Regular investors could do worse than embrace Warren Buffett's advice

You've probably seen the piece by my colleague Carl Capolingua bidding "good riddance" to Warren Buffett. 

And Carl is mostly right. Much of Buffett's career and success is impossible for the average investor to achieve, and much of his philosophy either doesn't apply or is misapplied by investors.  

Buffett benefitted from a vast confluence of factors that are no longer available to modern investors, and as Carl points out, he oftentimes failed to adhere to his own investing rules. 

It would be like a young cricketer looking to exactly emulate the career of Don Bradman, or a budding entrepreneur aiming to be the next Steve Jobs - an admirable goal but completely unrealistic. 

But I would like to challenge Carl on two points - that Buffett's "fear and greed" mantra are actually good words to live by when applied more broadly, and that, far from being "dangerous", buying an index fund is a perfectly valid, and oftentimes superior, strategy for most investors. 

I'd like to preface this by saying Carl has, to borrow a well-worn expression, forgotten more about markets than I'll ever know. This is all in good fun (to nip in the bud any rumours of a Livewire/Market Index editorial rift).

Fear and greed

In his piece, Carl puts forward the argument against what he calls one of Buffett's "most enduring and seductive soundbites":

"Be fearful when others are greedy and to be greedy only when others are fearful."

Carl makes the legitimate point that this advice, when applied by the average investor to individual stocks, can often mean them catching falling knives or selling out too early. 

And that is broadly true, but when applied as a wider strategy, Buffett's simple aphorism becomes sage advice.

You've likely seen the data that shows the biggest green days naturally often come in the wake of sudden crashes, and that missing the handful of best days in each year severely impacts your total returns.

The simple fact of the matter is that buying when markets are fearful and selling when markets are greedy would have held you in good stead through most of the big market cycles.

If we think about times of maximum fear, say March 2020 as Covid lockdowns began and markets crashed, or a more recent example, when Trump announced his Liberation Day tariff policy, investors who were able to see past the fear could have enjoyed amazing returns. 

An exogenous risk like the Covid pandemic doesn't really impact the fundamentals of big tech companies (and in fact ultimately benefitted them), and also opens up completely new investment opportunities (I don't recall anyone calling Zoom a screaming buy in January 2020). 

But the average investor lumping on an individual stock in March 2020 - a time of peak fear - would rightfully be seen as foolhardy, even if that bet ended up paying off. There was simply too much uncertainty around what was effectively an unprecedented event in modern history.

However, I would argue someone buying an S&P 500 index at that moment was leaning into Buffett's "buy when others are fearful" philosophy while also employing decent risk management. 

Instead of having to make a big call on individual stocks at a time of maximum uncertainty, a savvy investor could simply have made a directional bet in March 2020 that markets were overreacting to the threat of Covid in the short-term, bought an S&P 500 index fund and been up 50% by the end of 2020. 

And this gets me to my second rebuttal - that many investors would benefit from taking a more passive, index-based approach to investing. 

Why buying the index is a good thing

Another of Carl's contentions is that Buffett's suggestion for investors to simply buy the index is dangerous. 

As Carl writes, Buffett suggested as far back as 1997 that "most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees." 

It is advice he has repeated a number of times in the intervening years, and gets to the heart of why we invest in the first place. 

Carl's argument is that investing is about protecting capital over maximising returns and that mindlessly buying an index fund outsources that capital protection. An inopportunely-timed market crash could wipe out your net wealth at a time that you can least afford it.

But I would argue having broad exposure to the stock market is one of the more foolproof ways for the average investor to protect their capital over almost any time-frame.   

Ultimately, capital protection is as much about beating inflation as it is about anything else. In fact, inflation is the biggest concern facing investors at the moment. In our 2026 outlook survey, 27% of our readers listed high inflation as the biggest risk to their financial future, ahead of changes to super tax rules and a wider market crash.

And we now have around a hundred years of evidence to suggest that passive index investing is arguably the most reliable method for reliably outpacing inflation and helping your net worth grow in real terms. 

I would also take issue with Carl's straw man argument that "index investors are always fully invested. They hold through bubbles, crashes, valuation extremes, and structural change — not because conditions are attractive, but because the strategy rejects discretion."

According to Carl, index investing means "there's no risk management, no valuation awareness, no exit plan — just permanent exposure to whatever the market happens to be doing."

While I'm happy to agree that index investing encourages a longer-term view of markets than that of an active investor, buying an ETF absolutely does not preclude you from selling when things feel hot or exercising basic caution.

I would also argue that the diversification inherent to index investing acts as built-in risk management. I can't see how having more concentrated exposure to individual stocks (or other assets) means you're any less exposed to the risk of capital destruction than owning an index ETF. 

Especially if Carl is also insisting that investors lack the ability to successfully emulate Buffett's value investing approach or correctly identify greed and fear (and are therefore unlikely to identify the right times to buy and sell). 

And unless you're a market-timing genius, holding through bubbles and crashes is arguably a better course of action than trying to time the top and bottom. It recalls another of investing's great principles: "time in the market beats timing the market".

Of course, if you're a year away from retirement and have a large proportion of your net wealth in an index ETF, it probably makes sense to start divesting. And if index investing had been your prevailing strategy for the decades leading up to that point, you're likely to have outperformed the vast majority of investors over that period.

In fact, a chart produced by another of my colleagues, Kerry Sun, shows simply staying invested has delivered incredible, and incredibly-consistent, returns for ASX investors over the long-term.

But that would be true regardless of what was in your portfolio. Other asset classes certainly aren't immune from catastrophic and sustained crashes. 

Just ask silver investors how they go on between 1980 and 2005 (and then compare it to how the S&P 500 performed during that time), or compare the performance of "blue chip" ASX miners like Rio Tinto in the years after the GFC with that of the MSCI World Index (hint: one took six years to recover, the other took 14).

Maybe I'm being too generously flexible in interpreting Buffett's advice, but from my perspective, there's plenty of value still to be found in the Oracle of Omaha's oeuvre, even if Carl is mostly spot on in his myth-busting anti-hagiography. 

For most investors the message is simple: you aren't Warren Buffett, but you don't need to be.