Buffett's Bet, S&P 500 Index Fund vs Hedge Funds

Warren Buffett bet Seides and his partners in 2007 ($1 million initially, to go to charity) that an S&P 500 index fund would do better for investors than a hand-picked assortment of hedge funds over the ensuing ten years. Through Dec. 31, the index fund had gained 7.2% a year, far outpacing the 2.6% return of the hedge funds as a group. Buffett made the simple - and empirically airtight - point that the heavy fees collected by hedge funds over time will consume more than 100% of the extra return a fund manager is able to deliver. As it turned out, fees did cost some 2.6% annualized from the hedge funds’ results - but this only deepened the underperformance cause by other means. (source infra)

Michael Santoli's Tumblr — Cry me a river that leads to Omaha  The Fed and other central banks responded to the 2008 financial calamity by dropping rates to zero and keeping them there, driving stocks higher and depriving hedge funds of any income on cash held. The U.S. stock market vastly outran foreign equities, penalizing hedge funds’ global posture. Structural changes in the arena of borrowing and shorting stocks picked hedgies’ pockets as they tried to gain downside market exposure. So, the sharpest, best-connected, most highly compensated tactical predators in the markets (hedge funds) were undercut by central bankers who preferred the world economy didn’t fail and technological progress in trading mechanics - and over seven years they failed as a group to anticipate, embrace or maneuver around these shifts. (read more at link above)

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