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Comment by cpncrunch | Hacker News Reader

It's somewhat ironic that Buffett is using this analogy, as he made huge profits by being an active investor. You just need to be smarter than the average active investor, which in reality isn't very difficult. The best strategy seems to be to use value investing, which is how Buffett made his fortune. Buy undervalued stocks, then keep hold of them for the long-term (or at least, until they become overvalued, then sell some).

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Isn't Buffett's case a bit different? He typically buys businesses outright, rather than making investments on the open market, so no passive investor (besides one in Berkshire Hathaway) could get those returns.

Also, as I understand it, Berkshire gets to implement management changes (if it deems them necessary) as it wishes, since it owns whole companies, and so the improvements they see could also come from better management of a business rather than picking better businesses. So arguments about average or above average stock picking ability seem less relevant here. (It could well be that Buffett has average management-picking ability, but is one of a relatively small number of market participants who both can and do exercise it, thereby getting an outsize result.)

Also, I believe he has bought a number of privately held business, which are almost always waaaaay cheaper (on a P/E basis for example) than publicly traded companies.

He buys them outright now, but not when he was amassing his fortune.

Buffett also benefits from having Charlie Munger at his side. Buffet gets most of the credit but Munger is also a world class investor. It's like if Steve Jobs and Bill Gates had worked together.

Right, you just buy low, and sell high. It's so simple, I don't know why everyone doesn't do it. In reality, there's nothing statistically inconsistent with a 5 sigma outlier like Buffett.

I'm not sure what your point is. Yes, it is as simple as buy low, and Buffett is saying the same thing. The main point is that most people aren't smart or confident enough to be able to [a] determine which stocks are undervalued and [b] buck the herd instinct.

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