Years ago I had heard about a bet Warren Buffett made in 2007, and then on Tuesday Fortune wrote a follow-up article Warren Buffett adds to his lead in $1 million hedge-fund bet.
In 2007, Buffett made a wager with Ted Seides*, Co-founder, Co-CIO, and President of Protégé Partners, LLC, that the S&P 500 would outperform a collective group of five funds of hedge funds picked by Seides over a 10 year period.
The specific S&P 500 index fund Buffett picked was the Vanguard 500 Index Fund Admiral Shares (VFIAX). The names of the funds of hedge funds picked by Seides have not been published, most likely to conceal the fund managers’ embarrassment as VFIAX has gained 63.5% for the seven years since the initial wager compared to the collective 19.6% return (estimate as 2014 final figures were not available when the article was published) of Seides funds he selected.
The wager is now invested in Berkshire Hathaway B-shares worth $1.7 million dollars. Buffett is just doing what Buffett does best, winning. And if he does win, Girls Inc. of Omaha will be the lucky recipient of the wager.
I know that it is only seven years into a 10 year bet, but the selected funds have A LOT of ground to make up. Also, for those who think they can beat the market, here is another reason you will probably lose that battle.
Chalk one up for the the passive index investors!
* For those thinking “who is this Ted Seides character?” He is a graduate of Yale and Harvard, has his CFA, and co-founded Protégé Partners in 2002. I wonder if some of his investors ever wished they had just bought an index fund?