In 1980, economist Julian Simon had had enough. For the past decade-plus, he had watched Stanford biologist Paul Ehrlich make all sorts of grim predictions about the human race.

For example, in 1968, Ehrlich predicted that 20% of the world’s population would starve to death by 1985. Later, he predicted that England would not exist as a country by the year 2000.

This kind of thinking has its roots in the theories of Thomas Malthus. (Not that you asked, but I think Malthusianism has had far too much influence in both academia and the larger public for far too long. It’s one of those theories that has a nasty habit of influencing some of history’s absolute worst ideas.)

#-ad_banner-#Despite all of the hand-wringing and pearl-clutching, nothing seemed to ever come of these prognostications. So Simon thought it was time to make a little wager with Ehrlich…

If the predicted world population explosion transpired, leading to the vast depletion of natural resources, then the prices of commodities would naturally skyrocket. So Simon challenged Ehrlich to buy $1,000 in any mix of commodities he chose. Then, after a 10-year period, if prices were higher, Simon would pay the difference. If prices were lower, then Ehrlich would cover the difference.

Ehrlich chose to bet his $1,000 evenly among five commodities: chrome, copper, nickel, tungsten and tin. And over the ensuing 10 years, although the global population exploded by 800 million, the value of the commodities crashed. As a result, Ehrlich owed Simon $576.07 and settled the bet.

There are a few things we can take away from this story, some of which I won’t get into today. But for the most part, I like this story because it’s often fun to see so-called “experts” who claim they know exactly what’s going to happen be taken down a notch or two by equally smart and capable individuals who are wise enough to challenge such claims.

Or consider another anecdote about the famous sports commentator and Las Vegas book maker Jimmy Snyder — aka Jimmy “The Greek.” In the 1948 presidential election, Thomas Dewey was heavily favored over Harry S. Truman. According to his autobiography, Jimmy The Greek bet against the conventional wisdom (Vegas put the odds against Truman at 17-to-1) by wagering $10,000.

Of course, we all know how that wager turned out. In one of the biggest upsets in election history, Truman won — defying the expectation of just about every so-called expert in the country. (Sound familiar?)

So what was Jimmy’s great insight that led him to make this improbable wager? According to news reports, he claimed that it was because Dewey had a mustache — and American women don’t trust a man with a mustache.

Can Individual Investors Beat The ‘Experts?’
Fast-forward to 2007. We’re in the middle of the worst financial crisis since the Great Depression. Conventional wisdom from the so-called experts said that “buy and hold” investing was a thing of the past. To beat the market going forward, they told us, we would need sophisticated computer algorithms engineered by PhD mathematicians, combined with the god-like expertise of savvy hedge fund managers.

In return for this firepower, of course, the hedge funds would charge substantial management fees and keep a portion of any investment gains made. (Hey, MIT-grads and weekend homes in the Hamptons don’t come cheap, you know…)

Warren Buffett thought differently. So he began repeatedly criticizing hedge funds, so much so that a man named, Ted Seides, a former executive of Protégé Partners proposed a contest. Seides maintained that hedge funds could easily outperform a passive index fund, especially within the span of 10 years. So he proposed a $1 million bet for charity to prove just that.

Seides selected a number of hedge funds on his end, with each employing a different strategy. Buffett, on the other hand, chose the Vanguard 500 Index Fund Admiral Shares — a passive index fund with low fees that seeks to mirror the performance of the S&P 500.

As The Wall Street Journal reports this week, the terms of the bet expire on Dec. 31 of this year. The Vanguard Admiral fund rose 66% from the start of the wager through 2015, compared with a 22% gain for the basket of hedge funds. (The Wall Street Journal points out that the annual figures for 2016, which are reported by Forbes, are not available yet. But the S&P rose 12% last year, while all hedge funds as a group rose 5.5%.)

Still, as the article points out, it would take a massive stock market drop for Buffett to lose this bet.

It’s better to be wise than be an expert. And in Buffett’s case, he has both wisdom and expertise in spades.

A Homework Assignment…
If you want to get a healthy dose of both, then read Warren Buffett’s annual letter to Berkshire Hathaway shareholders, which was released on Saturday. The letter is available to the public online, and I encourage each and every one of you read it this week. Consider it homework if you must, but I can’t stress enough how much value I’ve gotten out of reading Buffett’s letters over the years.

There’s a larger point that I want to stress here, and I know Buffett would agree with me. It’s this: When it comes to investing, it doesn’t have to be complicated.

We’ve preached this at StreetAuthority for the last 16 years. My colleague Jimmy Butts repeats this mantra in practically every single issue of our flagship newsletter, Top Stock Advisor. Yet too many investors are the author of their own demise when it comes to this stuff. Don’t let yourself be one of them.

Be prudent, stay focused — and buy shares of fantastic companies at reasonable prices. That’s it. That’s the big secret of successful investing. Period.

Do this, and you’ll be miles ahead of the average investor. You won’t have to worry about paying outrageous management fees, employing sophisticated technologies to make a trade or anything else. Get that down, and then if you want to wade into something a little more “fun” like trading or options, then by all means do so. When you’re ready, we have some wonderful newsletters here at StreetAuthority that can guide you along in your journey with that.

But first things first… Spend less. Save more. Buy fantastic companies at reasonable prices. (And if you’re interested in having Jimmy and his staff at Top Stock Advisor help out with this, go here.)