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1 Stock Warren Buffett and Michael Lewis Think You Should Own

While billionaire Warren Buffett and best-selling author Michael Lewis approach the stock market from different perspectives, they're both brilliant and know a thing or two about Wall Street. It's for this reason that investors would be wise to listen when they offer identical advice.

To most people, Buffett, the chairman and CEO of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , represents proof that beating the market is possible given sufficient intelligence and the right temperament.

But while this may or may not be true, it doesn't mean you should try to beat it.

Unless you're willing to devote your life to investing and reading literally hundreds of pages of regulatory filings a day -- when asked how to get smarter, Buffett once held up stacks of paper and said he "read 500 pages like this every day" -- your best alternative is to do one thing: buy a low-cost index fund that tracks the broad market.

Don't take it from me; here are the instructions Buffett laid out to the trustee of his will:

Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 (SNPINDEX: ^GSPC  ) index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers.

For the record, the fund he's referring to is Vanguard's S&P 500 (NYSEMKT: VOO  )  -- to read more about this simple and effective approach to investing, check out my colleague Jordan Wathen's take on it here

Coming at it from a different angle, Lewis offers similar advice. Lewis' perspective was formed through a short stint at Salomon Brothers in the 1980s and through decades of researching and writing about Wall Street.

His most recent book, Flash Boys, looks at the role high-frequency trading plays in the manipulation -- or, in Lewis' words, "rigging" -- of the public equity markets.

Asked in a recent interview how he manages his own considerable net worth, here's his response (emphasis added):

I don't have an advisor. I bought some municipal bonds a few years ago and I had someone who actually just specializes in California municipal bonds do that for me.

But other than that, my financial life is really dull. I either put it in index funds or I give it to Warren Buffett to invest. Let him worry about it.

The point I'm trying to make is that some of the world's brightest financial minds advise investors to take the simplest of approaches. It's a lesson I've discussed before, and it's one that can't be given enough press.

The greatest thing Warren Buffett ever said
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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2014, at 10:20 PM, ronbeasley wrote:

    It's really sad that you need to write intentionally misleading information try to promote your ridiculous service. Buffett left the index investment instructions for a tiny part of his estate, a trust fund for his wife during her lifetime. Over 99% of his estate will be invested in Berkshire stock, with a small amount to be sold and donated to charity each year.

  • Report this Comment On April 07, 2014, at 2:46 AM, LazyCapitalist wrote:


    The author was not being misleading at all. Yes, Buffett left those instructions for his wife's trust. But Buffett is using that specific instructions to advice investors.

    For anybody wondering, the full paragraph quote is:

    "My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."

  • Report this Comment On April 07, 2014, at 3:44 AM, Interventizio wrote:

    I don't buy the read-500-pages-a-day-or-you-won't-beat-the-market malarkey.

    Still a good article though.

  • Report this Comment On April 07, 2014, at 12:51 PM, veritasvincit wrote:


    How did I miss Buffett's specific reference to VOO?

    I know he mentions Vanguard index funds, but my first thought would have been VFIAX.

    While I realize Astrid will need ready access to cash, I'd be shocked if Mr. Buffett would recommend an ETF.

    Even a staid large-cap equity mutual fund such as VFIAX still spits out dividends every quarter, currently just shy of 2%. She could always sell shares of VFIAX if necessary. Just wonderin'.

  • Report this Comment On April 07, 2014, at 2:40 PM, SonyaWiley wrote:

    Dear Warren,

    I'm Omaha ready, ready to go...

    Love Sonya

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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