[jbyers]

This article does its subject something of a disservice in the fourth paragraph: "His fortune comes not from some flash of entrepreneurial brilliance or dogged devotion to career, but from a lifetime of prudent do-it-yourself buy-and-hold investing."

We learn later in the story that Wertheim did in fact demonstrate enterpreneurial brilliance and dogged devotion to his career and was an unimaginably successful buy-and-hold investor. The company he founded, BPI, threw off up to $10M / year in cash that funded his investment portfolio.

That he he was successful not just as an investor, but also as an inventor and entrepreneur, is what's truly amazing.

[Arcuru]

Actually, from the article it's unclear if he's beaten the S&P500 as an investor. It doesn't mention much about what he invested in before 1980, but it does say he lost about $50 million dollars in a margin call in 1982 so he was already quite wealthy either from BPI (the company started in ~1971) or from investing in the 60's/70's.

If his total investments at that time was $100 million, which seems somewhat reasonable given how much he lost in the margin call, investing that in the S&P500 would be worth $4 billion today, which is quite a bit more than the $2.3 billion he's actually worth.

That's also ignoring his currently $10 million a year income from BPI, so he could have spent 100% of that money.

[mrcoder111]

I wonder why internet commentators who haven't made billions always bring up this index fund stuff, when no one who actually has made billions did it by piling their money into the S&P 500.

[mycorrhizal]

Because it has been very well demonstrated that almost all active investors, fund managers etc... virtually never beat the market cumulatively over decades. There are some exceptions, but not more than you would expect from random chance due to large sample size (a lot of people playing). So given that information why should most of us spend the effort trying to beat the market especially considering the low expense ratio on some really solid ETFs. Generally speaking if you expect the economy to continue to grow for the next few decades than index funds are a pretty good option.

[barry-cotter]

The weak form of the Efficient Market Hypothesis is true but the strong form, which you’re expounding, is a crock. Warren Buffet has beaten the market for longer than I have been alive at what the stock market is optimised to do. George Soros made multiple fortunes as a trader and Julian Simons’ Renaissance hedge fund mints money and has for decades. The only one of those you can invest in is Buffett because it pleases him to run Berkshire Hathaway his way instead of maximising his personal returns like the founders of the best hedge funds. After fees the investors in them don’t beat the market but the principles make giant piles of money for long periods of time.

Investing skill exists, is rare and often captures all of the gains accruing to it because wannabe investors bid for access to it and due to the winner’s curse often overpay.

George Soros is like Steve Jobs. Making a giant fortune once could be luck but if you can repeat it again and again the chances it was ever luck just go down and down.

https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...

> The speech and article challenged the idea that equity markets are efficient through a study of nine successful investment funds generating long-term returns above the market index. All these funds were managed by Benjamin Graham's alumni, pursuing different investment tactics but following the same "Graham-and-Doddsville" value investing strategy.

All that said. The weak form of the EMH is true. You personally are very unlikely to beat the market over the long run.

[sjg007]

Book value vs market cap is the liquidator paradigm which is the advice that Buffet professes. But really he buys distressed assets. Structural buy ins such as American Express, GEICO, Salomon Brothers, Goldman Sachs, General Electric, USG, Harley-Davidson and Bank of America.

[tomp]

Actually BRK-A is roughly on par with S&P since 2008, 2009, 2010 and every year since 2015.

[mruts]

Saying you can't beat the market is like saying it's impossible to find a bug in a program because someone would have found it already. The market is only somewhat efficient, and they way it stays (somewhat) efficient, is if everyone is trying to make money.

Moreover, the returns of investors is not normally distributed (a lot of people flipping coins would result in a normal distribution). If you look at the actual distribution of returns, from not just the market, but from investors, you find there's a lot of kurtosis (fat tails) to the distribution. This implies that there are both more losers and winners than what a coin flip would imply.

Some of those winners are pretty clear: Berkshire Hathaway, Renaissance Technologies, 2 Sigma, Bridgewater, etc.

> So given that information why should most of us spend the effort trying to beat the market especially considering the low expense ratio on some really solid ETFs.

By managing your own money, you are inherently making asset allocations. Do I just invest 100% in SPY? That's a pretty bad idea, so even if you are just using low-cost index funds or ETFs, you are still actively managing your portfolio. You need to decide your asset type (equities, bonds, options, etc), your universe (S&P 500, Russel 2000, etc), your portfolio weights, and a host of other factors.

There is no such thing as just investing in the "market." Everyone is making an explicit or implicit choice, and that, of course, is the definition of active management.

[benj111]

I think we can go a bit further.

The 'market' is simply the average of all participants, so someone that has failed to beat the market is below average.

I'm not sure we should be lauding an investor that is below average, just because they started off with a massive pile of cash.

There doesn't seem to be enough info here to decide either way though.

[throwawaymath]

What does any of that have to do with the simple fact that billionaires don't make their fortunes through index funds? This isn't a discussion about active versus passive investing. It's a discussion about whether to attribute wealth to entrepreneurial acumen or to an index fund.

[mycorrhizal]

No, the discussion was specifically a response to a comment speculating that a person with 100M in 1971 would have been better offer investing in the S&P 500.

Quotes from the GP

> Actually, from the article it's unclear if he's beaten the S&P500 as an investor.

> If his total investments at that time was $100 million, which seems somewhat reasonable given how much he lost in the margin call, investing that in the S&P500 would be worth $4 billion today, which is quite a bit more than the $2.3 billion he's actually worth.

And the parent made a snarky comment about why internet commentators always bring up the s&p 500. And the simple answer is that for most of us ETFs are probably one of the best options for growing wealth. No one actually thinks they will be billionaires by retirement age with ETFs. So if you want to be a billionaire go get richer parents and if that doesn't work, invent Google. Good luck.

[fgonzag]

Most billionares don't make their fortunes playing the stock market either, what's your point?

They make billion dollar companies, except for a very select few.

[lugg]

If that were true fund managers would be out of the job.

Fund managers do make money, lots of it, enough for their salaries and enough for their company profits. The problem is once you factor those in the index wins out for customers.

The funny thing is that it's the inefficiencies created by index investors that allow the funds to make their money.

[tim333]

The fund management industry in general makes money through marketing funds and charging fees, not by beating the market.

[jedberg]

Well one reason was because before 1978 you couldn't really invest in the S&P500, unless you had the time to manage a portfolio of 500 stocks. And back then most people laughed at the idea.

It's only very recently that people have started to realize that it's a good bet.

[lsiq]

It may be a good bet, it may not be. Hedge funds now buy up stocks before they get indexed.

Stocks will still beat cash in the long run but the main thing is to be ahead of the curve.

[osrec]

Are you saying that they're wrong? Because they're not - the maths is black and white. People have a tendency to trade in and out of securities because they feel it will give them an edge over the market, but in reality, most people struggle to outperform the market. Often they really are better off just buying and holding an index.

[enoch_r]

No one who won the lottery invested the money they spent on the ticket. That doesn't mean that "buy lottery tickets instead of investing" is sound financial advice.

[xiphias2]

This may be true, but also it's one of the most dangerous times to invest in S&P 500: there hasn't been a recession for more than 10 years, which is pretty unique. Of course this is not a problem if somebody really takes a 50 year view.

[skookumchuck]

> in a margin call

If you're willing to go way out on margin, you can substantially improve investment returns.

[JohnJamesRambo]

I’m constantly finding this to be the case when you research the rich and their business moves. Most seem to be elaborate ways to waste a lifetime of attention and energy and not beat an index fund.