NEW YORK - Berkshire Hathaway Inc (BRKa.N) Chairman Warren Buffett on Saturday ramped up his criticism of Wall Street, saying investors should "stick with low-cost index funds."
"When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients," Buffett, widely considered one of the world's best investors, said in his annual letter to shareholders.
"Both large and small investors should stick with low-cost index funds."
Buffett has said he believes most stock investors are better off with low-cost index funds than paying higher fees to managers who often underperform.
"Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods," Buffett wrote in his letter.
"If 1,000 managers make a market prediction at the beginning of a year, it’s very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him."
His latest letter adds fuel to the fire as an accelerating flow of cash moves from actively managed funds, such as hedge funds and many mutual funds, to generally lower-cost funds tracking indexes.
Also on Saturday, Buffett's Berkshire Hathaway Inc said fourth-quarter profit rose 15 per cent from a year earlier, helped by gains from investments and derivatives.
Net income rose to US$6.29 billion, or US$3,823 per Class Ashare, from US$5.48 billion, or US$3,333 per share, in the comparable quarter the previous year.
Quarterly operating profit fell 6 per cent to US$4.38billion, or US$2,665 per share, from US$4.67 billion, or US$2,843 pershare.
Analysts on average had forecast operating profit of $2,716.60 per share, according to Thomson Reuters I/B/E/S.
Book value per share, which reflects assets minus liabilities and which Buffett considers a good yardstick for Berkshire's intrinsic worth, was $172,108 at the end of the year, up 5 per cent from three months earlier.
MORE FROM THE LETTER:
ON GROWTH OPPORTUNITIES
"[Berkshire Vice Chair] Charlie [Munger] and I have no magic plan to add earnings except to dream big and to be prepared mentally and financially to act fast when opportunities present themselves. Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do."
ON STOCK DILUTION
"Today, I would rather prep for a colonoscopy than issue Berkshire shares."
ON SHARE BUYBACKS
"When CEOs or boards are buying a small part of their own company, though, they all too often seem oblivious to price. Would they behave similarly if they were managing a private company with just a few owners and were evaluating the wisdom of buying out one of them? Of course not."
ON ADJUSTED EARNINGS
"...a management that regularly attempts to wave away very real costs by highlighting 'adjusted per-share earnings' makes us nervous. That’s because bad behavior is contagious: CEOs who overtly look for ways to report high numbers tend to foster a culture in which subordinates strive to be 'helpful' as well. ... To tell owners year after year, 'Don’t count this,' when management is simply making business adjustments that are necessary, is misleading. And too many analysts and journalists fall for this baloney."
--With files from BNN