Bill Ackman Says Most Mutual Funds Can't Fetch You Good Returns: Here's What He Recommends For Retail Investors

Pershing Square Capital Management founder Bill Ackman in a conversation with Lex Fridman shared his views on mutual funds and individual stock investments.

What Happened: Last week, in a podcast interview with Fridman, Ackman expressed skepticism about the value of mutual funds for everyday investors. 

He suggested that most mutual funds are over-diversified and short-term, charging high fees without delivering commensurate returns.

"There are thousands and thousands of mutual funds. There are very few that earn their keep in terms of the fees they charge. They tend to be too diversified and too short-term. And you're often much better off just buying an index fund," he said.  

See Also: Bill Ackman Gains Over $600M On Handful Of Stock Bets, Enters Top-Earning Hedge Fund Managers

The billionaire investor recommended index funds as a better alternative, citing the limited number of mutual funds that consistently outperform the market. Ackman acknowledged a few exceptional mutual fund managers, such as Will Danoff at Fidelity, but he believes they are the exception rather than the rule.

"So there's some great mutual funds, but I put them in the handful versus the thousands. And if you're in the thousands, I'd rather someone bought just an index fund basically," he stated. 

When Fridman asked about the leap for everyday investors to invest in a small number of companies, Ackman suggested, "I even recommend for individual investors to invest in a dozen companies, you don't get that much more benefit of diversification going from a dozen to 25 or even 50." 

The hedge fund titan pointed out the importance of investing in businesses that are easy to understand and analyze, citing Tesla as an example of a company that individual investors understood better than professional analysts.

"Actually individual investors did a much better job analyzing Tesla than the so-called professional investors or analysts, the vast majority of them. So if it's a business you understand, if you bought a Tesla, you understand the product and its appeal to consumers, it's a good place to start when you're analyzing a company," he stated. 

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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