In 2008, Warren Buffett placed a $1,000,000 bet with the smartest hedge fund investors on Wall St.
He bet that over 10 years,an investment in a simple index tracker fund would outperform the very best hedge funds in the world.
The results were quite surprising.
Ted Seides was CEO of Protege Partners, a leading âfund of hedge fundsâ.
It was his job to select the 5 best funds in the world.
All that talent, education and research within the hedge fund companies - and all they had to do was outperform a humble S&P index tracker.
An easy bet to win surely?
Not quite. The hedgies got trounced
After 10 years, Buffettâs plain-vanilla stock fund averaged an annual return of 7.1%
Not bad. đ
But the hedge fund portfolio produced only 2.2% a year after fees.
Not good đ
Buffet won the bet and donated the winnings to Girls Inc, a non profit organisation which exists to support and mentor girls across the US
Buffett said
âWhen trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.
Both large and small investors should stick with low-cost index funds.â
Buffett was saying something that had been known to savvy investors and traders for almost a century, but which had taken a long time to seep into the average investorâs consciousness: Active fund managers have a terrible track record.
And the evidence now is even more compelling.
Standard & Poorâs has been tracking the record of active managers for more than 20 years.
Their 2022 report indicates that when adjusted for fees and for funds dropping out due to poor performance, after five years 84% of actively managed fund managers underperform their benchmark, and after 10 years 90% underperform.
The fund manager results were so bad that in their report, S&P said the performance of active managers âwas worse than would be expected from luck.â
Can you imagine any other industry or profession where the failure rate is 90%?
And yet large fees are still deducted.
Almost every investor would benefit from utilising the humble index fund.
A focus on keeping costs low has been proven to lead to better returns.
I recently discussed the famous Buffett bet, as well as numerous other amazing stories from the world of investment with Robin Wigglesworth editor of FT Alphaville and author of a great new book - Trillions.
Available now on Season 2 of the Bulletproof Entrepreneur podcast. Iâve put a link to the episode in the comments box below đđ»
âTrillions â How a Band of Wall Street Renegades Invented The the Index Fund and changed Finance Forever.â is a fun and entertaining read.
If youâre an investor or you advise clients on their investments - itâs essential reading.
Youâll never invest in an actively managed fund again.
He bet that over 10 years,an investment in a simple index tracker fund would outperform the very best hedge funds in the world.
The results were quite surprising.
Ted Seides was CEO of Protege Partners, a leading âfund of hedge fundsâ.
It was his job to select the 5 best funds in the world.
All that talent, education and research within the hedge fund companies - and all they had to do was outperform a humble S&P index tracker.
An easy bet to win surely?
Not quite. The hedgies got trounced
After 10 years, Buffettâs plain-vanilla stock fund averaged an annual return of 7.1%
Not bad. đ
But the hedge fund portfolio produced only 2.2% a year after fees.
Not good đ
Buffet won the bet and donated the winnings to Girls Inc, a non profit organisation which exists to support and mentor girls across the US
Buffett said
âWhen trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.
Both large and small investors should stick with low-cost index funds.â
Buffett was saying something that had been known to savvy investors and traders for almost a century, but which had taken a long time to seep into the average investorâs consciousness: Active fund managers have a terrible track record.
And the evidence now is even more compelling.
Standard & Poorâs has been tracking the record of active managers for more than 20 years.
Their 2022 report indicates that when adjusted for fees and for funds dropping out due to poor performance, after five years 84% of actively managed fund managers underperform their benchmark, and after 10 years 90% underperform.
The fund manager results were so bad that in their report, S&P said the performance of active managers âwas worse than would be expected from luck.â
Can you imagine any other industry or profession where the failure rate is 90%?
And yet large fees are still deducted.
Almost every investor would benefit from utilising the humble index fund.
A focus on keeping costs low has been proven to lead to better returns.
I recently discussed the famous Buffett bet, as well as numerous other amazing stories from the world of investment with Robin Wigglesworth editor of FT Alphaville and author of a great new book - Trillions.
Available now on Season 2 of the Bulletproof Entrepreneur podcast. Iâve put a link to the episode in the comments box below đđ»
âTrillions â How a Band of Wall Street Renegades Invented The the Index Fund and changed Finance Forever.â is a fun and entertaining read.
If youâre an investor or you advise clients on their investments - itâs essential reading.
Youâll never invest in an actively managed fund again.
