In an article published by CNBC, Timothy Armour details the $1 million wager to prove investment strategies- against one competitor, in particular, Warren Buffet.
Buffet has a pretty clear philosophy on trading. Referred to as “bottom-up trading” by Armour, Buffet targets stocks that are as cost-effective as possible, and holding them long term. Forty or more years to be exact. Which means that Buffet doesn’t think much of day trading, swing traders and shorting.
The CNBC article reveals Armour’s challenge concerning this style of investing. “It’s also time to challenge the notion that passive index returns are the safe path to a better retirement.” While addressing the profitability of Buffet’s vision, Armour emphasizes that the handling a fund or client is managed has an effect on potential earnings as well. If the cost of portfolio maintenance and conducting transactions is eating into stock profits, then the cycle has become self-destructive and counter-productive.
Finding a reliable fund manager that truly serves his clients is another issue Tim Armour discusses candidly. Besides a low overhead and tossing out “high-cost” stocks, working with a fund manager that maintains a separate portfolio from his clients- usually results in above average gains. This should be an industry standard to circumvent any conflicts of interest.
Buffet ends up winning the bet, sort of- Buffet chose an “S&P 500 passive index fund” while Tim Armour went with the top five performers from America Funds. America Funds is a company that boasts long-term investment strategies and is a subsidiary of Armour’s company, the Capital group. To determine who truly “wins”, it would depend on the context of the bet, and parameters assigned to such, to decide the true winner. If both parties had bet 40 years ago and collected today, America Funds would be the high-performer and Armour subsequently the victor.
Armour is an industry heavyweight with over 34 years of experience at Capital group. Recently voted in as the company chairman- Armour initially joined with Capital group with modest roots, completing a bachelor’s degree from Middlebury College. Tim Armour recently commented on fellow businessman Donald Trump stating that the effects of the election are “real” and that “quick economic growth” would be the outcome.
Learn more about Tim Armour: https://www.americanfunds.com/advisor/insights/market-commentary/tda-rwl-qavolatility.html