"Buffett's logic is that someone who invests in a S&P 500 index fund, by definition, will match the market's performance.
On the other hand, "active investors" as a group will also deliver average investment performance over time -- that is, some managers' investments will do well, and others won't. However, when you add in the cost of actively managed investment options, particularly hedge funds, the result is that the average hedge fund will underperform the market.
From the results of his bet, which competed against five funds-of-funds that represented hundreds of individual hedge funds, it appears his logic was sound. In fact, Buffett estimates that 60% of all the fund-of-funds gains went toward management fees.
Buffett's main point is that when managers charge high fees, the managers may earn tremendous profits -- but investors won't. Therefore, the best investment most people can make, whether they're wealthy or just have a few hundred dollars to invest, is a low-cost index fund such as the one Buffett used for his bet."
Submitted February 26, 2017 at 11:41PM by fejprgj9 http://ift.tt/2l1QTCg
