Buffett’s Big Bet

Warren Buffett recently bet an ambitious hedge fund operator $1 million that
they won’t beat the returns of S&P 500 after their extremely hefty fees are
accounted for. Buffett claims investors will do as well with a no-load index
fund over the ten years of the bet. He has long been critical of the performance
claims of hedge funds, and his bet is intended to put his money where his mouth
is.

Details here.  Of course, my money is with Buffett.  Even if he doesn’t win the bet he is correct about the advantages of index funds.  The academic research on this topic is voluminous and the lesson is straightforward – mutual fund managers don’t beat the market on average.  Note that this doesn’t mean the market is perfectly efficient but it does mean that *you* are unlikely to beat the market.  For more see my earlier post and also one of Tyler’s.