In 2007, Buffet made a one million dollar bet with Ted Seides of Protege Partners that over a period of 10 years, a low cost S&P 500 index fund would deliver a better return to investors than any five hedge funds hand picked by Ted.
The bet matures this year and the results show that Buffet is set to win by quite a margin.
The results indicate that in seven of the nine years, the Vanguard S&P 500 has beaten the average of all 5 hedge funds selected. The overall gain to date shows that the index fund is at least 20% clear of it's nearest competitor.
Buffets reasoning is quite clear:
If "passive investors" invest in index funds that track the average movement of the market- they must by definition do average. If this is true than the "active investors" (those that try to maximise their returns by investing more strategically and with less diversity) must as a whole, also be doing averagely.
The key difference between these two groups is that the active investors are paying significantly higher fees to their fund managers. It's these fees that give the index fund the edge. Buffet has continued to advocate for low cost index funds in his latest Berkshire Hathaway letter.
What does r/investing thing about the whole thing? Buffet isn't claiming that it's impossible to beat the market. But he mentions in his letter that it's a lot more difficult to pick the right investment managers than you think.
This quote stuck out to me:
“There are, of course, some skilled individuals who are highly likely to out-perform the S&P over long stretches. In my lifetime, though, I’ve identified – early on – only ten or so professionals that I expected would accomplish this feat.”
If one of the greatest and well connected investors in history claims to only know ten or so professionals who could reliably outperform the market, what hope do the rest of us have?
Submitted March 03, 2017 at 07:49PM by Dont_Prompt_Me_Bro http://ift.tt/2mWg9Gz
