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Wednesday, November 16, 2016

Why Warren Buffett's Investing Tip for LeBron James May Not Works in Malaysia?

As you may know, Warren Buffett is also friends with NBA superstar LeBron James and he has been giving regular investing tip to the 2016 NBA Finals MVP, whom leads Cleveland Cavaliers to NBA title and ends 52-year drought.

Apparently, given that Warren Buffett is one of the richest man in the world, he is probably right about everything he said, and certainly, it could applies to everyone else too! So let's look at some of the investing advice that the billionaire investor gave to the multi-millionaire basketball star.

“Owning the United States, a diversified piece, at a decent average price bought over time, held for 30 or 40 years, it’s bound to do well. The income will go up over the years, and you really can't go wrong with that.” - Warren Buffett

In Warren Buffett's context, owning the United States as a diversified piece means investing in S&P 500 index which includes the 500 large-cap U.S equities that captures approximately 80% coverage of available market capitalization. He always recommends his follower to just stick to S&P 500 index fund by Vanguard 500 Index Fund (VFINX)

So if you have invested $100,000 in VFINX around 20 years ago (1997, max data available), by now, it would turn into $280,000 (180% return)! A lot higher than keeping in bank! So, Warren Buffet is certainly right about this that you really can't go wrong with it. 

What about Malaysia?

Let's take a look at the comparison of KLCI vs S&P 500. Given the same period of time (1993-2016), the growth of S&P 500 (390% return) is much more higher than KLCI (150% return)! Which means with an initial investment of $100,000, S&P 500 would turns into $490,000 and KLCI would turns into $250,000.

Given roughly 24 years of period, the annualized return for S&P 500 will be 6.8%, which is still acceptable. However, the annualized return for KLCI is only 3.9%. So, it is safe to say that investing in index fund of Malaysia KLCI may not be workable

Another investing advice from Warren Buffett was...

“Through the rest of his career and beyond, in terms of earning power, [he should] just make monthly investments in the low-cost index fund. Somebody in his position ought to have a significant cash reserve."

Warren Buffett is certainly right that everyone should be disciplined enough to make monthly investments, especially for those with significant cash reserve. As per recommended by Warren Buffett, Vanguard 500 Index Fund (VFINX) is certainly low-cost index fund whereby there is 0% purchase fee, 0% redemption fee and a 0.16% expense ratio.  

What about Malaysia index fund?

There are only 6 index funds in Malaysia, namely: 
  1. AMB Index-Linked Trust - tracks the performance of the KLCI
  2. Manulife Investment Equity Index - track the performance of the FBM KLCI
  3. Manulife Investment Syariah Index - track the performance of the FBMS (EMAS Shariah)
  4. PMB Shariah Index - invest primarily in the major stocks constituent of the FBMSHA
  5. Public Index - attempting to outperform the FTSE Bursa Malaysia Top 100 Index
  6. RHB KLCI Tracker - correspond to the performance of the KLCI

So actually there are only 3 funds that tracks KLCI, while the rest like Public, PMB and Manulife track or just benchmark other index in Malaysia. 

Date taken from Morningstar

Besides PMB, the rest of the funds' initial sales fee/purchase fee is outrageous with as high as 6.5%! That's totally out of the league of  Vanguard 500 Index Fund (VFINX)! So once again, it is proven that index fund may not works in Malaysia

I have came across a lot of articles supporting the same thing whereby index fund is recommended over mutual fund/unit trust fund. However, one should take note that the article is referring to U.S market rather than Malaysia market which is less efficient

In conclusion, whatever you read in the articles, even if is by Warren Buffett, to multi-millionaire LeBron James, you should never follow blindly

So here comes the most important question. If not index fund, then what?

I hear you! And I have been mentioning a lot through out my previous post, so here you go:

Till then. ;)
Happy Investing!


  1. Thank you for the advice. Have a great day!

  2. Makes sense - never follow blindly!

    1. Yes you are right Sharon. Unfortunately nowadays people don't care to find out and follow blindly.


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