Warren Buffett’s fortune is $517 billion. He works for Berkshire Hathaway as a CEO, having wagered $1 million that the S&P 500 stock index would outperform hedge funds, per a 20916 letter to Berkshire shareholders. His prediction was that people who invested actively would fail while passive investors would yet succeed. The only person to take Buffett up on his bet was Ted Seides, the former co-manager of Protégé Partners. The wager was between the low-cost Vanguard index fund and Seides’s choices of Protégé hedge funds, which gained 2.2% compounded annual basis nine years before 2016 versus 7% for the S&P 500.
Buffett had $1 million invested in those hedge funds, gaining $200,000. The Vanguard index fund would have gained $854,000. Buffett is often making decisions contrary to what is popular or what other people are doing. His wife would be getting 90/10, which meant that 90% of the cash would be put into a low costs S&P 500 fund while the other 10 would be allocated as a government bond. The S&P is a stock market index tracking 500 stocks in the U.S., the acronym meaning Standard and Poor.
The market cap of $100 billion means a company receives 10 times the representation despite another company being $10 billion, which means they will receive less representation. 50% of corporation stock is available to the general public at prices of $1 per share or more. Passive investing means that buying and selling to a minimum while avoiding fees that can rack up due to frequent trading. Passive investing is a buy-and-hold strategy. Passive investing does require a method for investors to trade index funds as if they were stock. Investors panic when there is no stock price. Buffett recommends that his family use index funds before he passes, leaving his fortune to his wife.