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Comment by tyn | Hacker News Reader

Number #5 needs some clarification. Apparently he doesn't believe this to apply to himself since he didn't make his riches by investing in an index fund. I don't know in what context he said it, probably he means it's the best strategy for the average investor. Quoting Buffet again: "Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing."

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Buffet has said unless your going to make a full time passion/profession/obsession out of it, get index funds.

There are very few people who have done better than the market over a long period of time. So unless you are as skilled as Buffett, you are better off with low cost index funds.

On average, shouldn't roughly half of investors do better than the market and roughly half do worse?

In practice, it's more like 25% do better than the market and 75% do worse. This is because those who do better tend to do much better, while those who do worse tend to do only slightly worse. (Remember, if you don't short your losses are capped at 100%, while your gains are potentially infinite.) Mean/median confusion strikes again.

I'm not suffering mean/median confusion (note I said "roughly"), I'm just not convinced the distribution is quite as asymmetric as you think(despite, as you say, being capped at zero). But we don't have any numbers either way, so shrug.

Could've sworn the roughly 75% figure did come from data (thought it was a Berkshire Hathaway annual report, and it may've been 70% or 80% or something in between), but I can't seem to dig it up, so I guess we'll have to leave it as idle speculation.

In addition, if you are an investor and you do poorly, you may just drop out of the market. On the other hand, if you are a winner, you'll stay in the market.

In this way, you can have a lot of investors losing their money with a fewer # of people gaining.

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