Stop, Look and Listen: Advice From Two Investing Titans

(MoneyWatch)  Like many investors, you may be seeking words of wisdom about the next hot stock or superstar fund manager. If so, you'd be much better off listening to the advice of some of the best money managers of today.

In his letter to company shareholders, Berkshire Hathaway CEO Warren Buffett (one of the richest men on the planet) showed the yearly returns of the S&P 500 Index and Berkshire Hathaway since present management took the helm:

In 75% of those years, the S&P stocks recorded a gain. I would guess that a roughly similar percentage of years will be positive in the next 44. But neither Charlie Munger, my partner in running Berkshire, nor I can predict the winning and losing years in advance. (In our usual opinionated view, we don't think anyone else can either.

David Swensen, who manages the Yale University endowment, offered numerous nuggets for investors in a recent interview with NPR. He recommended that investors get out of actively managed mutual funds and into index funds. His research has shown that the odds are 100 to 1 that investors are better served by investing in index funds:

That's because most so-called actively managed mutual funds -- the ones that pay managers to pick stocks -- charge such high fees that the fees more than eat up the added returns they're able to achieve, he says. So, in effect, you're losing money by paying for this active management, Swensen says.

The advice from these two giants goes hand-in-hand. For one, studies have shown that active managers don't outperform the market consistently. Worse, they never seem to lower their fees whenever they have a bad year. Avoid them.