Seth Klarman has some words of advice for regular investors who are following the guidance of Warren Buffett, and others, and are putting their money into stock index funds. “You don’t want to go into index funds, experience a bad market and then bail out,” the founder of The Baupost Group said Tuesday on CNBC’s ” Squawk Box ” in a rare interview. “That’s what investors tend to do. They get in at the wrong time and they get out at the wrong time, so investors who go into index funds should go in with the idea they are going to stay through thick and thin.” Studies have shown the damage investors can do to the value of their portfolios if they try to time the market instead of staying invested for the long term. Bank of America calculations found that since the 1930s, if investors missed the 10 best market days of each decade, their returns would be reduced to just under 30% from more than 17,000% for those who stayed invested. In other words, when using index funds you have to stay in the markets to capture the upside when it comes. The notable value investor also gave one other word of caution on index funds — even as he agreed they were a good vehicle for the unsophisticated investor with their focus on low costs. .SPX ALL mountain S & P 500 long term “I think one of the critical things about the long-term return for investing is that it depends on the entry price. So, if you enter when the market’s very expensive at a high valuation, you may be disappointed because you might match the index, but the index may not do very well from there,” said Klarman. So putting all your money into index funds in one shot could be disappointing if you happen to do it at the top of a bull market. Many financial advisors recommend steady buying over time when investing in index funds. Klarman is the editor of the recently released seventh edition of Benjamin Graham and David Dodd’s investing classic “Security Analysis.”
