In 2008 Warren Buffet bet $1m that his investment in low cost tracker funds can outperform a group of hedge funds over a 10 year period. He invested his $1m in an S&P 500 index tracker fund, the main US stock market index. The hedge funds were picked by Protege Partners, a New York money manager.
It is 7 years into that 10 year bet and the tracker funds have outperformed the hedge funds. In that period, the tracker funds are up by 63.5% and the hedge funds have grown by 20%. (fortune magazine has been tracking the progress of this bet annually.) The expectations are that the tracker funds will continue to exceed the performance of the hedge fund for the next 3 years unless there is a massive crash in the S&P 500.
The loser of this bet has to pay $1m to a charity of the winner’s choice. We’ll be watching how this turns out for the remaining 3 years.
This is a great live exercise to show you that an average investor can make above market returns without buying into expensive managed funds and beat the experts at their stock picking game.
Why you may not be able to recreate results like this
- The market conditions are not the same
- the group of hedge funds he bet against did not perform very ell in that time period
- the low cots tracker funds that you pick might underperform in that time period.
You can read the full story online here.