Buffett’s 10 year bet proves: Buy the index and beat investment professionals.

By Alec Hogg

Warren Buffett’s annual letter to Berkshire Hathaway shareholders, distributed over the weekend, highlighted the closing out of his ten year bet against hedge funds. It kicked off in the beginning of 2008. Buffett opted for the S&P 500 Index (ie the US stock market) while the counter-party in the bet, Protege Partners, picked five funds of hedge funds.

In six of the ten years, the S&P500 index outperformed every one of five of Protege’s selected funds. And in but one year, the index beat the average generated by the hedge funds. Buffett’s designated charity, Girls Inc of Omaha, received $2.2m from the loser.

Buffett says the big lesson for investors is “stick with the big, easy decisions and eschew activity.” During the 10 year bet, the hedge fund managers involved almost certainly made tens of thousands of buy and sell decisions.

“Most of those managers undoubtedly thought hard about their decisions, each of which they believed would prove advantageous.” But “Performance comes, performance goes. Fees never falter.” Buffett simply bought the low cost index. And won by the proverbial mile.

Visited 71 times, 1 visit(s) today