Search “how to invest like warren buffett” in Google and 17,300,000 results come up. We’re obsessed with discovering his secret.
Yet Buffett himself has consistently said that, for most people, trying to invest like Warren Buffett is a thoroughly bad idea.
The vast majority of investors, he says, are better off buying an index fund, putting as much money into it as they can on a regular basis, and, crucially, holding on to it for a very long time.
Even Buffett hasn’t beaten the market since the global financial crisis, and, at 93, he may never do so again. Indeed he warned investors in his company Berkshire Hathaway on Saturday that even Berkshire has “no possibility of eye-popping performance” in the future.
If you think you now more about stockpicking than the greatest investor of the modern era, by all means, download the latest trading app and give it a whirl. With respect, though, you almost certainly don’t, as i explain in my latest article for rockwealth.
If you’re not yet familiar with the growing interest in online trading apps, you soon will be. Firms like Freetrade, eToro and Trading212 have been busy winning new customers, and, in the next few weeks, the hugely successful American firm Robinhood will start rolling out its services in the UK.
On the surface, trading apps can seem very appealing. The apps themselves are usually very well designed and easy to use. They enable you to buy or sell stocks, cryptocurrencies and other financial assets in a matter of moments.
But is it a good idea to use a trading app? The view of my rockwealth and I is that they really are best avoided.
Trading is rarely free
The first thing to say about trading apps is that you shouldn’t be fooled by the promise of “free” trading. Remember, these are businesses, not charities, and they exist to make profits. In reality, trading is very rarely free, and there are other ways in which apps make money from their customers so they don’t have to charge an explicit commission.
Another impression the advertisers try to convey is that trading apps will make you wealthy, which is a highly dubious claim. The bottom line is, actively trading anything is not a sensible strategy. The academic evidence tells us that the global financial markets are highly efficient. Identifying, in advance, assets that are going to outperform the broader market is extremely hard to do on a consistent basis.
Bear in mind as well that many of the assets that trading apps give you access to are very risky. Cryptocurrencies, for example, can fall sharply in value very quickly. Some apps also enable you to trade derivatives, which are among the riskiest financial instruments you can buy.
READ THE FULL ARTICLE HERE
ROBIN POWELL is the editor of The Evidence-Based Investor. He works as a journalist, author and consultant specialising in finance and investing. He is the co-author of two books, Invest Your Way to Financial Freedom and How to Fund the Life You Want, and his company Regis Media provides high-quality video content for advice firms and other financial businesses.
ALSO BY ROBIN POWELL
John Hussman and the cluster of woe
The Big Market Delusion: Why AI could cost investors dearly
Lessons in Life and investing from Shane Parrish
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