Home > General Topics > Wall St. News > Warren Buffett has won his $1 million bet against the hedge fund industry

Warren Buffett has won his $1 million bet against the hedge fund industry

  1. With 2017 over, Warren Buffett has sealed his victory over hedge funds in a bet he made a decade ago.

    The Berkshire Hathaway chairman in 2007 bet $1 million of his money that the S&P 500 would outperform a selection of hedge funds over the following 10 years. As of last week Friday, his S&P 500 index fund compounded a 7.1% annual gain over that period. The basket of funds selected by Protégé Partners – the managers with whom he made the bet – gained 2.1%, according to The Wall Street Journal.

    Buffett agreed to give the prize money charity. Girls Inc. of Omaha, a non-profit that Buffett has supported a number of times before, is the beneficiary.

  2. As the saying goes....."Simplicity is the ultimate sophistication"
  3. But some of the most expensive, and desired, paintings sold looks like someone swallowed paint and threw up. and sat on around on it.
    It's Complicated. o_O

    Make Trading Great Again 2018, Mattz Zimberg Optimus
  4. Yes, but they were the first ones to "swallow paint and throw up", hence the price. :)
  5. [​IMG]
    as in andy wahorl
    someone took a photograph and pasted it on a canvas.
  6. Well done Mr. Buffett !! Wonder what was his logic behind the brilliant prediction made over 10 years ago?

    Guess he uses the same investment logic to buy stocks and hold them for decades.
  7. He bought the index....S&P 500.
  8. Conclusion: don't bet against Warren Buffett! :D
  9. buffet should give that $1,000,000 to bubble ben bernanke and yellen.......by throwing trillions and trillions and trillioms of dollars into the market and creating QE 1..2...and 3 bubble ben bernanke and yellen created this new market fed induced asset bubble.. without those multiple trillions the markets would have been 75% lower today....the prop job has been fine and dandy...and yellen is still bowing to wallstreet, remember the fed has to give wallstreet what it wants or it will cry like a little bitch..... remember this entire decade old bull market is nothing but fed induced with trillions of dollars!!!

    buffet donate that million to the fed...they helped you win that bet!!!

  10. His logic??? The fed was his logic...the fed spent trillions to prop up the market....of course he's going to win...there is zero logic involved when the fed is pumping markets with trillions of dollars and creating a zero interest market environment....
  11. This prediction was made in 2007 i.e. before the great recession so fed pumping in money to prop up the market can make only partial a case.

    "And while the correlation between the two indices is almost 0.6, the beta of the hedge fund index has consistently been low - about 0.33 over the 20 year period."

    Does this statement make any sense. A low beta instrument will underperform in a rising market.

    There might another logic: HF industry is seeing consolidations i.e. fewer players with bigger funds. It is always tough to return high on a bigger fund until and unless you are playing mere 8-12 stocks like Bill Ackerman and taking high risks.
  12. Well, majority of larger hedge funds have been running a multi-manager type business where they hire a bunch of PMs and manage them as a diversified portfolio. Supposedly, that type of business is not as susceptible to the capacity constraints, but you still have a number of people chasing the same types of phenomena.

    PS. With massive consolidation, I personally expect hedge fund returns to go down even further. What would really destroy the industry is if it underperforms the market in the next downturn.
  13. Hello,

    I heard about this competition years ago. I feel bad for the investors who on earned 2% annual return during this bet.

    I'm sure it feels awful when the regular old working person made more in 401k with sp500 index then someone who invested in a hedge fund years ago.

    The common working person has no business investing in a hedge fund. SP500 index is more then enough.

    If I build a trading system and it does not beat the SP500 index year after year, I suck at trading.