Warren Buffett is the second richest man in the world because of his extraordinary performance as an investor. In contrast to his skill and good fortune, he has been quoted many times that he believes most institutions and mum and dad investors are better off investing in low-cost index funds. In fact, he has instructed via his Will that his estate be invested into index funds for his beneficiaries, having said that, the bulk of his estate has been left to a charitable foundation, so the kids may only get $1 billion each. How will they ever survive? Anyway back to the bet.
Mr Buffett was prepared to put his money where his mouth is when he made a Million-Dollar bet with Protégé Partners. He bet that returns are better in low cost indexed funds over a ten year period than in high-fee hedge funds. The bet is now in its eighth year.
Mr Buffett’s fund of choice is the Vanguard S&P 500 Admiral Index Fund, while Protégé’s pick is five funds that bundle hedge funds.
The five hedge funds chosen by Protégé came out on top in 2015, for just the second time in eight years, delivering average returns of 1.7 per cent against Mr Buffett’s index fund’s 1.36 per cent in a volatile year for global share markets, Fortune Magazine reported.
But in the long run, Mr Buffett’s index fund is well in the lead, up 65.67 per cent over eight years, versus the average 21.87 per cent from the hedge funds.
The bet, started in 2008, is backed by Mr Buffett’s own money, and the winner will donate at least $US1 million to a charity of their choice.
I would think Warren Buffett saw a sucker coming when he made this bet considering up to 80% of professional fund managers underperformed the international equities market over the past decade.
Stephen Lowry CFP, DFP, FAIM, is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
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