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Warren Buffett’s Ten Year Bet, An Update


Back in 2007, Warren Buffett bet Protégé Partners (a high profile hedge fund manager) that the unmanaged S&P 500 index would outperform Protégé’s fund of hedge funds on a net basis when performance is measured after fees, costs, and expenses.  With three years remaining on the bet, Buffett’s lead has widened even more than the last time we wrote about the bet a few years ago.  The index is up 63.5% vs the hedge fund performance up an approximate 19.6% (approximate because hedge funds are not valued daily on a public market) with only three years to go.  In fact, the index outperformed in six of the seven years the bet has been on!

Bottom line is that there are no guarantees that active management will outperform index funds although it all can sound very tempting.  Active management also comes with a higher price tag than index funds and ETF’s that provides an additional drag on performance.  Hedge funds can easily charge 2% plus a performance fee as much as 20% of the annual gains.  The Vanguard Index 500 charges a mere .05%.  So, even if you pay an advisor to help you manage your investments and financial affairs, you will likely pay well under the average hedge fund expense!

Yes, anything can happen in the next three years, but, it’s looking very tough for the hedge fund manager.  Our advice for the average investor… diversify, invest in low cost index products, and hire an wealth advisor that adds value to your life beyond hoping they beat the index!



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