The Warren Buffett Hoax – Part 1

By Paul Nojin

I’ve got my angry hat on today! I’m angry because of a gigantic hoax that Australian investors are the victims of.

I’m talking about the claim that value investing is a sound approach for Self-Managed Super Funds.

This hoax explains why so many investors get poor returns.

The empirical evidence strongly indicates that many Australian investors are being sabotaged by the false idea that conventional value investing is a responsible way for diy investors to invest in the share market.

The truth is that Self-Managed Super Funds achieved a very underwhelming average annual return of just 4.87% in the 10 years to 2016, and you can bet the majority of these SMSF managers identify as value investors.

It’s all well and good to be a value investor if you are Warren Buffett, BUT if you are a regular person investing your Self-Managed Super Fund it is very dangerous to try and emulate his approach.

Warren Buffett is to investing what Rembrandt is to fine art. Just because you get a canvas, paints and brushes, and study the masters, will NOT mean you can create fine art like Rembrandt.

And just because you use the intrinsic value approach to investing does NOT mean you will achieve success as an investor like Warren Buffett.

I’m not knocking value investing as such. It is the right approach for Warren Buffett and other market geniuses who manage billions of dollars, however for people with Self-Managed Super Funds value investing is a high risk undertaking.

The fact is that most self-managed super fund investors fail, as that average return of 4.87% shows.

Consider the performance of the professional stock pickers, most of whom also use a value model.

S&P and Dow Jones, the administrators of the US indices, conducted an in-depth study that showed 84% of active fund managers underperformed the index in the 5 years to the end of 2016. You can read about the study on Bloomberg.

That is a gobsmacking statistic.

Let’s not forget these are the titans of the market we are talking about, and 84% of them fail in their endeavour to beat the market over the long term.

For those with Self-Managed Super Funds this information is very sobering.

You don’t have to take my word for it that value investing is dangerous for self-managed super funds. Warren Buffett agrees 100%.

Warren Buffett himself often warns investors NOT to listen to those that claim to be emulating his style of investing. He does so by referring to a $1 bet he has with a friend.

Warren Buffett wagered $1 that in the long run index investors would outperform the fund managers who charge fees for picking stocks, the majority of whom claim to be Warren Buffett followers and copycats.

For the record, I’m NOT advocating index investing.

I will discuss the pros and cons of index investing elsewhere. For today I simply want to convey the point that the majority of investors fail, the majority of whom are in some way acting based on a value approach.

I repeat again, the confirmation that what I’m saying is correct is the fact that Warren Buffett himself tries to warn you against trusting these copycats and so called value investors with his ongoing references to that now infamous $1 wager.

The great tragedy for Australia is that far too many SMSF investors are trying to emulate Warren Buffett.

This situation has arisen because the media influences the mainstream narrative and drives the false conclusion that value investing is a superior approach for those with Self-Managed Super Funds.

This is a big problem. In my opinion it is the root cause of the poor track record of Australian investors over the long term.

The media knows we are hard wired for a good story, so they constantly refer to Buffett and value investing in a way that enables the Buffett copycats to flourish.

It seems clear to me that Warren Buffett has contempt for the newsletters and fund managers that claim to emulate him.

Put yourself in Warren Buffett’s shoes. Of course he dislikes that they use his name to benefit themselves.

Furthermore, how else can one explain the fact that he regularly encourages people to invest in index funds rather than with an active manager, most of whom are value investors, which he does by constantly referring to the infamous $1 bet.

It is critical you know all of this. I’m presenting you with the information you need to have if your investments are to perform better than the average SMSF performs, and to remind you, the average annual return for the 10 years to 2016 was 4.87% per annum.

You are probably wondering exactly why value investing is a flawed approach for self-managed super funds and those investing their life savings?

More to the point, why do value investors underperform?

For the answer on Why Warren Buffett Copycats Fail, please read Part 2

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