Warren Buffett wins $1M bet made a decade ago

[twenty02]

10 years ago Warren Buffet "offered to bet that over a ten-year period from January 1, 2008 to December 31, 2017, the S&P 500 index would outperform a portfolio of funds of hedge funds when performance is measured on a basis net of fees, costs and all expenses." Of "thousands of professional investment managers who have amassed staggering fortunes by touting their stock-selecting prowess, only one man – Ted Seides – stepped up to my challenge." Now "Buffett’s index investment bet is so far ahead that Seides concedes the match, although it doesn’t officially end until Dec. 31." "In conceding defeat, Seides said the high investor fees charged by hedge funds was a critical factor. Hedge funds tend to be a good deal for the people who run the funds, who pass on big bills to the investors." "A $100,000 investment at the beginning of 2008 would have more than doubled to about $208,000 at the end of August this year, compared to only about $142,000 invested in the average hedge fund."



https://www.aei.org/publication/war...500-stock-index-would-outperform-hedge-funds/

 

[JamieDimonsBalls]

10 years ago Warren Buffet "offered to bet that over a ten-year period from January 1, 2008 to December 31, 2017, the S&P 500 index would outperform a portfolio of funds of hedge funds when performance is measured on a basis net of fees, costs and all expenses." Of "thousands of professional investment managers who have amassed staggering fortunes by touting their stock-selecting prowess, only one man – Ted Seides – stepped up to my challenge." Now "Buffett’s index investment bet is so far ahead that Seides concedes the match, although it doesn’t officially end until Dec. 31." "In conceding defeat, Seides said the high investor fees charged by hedge funds was a critical factor. Hedge funds tend to be a good deal for the people who run the funds, who pass on big bills to the investors." "A $100,000 investment at the beginning of 2008 would have more than doubled to about $208,000 at the end of August this year, compared to only about $142,000 invested in the average hedge fund."

https://www.aei.org/publication/war...500-stock-index-would-outperform-hedge-funds/

Yawn. This is such a non-story. Aside from the fact that the index was a FoF, there are zero details about the components of the index.

 

[twenty02]

Yawn. This is such a non-story. Aside from the fact that the index was a FoF, there are zero details about the components of the index.

Yes, it was FoF....but what's your opinion of the overall premise? I've seen little evidence that active managers can beat broad indexes over a long time-period (say, a decade).

 

[IUJIM]

Yes, it was FoF....but what's your opinion of the overall premise? I've seen little evidence that active managers can beat broad indexes over a long time-period (say, a decade).

And indexes NEVER beat their respective index.

 

[JamieDimonsBalls]

Yes, it was FoF....but what's your opinion of the overall premise? I've seen little evidence that active managers can beat broad indexes over a long time-period (say, a decade).

I agree for the most part. The problem for HFs was the crowding of the space with capital and reduction in the number of public equities. It's quite difficult to outperform as an active manager with so few public companies relative to prior decades. Same thing is beginning to happen with Private Equity.

 

[twenty02]

I agree for the most part. The problem for HFs was the crowding of the space with capital and reduction in the number of public equities. It's quite difficult to outperform as an active manager with so few public companies relative to prior decades. Same thing is beginning to happen with Private Equity.

That makes sense.

Were you the one that shared the idea of index funds not being allowed shareholder votes? That's not really related to this....but an interesting idea.

 

[JamieDimonsBalls]

That makes sense.

Were you the one that shared the idea of index funds not being allowed shareholder votes? That's not really related to this....but an interesting idea.

I shared the idea that index funds were going to cease to include any new issues of public equities where shareholders were not pari passu with other investors. Unfortunately, plenty of companies (e.g. Alphabet/Google) have already issued dual or multi-class stock. But, at least it will cut down the sketchy IPOs where the owners maintain too much control and take advantage of retail investors that don't know any better.

In general, my point about hedge funds was more: 1) they shouldn't benchmark against the S&P 500 unless they are long equity-only and 2) funds of funds are a total sham.

I'd never invest in a FoF, no matter what the track record is, even though plenty of smart institutional investors do.

 

[JamieDimonsBalls]

10 years ago Warren Buffet "offered to bet that over a ten-year period from January 1, 2008 to December 31, 2017, the S&P 500 index would outperform a portfolio of funds of hedge funds when performance is measured on a basis net of fees, costs and all expenses." Of "thousands of professional investment managers who have amassed staggering fortunes by touting their stock-selecting prowess, only one man – Ted Seides – stepped up to my challenge." Now "Buffett’s index investment bet is so far ahead that Seides concedes the match, although it doesn’t officially end until Dec. 31." "In conceding defeat, Seides said the high investor fees charged by hedge funds was a critical factor. Hedge funds tend to be a good deal for the people who run the funds, who pass on big bills to the investors." "A $100,000 investment at the beginning of 2008 would have more than doubled to about $208,000 at the end of August this year, compared to only about $142,000 invested in the average hedge fund."



https://www.aei.org/publication/war...500-stock-index-would-outperform-hedge-funds/

Found Einhorn's recent comments to be quite relevant to Buffet and his strategy.

https://finance.yahoo.com/news/einh...150256887.html?_fsig=iUXVmlrrzY25lmbPzihAEA--

The market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy. The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, “it will turn when it turns.”

Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value. What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss? It’s clear that a number of companies provide products and services to customers that come with a subsidy from equity holders. And yet, on a mark-to-market basis, the equity holders are doing just fine.