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Home>How Buffett won his $1 million hedge fund bet

How Buffett won his $1 million hedge fund bet

How Buffett won his $1 million hedge fund bet


By Mitch Tuchman

The stock market can surprise investors who can't predict the future

Nearly 10 years ago, iconic billionaire investor Warren Buffett took what seemed like a contrarian bet for a professional stock picker.

He bet any comer that a simple, low-cost investment in the S&P 500 would beat a hedge fund strategy over 10 years. On the line was $1 million, to be paid to a charity of the winner's choice.

Buffett(BRKA) (BRKA) won that wager handily, ending the ninth year of the bet up 85.4% vs. 22% for a collection of five hedge funds. The hedge-fund manager who took him on has thrown in the towel, conceding that a passive investment in the stock market was unbeatable (http://www.rebalance-ira.com/news/index-funds-still-beat-active-portfolio-management/?utm_source=marketwatch&utm_medium=column&utm_campaign=buffett-hedge-bet-2017-09-28&utm_content=mt).

In annualized terms, Buffett's low-cost index fund investment grew by 7.1% a year, compared with 2.2% for the hedge funds.

The losing hedge-fund manager, a remarkably good sport named Ted Seides, later wrote a footnote on the loss in the form of an online column. Essentially, Seides wrote, Buffett's win was more about luck than skill.

Crystal ball

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