Index Funds – The Occam’s Razor of Investing
I think most of us will agree that the finance industry is home to a lot of people who should not be trusted.
So how do you find unbiased credibility in a world where incentives distort everything so significantly?
Here are two sources I consider to be among the most trustworthy:
Academia – Those who take a largely statistical approach to investing and spend their careers advancing knowledge rather than accumulating client wealth.
Warren Buffett – The world’s most successful investor, who built his fortune with unshakable integrity and without charging investment management fees to his shareholders.
Now, Buffett and the academic world of finance disagree on plenty - whether it’s the Efficient Market Hypothesis, Modern Portfolio Theory, or whether Buffett’s track record is the result of extraordinary skill or statistical luck. There’s a strong divide between the two camps.
And there are valid reasons not to fully subscribe to either.
Trying to be like Warren Buffett and pick stocks requires a level of genius, discipline, and lifetime dedication that very few possess or can maintain. Sometimes it's best to admit to yourself that you're not the next Cristiano Ronaldo or Lionel Messi.
On the other hand, relying solely on academia can sometimes be out of touch with the messy reality of business. Not everything meaningful in investing can be measured or modelled statistically. As the saying goes, “to a man with a hammer, everything looks like a nail” - and sometimes, the real world simply doesn’t fit the model.
But what’s fascinating is this: despite all their differences, Buffett and academia agree on one thing.
That most people should just invest in index funds.
And by “most people,” we don’t mean 60% of investors - we mean virtually everyone, including most professionals. The reality is that even experienced investors rarely outperform the market consistently over long periods once costs and human behaviour are factored in.
Ironically, the best way for most people to outperform their peers is to aim for the average — something our egos, understandably, resist accepting. But in this case, that humility is exactly what works.
Why Index Funds?
Index funds don’t try to beat the market - they simply mirror it. That might sound uninspiring, but consider the alternatives: high fees, emotional decision-making, market timing mistakes, and the constant temptation to chase performance (crypto, meme stocks, day trading, etc.).
Over time, the data is clear: low-cost, broadly diversified index funds outperform the vast majority of actively managed funds. Not because they’re clever, but because they’re simple: they capture a share of global corporate profits at a low cost.
In this way, index funds are the Occam’s Razor of investing: the simplest solution that works better than the complex ones. No elaborate strategies, no insider edge - just a quiet, consistent method that leaves more expensive approaches in the dust over time.
Thank you for reading. For the avoidance of doubt, this article does not constitute financial advice.