Why does Buffett favor this approach? He points out that active investment management by professionals, in aggregate, cannot beat the returns of amateurs who simply sit still. This is because the professionals’ high fees, transaction costs, and frequent trading create a significant drag on returns. As he wrote, “When trillions of dollars are managed by Wall Street professionals charging high fees, it will usually be the managers who reap outsized profits, not the clients.”

The beauty of the index fund approach, according to Buffett, is that it provides automatic diversification and protection against human error, emotion, and ignorance. You don’t need to pick winners, analyze financial statements, or worry about market timing. By owning a piece of America’s largest businesses through an index fund, you can participate in the country’s economic growth while keeping costs minimal.

Buffett’s advocacy for index funds might seem ironic coming from someone who made his fortune through active stock picking. However, he recognizes that his success required extraordinary circumstances: decades of experience, unique access to information, and the temperament to ignore market fluctuations. For the vast majority of investors, he maintains that trying to beat the market is more likely to hurt than help returns.

The “know-nothing” portfolio isn’t just for those who lack investment knowledge – it’s Buffett’s recommendation for protecting yourself against the overconfidence and emotional biases that plague most investors, regardless of their expertise level.