Interviewer: Can the average manager of institutional funds obtain better results than the Dow Jones Industrial Average or the Standard & Poor’s Index over the years?
Graham: No. In effect, that would mean that the stock market experts as a whole could beat themselves–a logical contradiction.
Interviewer: In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?
Graham: In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook “Graham and Dodd” was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I’m on the side of the “efficient market” school of thought now generally accepted by the professors.
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When outstanding investors such as Benjamin Graham, Warren Buffett, and David Swensen recommend index funds for the core of a portfolio, who am I to disagree.