Earlier this month, Berkshire Hathaway held its annual shareholders meeting. Presiding over the event was Warren Buffett, one of the greatest businessmen of all time.

His influence and perspective as chairman and chief executive of a diversified, multinational company employing 246,000 people always provides a worthwhile view of the global economy and markets.

Over five hours and 50 questions, Buffett and his longtime business partner, Charlie Munger, dispensed some timeless wisdom. As a guest at the event, I was able to appreciate their much good-natured humor and an unvarnished assessment of the current economic situation. In that process, they provided a number of interesting investment ideas and thoughts to contemplate. Among them:

• Consumer behavior has changed dramatically and this change will last a long time.

• The housing market may take another two years to work off its existing inventory excesses. Home sales are picking up but at lower prices.

• China will be a very tough competitor for the U.S. We can't indefinitely buy goods from China with dollars we borrow from them.

• Inflation is going to be an issue at some point. The ultimate consequences of the stimulus plan are unknown.

Our System Works

However, beyond these insights, there were two larger, more consequential takeaways for all investors—but particularly investors partial to using passive investment vehicles. One is economic-related and the other investment-related.

The most important economic lesson emerged when the topic turned to our capitalist system. Responding to a question, Buffett said: "Our system works. Over time, people will live better and better. We have a system that unleashes human potential, and now China has a system that unleashes human potential. We will have interruptions. We overshoot and undershoot sometimes, but your kids and grandkids will live better than you. Over time, we move ahead at a pretty damn rapid rate."

I clapped loudly as he finished because I couldn't agree more. I think that one snippet more than any bank stress test result or earnings report have powered global equities in the past several weeks. We needed someone of Buffett's stature to remind us of our collective productive capacity and reassure us that yes, our future generations have an optimistic future.

Buffett reminded investors that our capitalist systems will allow our economic engines to continue to progress over time. In my opinion, the big idea for all investors is aligning your portfolio such that you participate in the world's productive capacity. No vehicles do this more efficiently than passive vehicles such as ETFs. In general, active management provides exposure to individual companies. Passive vehicles like index funds and exchange-traded funds provide exposure to the economies of the world.

They All Got Creamed

The most important investment lesson came when someone asked about the four "waiting in the wings" investment managers. Buffett has four hand-picked investment managers in his "on deck circle," one of whom will be selected to take over as chief investment officer of Berkshire after his demise.

Highlighting the tough time traditional active managers continually have in selecting individual securities that "beat the market," Buffett indicated all four failed to best the S&P 500 return of -37% in 2008.

Munger added more color and candor. He added: "They all got creamed." (Buffett said that only Wells Fargo CEO Dick Kovacevich is ahead of Charlie in the plain-speaking department.)

After Munger's colorful comment, the fellow sitting next to me in the packed arena remarked: "You'd think at least one of them would have beaten the market."

I'm sure he wasn't the only one among the 35,000 attendees with that thought.

I doubt Munger wanted to pick on any particular manager. But their plight illustrates a stark reality. As the CIO of a large mutual fund complex wearily told me with a hint of resignation in his voice in 2007, "the market is a demanding taskmaster."

As Rob Arnott and John West wrote in an article at IndexUniverse in March 2008, last year was quite possibly the worst 12-month calendar period ever for active management. After discussing the poor performance of his possible successors, I thought Buffett might reprise the comments he made about indexing in his 1996 annual report or at the Sunday press conference after the 2007 annual meeting.

At that press conference, Buffett said: "A low-cost index fund is going to beat a majority of the amateur-managed money or professionally managed money."

As I listened to Munger deliver his "they got creamed" line, I thought: Charlie, you called it two years ago when you said many investors actually fare worse in actively managed funds.

At the same Sunday morning press conference in 2007, he said: "Successful funds attract a massive amount of money and the later performance typically gets mediocre. Then they keep publishing returns for the whole period for someone who started 20 years ago. ... The reporting has falsehood and folly in it."

What It All Means

So what is an investor to do with all of this information? There is no question that it has been one heck of a profitable 44-year ride for that small group of investors who started with Buffett and Munger in 1965. However, only a few of these 35,000 attendees got to take part in that full 44-year ride. A friend of mine attended the 1979 annual meeting ... with seven other people. 

Maybe holding shares of Berkshire will be a market-beating investment strategy the next 44 years, but the odds don't favor it. Even Buffett concedes that at its size, Berkshire can only "hope to be a couple of points better than the S&P over time."

The 35,000 people in attendance at the annual meeting—and millions of others following Buffett's insights—are looking for education, guidance and perhaps above all, a good investment experience. How in the world are they going to get it?

A Better Course Of Action

What is their best course of investment action? The best course of action for most investors is to maximize their probabilities of investment success. How? Build a globally diversified, thoughtfully allocated, balanced portfolio of low-cost ETFs tailored to the investor's individual situation. Use active rebalancing strategies and manage it accordingly.

After listening to Buffett and Munger in person, I am more convinced than ever this approach is best for most investors today. It's a strategy that is now within the grasp of more investors than ever before as ETFs have democratized investing.

And that democratization of investment markets—with the resulting benefits of greater transparency, lower costs and more-efficient as well as personalized portfolio construction—offers the best insurance against Munger's investing bane of "getting creamed."

William Koehler is chief investment officer at ETF Portfolio Solutions. He welcomes comments and suggestions for future columns at:  This e-mail address is being protected from spambots. You need JavaScript enabled to view it .