Buffett Wins Bet

NYPost: The Oracle of Omaha once again has proven that Wall Street’s pricey investments are often a lousy deal. Warren Buffett made a $1 million bet at end of 2007 with hedge fund manager Ted Seides of Protégé Partners. Buffett wagered that a low-cost S&P 500 index fund would perform better than a group of Protégé’s hedge funds.

Buffett’s index investment bet is so far ahead that Seides concedes the match, although it doesn’t officially end until Dec. 31.

The problem for Seides is his five funds through the middle of this year have been only able to gain 2.2% a year since 2008, compared with more than 7% a year for the S&P 500 — a huge difference. That means Seides’ $1 million hedge fund investments have only earned $220,000 [through 2016] in the same period that Buffett’s low-fee investment gained $854,000.

I am shocked that Seides put his money on five funds-of-funds, thus piling fees on fees. It was a loser bet. Mark Perry at Carpe Diem has more of the stats.

In one way, this is another win for index fund investing but there is still an anomaly. The S&P trounced the hedge funds but it still lost to an investment in Berkshire Hathaway! (see addendum) Admittedly the race was pretty close at times but after ten years Berkshire was up 91.5% and the S&P 500 up 69.1%.

Addendum: An astute reader with access to a Bloomberg terminal points out that an investment in the S&P 500 pays dividends while famously Berkshire Hathaway does not. Moreover, when you compare total returns the S&P 500 is up 110.7% over this period and Berkshire is up 91.8% so indexing over this period even beats Buffett!

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