past performance is a great predictor of future results. I can pick 5 all-stars and 5 scrubs, and I can guarantee with 100% certainty that Group A will outscore Group B over the subsequent 5 years.
In investing, I can pick the top 5 funds, based on performance, and pretty much guarantee that they won’t repeat their past glories.
Now, on to the specific question. I would rather invest in an index fund than Berkshire Hathaway, at least for the next five years. Why? 77 and 84.
Warren Buffett is 77 years old. Partner Charlie Munger is 84. Realistically, the chances that one of the other will die in the next 5 years is pretty good. I love Warren and Charlie, but if one of them goes (especially Warren), Berkshire stock will take a major nosedive.
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3 Comments
Perhaps that means it might be a sensible idea to go short on Berk for the next 10 years, as soon as one croaks, you can retire?
If markets are efficient (which is why you’d want to invest in index funds in the first place), then Munger and Buffet’s likely deaths would already be priced in to Berkshire Hathaway share prices.
Kert,
If you believe that Buffett’s death won’t affect the stock price, I’d be happy to lay in a side bet that BRK stock will fall at least several percent that day.