Buffett believes that wide diversification is required only when investors do not understand what they are doing. If these “know-nothing” investors want to own common stocks, they should own a large number of securities and space out their purchases over time. In other words, the know-nothing investor should use an index fund and dollar-cost average purchases. There is nothing shameful about becoming an index investor. In fact, Buffett points out, the index investor will actually outperform the majority of investment professionals.
