[DesertCat]

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How much money does Berkshire Hathaway hold in indexes? If Warren Buffet puts his money where his mouth is, then there is good reason to invest there. But the smart investor will follow his actions before acting on his advice.

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I thought I was clear, but one more time. His advice is that if you can invest like Buffett (i.e. you understand value investing), do it yourself. If you can't, do index funds.

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Also, nobody said that Berkshire Hathaway is a mutual fund, and if you follow the link provided before, you will see a number of mutual funds trouncing the index thanks to the talent of one manager. The talented managers also realize the inherent weaknesses of a mutual fund, and take that into consideration in their plans. They are not incompetent.

So the bottom line is: follow the example of the proven managers. Invest like they do. But if you don't have the time or the inclination to do that, then pay them to invest your money for you. Do this so long as the net return after fees does better than the index over a reasonable period of time, or at least gives you peace of mind due to less fluctuation.

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Thanks for the great examples. All of the Mutual Funds listed in your link have lifetime returns below 10%, i.e. between 7 and 9.8%. The CI Canadian fund has a lifetime return of 8.9%. Vanguard's 500 index fund has a 9.87% ten year return, and a thirty year return of 12.12%.

The CI Canadian manager, Kim Shannon has done a bit better than that over the last ten years (13.3%), but the question is, was she just lucky, or good? Lucky means she had a style that worked well for a few years and pumped up her results. Clearly her last two years have done that for her (20%), in fact they may be the only reasons her ten year performance is above water.

Buying "hot funds" is a recipe for disaster. You buy internet funds after they post 100% gains, just in time to participate in in multiyear 50% losses. You buy momementum funds because they outperformed for three years, just when momentum dies, and they get killed.

If you are convinced that Shannon is actually good, will she stay good? I.e. will the fund grow too large and kill her ability to beat the indexes? What if she quits or retires, or just loses her work ethic? You don't have these risks with index funds.

And if you are right, and she's a great manager who will beat the indexes over time, then she's clearly an exception. 95% of the managers don't, and it's very difficult to weed out the many managers who've had a lucky few years, from the few who will be good for a long periods. So the best advice is, buy index funds.