Buffett and Gekko both recommend index investing

Warren Buffett said that “a very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money”. Gordon Gekko was about 20 years ahead of Buffett when he said “Ever wonder why fund managers can’t beat the S&P 500? ‘Cause they’re sheep, and sheep get slaughtered.”

(For those not familiar with Gekko: Gordon Gekko was the slick haired, insider trading villain in Oliver Stone’s movie, Wall Street.)

While both gentlemen are known for their active investing prowess (in the case of Gekko, perhaps over active investing is a better term), they both essentially espoused index strategies for the masses. Paradoxical, isnt’ it?

Perhaps even more paradoxical is this anecdotal video I found on YouTube which shows Michael Douglas being interviewed on the radio about his portrayal of the brilliantly written character of Gordon Gekko. In the clip, he mentions that drunken investment bankers would come up to him all the time and profess their admiration for Gekko. Some indicated that Gekko was the inspiration to end up on “the street”. Email subscribers: click here to watch the video (approx. 1 minute).

 

Douglas and the host go on to agree that the seduction of power and the expensive suits are partly the cause, and perhaps not the outright villainry itsef. Gekko’s fortune was estimated at roughly $8.5 billion dollars, which placed him fourth on the 2008 richest fictional character list published by Forbes, but note since “Wall Street: Money Never Sleeps” was released, that has changed to align with the plot development. His suspenders showed off the colours of Eton College which counts eighteen former British Prime Minsters as graduates. Of course, I wouldn’t put it past Gekko to lie about actually attending Eton.

Buffett, on the other hand, is the model of restraint. He lives in the same house he bought in 1958 and one of his few reported indulgent expenses, a private jet, is named “The Indefensible”. His wit is legendary as is his ability to distill seemingly complex concepts into easily understandable ones. His investing methodology is described as boring, but the results speak for themselves. Click here for some of Buffett’s rules to live by for investors (approx. 3 minutes).

Given what’s happened on Wall Street over the last few years, one could make a pretty good argument that Warren Buffett is more of a fictional personality than Gordon Gekko.

Note: This is a republished column I wrote for The Globe and Mail.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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