Many proponents of active management often cite Warren Buffett as the poster child for how active management can work. Whether Buffett’s performance is due to luck or skill or some other factor (it could have been luck for a few decades until he became known for his track record at which point everyone now buys what he buys simply because of his track record – this would be neither a luck nor a skill issue but rather a matter of influence) is a topic of debate for another time. For now, let’s assume we definitively know it to be due to skill.
If this is the case, then the following observations need to be addressed by those who use him as a reason/support for active investment management:
- Jack Bogle reported that the average mutual fund turnover rate in 2000 was 90%. Buffett makes few transactions per year. Is Buffett a fair proxy for all active managers? His style is uniquely different from the vast majority of managers.
- Who is number 2? Why do we not talk about this person so much?
- Why don’t more people own Berkshire Hathaway stock?