> Buffett Annual Report is a long form sales letter to persuade people to buy more Berkshire shares.
Nonsense. Buffett doesn't care one whit about people buying more Berkshire Hathaway shares. If anything, he wouldn't mind people selling shares and driving the price down to below 1.2 x book value, so he can buy them back at a discount.
Index funds are needed so investment funds don't overcharge their customers, and investment funds are needed to keep the market honest.
It makes sense for individuals (or institutions) to invest in index funds, but only up to a point. When too much money is stuck in passive index funds the active investors will easily outperform the market and the smart money will leave the index funds again.
The person I was responding to was drawing an analogy to a casino where the money just moves around and the institutions just skim every time money changes hands. That's negative sum. In contrast, society benefits when the stock market gives access to capital to well run companies and takes money away from poorly run companies. So the casino analogy doesn't work. Buffett understands that the stock market as a whole isn't zero sum (or negative sum), and that's true even if all investment firms in aggregate underperform the indexes.
Thus, investments decisions made within such companies are those that promote their growth (or not).
In this manner, without insider knowledge into the internal decisions those companies make, and thus the ability to judge the viability of their investments, investing in something other than a stock index is much riskier. But the stock market itself can still grow.
The distinction is that investing in "the market" is an arms length investment that occurs well after the good or bad investments that affect the profitability of individual companies have occurred.
Maybe over the long term the returns on active investing will simply go to prop traders.
If you have read his past reports you will know that he wants his shareholders (he calls them partners) not to sell their shares. He published some numbers in the past as well where 90% of shareholders don't sell and he is very happy about that.
