What does Warren Buffett say about this ongoing debate regarding index versus active strategy? Given these two particular choices, he would unhesitatingly pick indexing. Especially if he were thinking of investors with a very low tolerance for risk, and people who know very little about the economics of a business but still want to participate in the long-term benefits of investing in common stocks. “By periodically investing in an index fund,” Buffett says in his inimitable style, “the knownothing investor can actually outperform most investment professionals.”
Buffett, however, would be quick to point out that there is a third alternative, a very different kind of active portfolio strategy that significantly increases the odds of beating the index. That alternative is focus investing.