2007 Warren Buffett Bet

In 2007 Warren Buffet made a bet with Ted Seides that a passive S&P 500 index would outperform a basket of hedge funds. This was to take place over a ten year period. In 2017 Warren Buffet won this bet.

The stock that Buffet picked won by such a huge index that Seides conceded the bet before the time was even up. Buffet S&P 50 index gained more than 85% while those chose by Seides rose only an average of 22%. Seides best performing stock only rose 62.8%.

While Buffet’s stocks did not rise much more throughout the remainder of 2017 he still won by a huge amount. The final outcome was Buffet’s stocks had a 7.1% gain and those Seides chose only had a 2.2% gain.

Warren Buffet had pledged to give winnings from the bet to charity. The charity he chose was Girls Incorporated of Omaha. The funds from the stocks were invested in Berkshire Hathaway.

Now Buffet is not saying that investors sell their stock holdings and invest in passive index funds. Most people do not have the knowledge, time, discipline, or desire necessary to picking passive stocks. Buffet states that index funds are the better investment for most Americans.

Buffet’ issue with individual stocks is that they charge high fees. He acknowledged that some fund managers may beat the market others will lose. Over the long run, investors are at a disadvantage because of the fact that all of the funds charge fees.

The reason for the bet was that Buffet wanted to show the public that an investment in an S&P 500 index fund which is available to anyone with as little as a few hundred dollars to invest would beat the results of high-end money managers.

Leave a Reply

Your email address will not be published. Required fields are marked *