Since the “million-dollar bet” first came into existence five years ago against the Wall Street experts, Warren Buffett is currently in the lead.
During the year 2008, the chairman of Berkshire Hathaway made a 10 year long bet with Protegé partner Ted Seides. Warren Buffett put his money in a low-cost S&P stock index fund from Vanguard. Seides chose to put his money in five different hedge funds.
The overall bet states this: whichever person has the best return by the end of the year 2017 – and this includes all costs that will potentially be associated with every fund – will be the absolute winner. They are guaranteed a one million-dollar victory. The proceeds of this bet go to either Buffett’s designated charity, which is Girls Inc. of Omaha, or Seides designated charity Absolute Return for Kids.
Carol Loomis recently reported that the fund Warren Buffett shows is currently up 8.69%. The hedge funds chosen by the Protegé partner have only received a 0.13% average increase.
This is vindication for Warren Buffett who has a long-held belief that the supposed “experts” aren’t able to outperform the stock market overall. He bases this premise on his belief that the so-called “helpers” charge fees which they really cannot justify.
Both of the strategies suffered major losses during 2008, which happened to be the first year that they started this challenge. Loomis also noted that it took both parties this long to get into the black.
When you look at arguments that take place on a website that recorded the wager, Protegé believes that hedge funds are looking to “generate positive returns over time regardless of the market environment” and they aren’t just looking to beat the market. Regardless, through a cycle, “top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well.”
Protegé has a strong belief that there is a major difference between the returns from a top hedge fund as opposed to an average hedge fund, “funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay.”