Rethinking Warren Buffet’s View of Mutual Funds

When it comes to investing, questioning Warren Buffet may seem presumptuous. However, this is exactly what Tim Armour does in a 2017 article for CNBC. What’s interesting is that Armour makes a convincing case for fine-tuning Buffet’s approach to mutual funds.The impetus for Armour’s comments is a bet Warren Buffet made recently. He offered to donate $1 million to charity if he doesn’t beat the performance of a group of hedge fund managers simply by investing in a portfolio based on the S&P 500. This passive investment approach is what index mutual funds do.

Armour agrees with Buffet that “actively managed” funds that try to beat the market are often poorly managed. Where he parts company with the Oracle of Omaha is in lumping all actively managed funds together, and in overlooking the downside of index funds. The downside is pretty straightforward. Index funds tends to follow the index down during bear markets.Armour has some advice for investors concerning all funds. The key, he says, is to find well-managed funds to invest in. Armour suggests that investors should not rely on labels like active or passive. He offers two specific tips. First, seek out funds with low expenses and fees. Second, check to see if the fund manager has invested his or her own money in the fund. Investors still need to research any mutual fund prior to risking their money. However, Armour says these two characteristics are critical according to his research.

Timothy Armour was picked by the Capital Group Board of Directors as its new chairman in July, 2015. At the time, he was serving as chair of the Capital Group management committee and Capital Research and Management Company. He started with the firm as a member of its Associate Program. He later advanced to Equity Analyst and specialized in global telecommunications and US service industry investments. Tim Armour earned his bachelor’s degree fro Middlebury College. He currently resides in Los Angeles, California.

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