Buffett’s million dollar bet

Invest like the best with Moneybox.

Warren Buffett, often considered the world’s most successful investor, made a million dollar bet in 2007. He wagered that a simple S&P 500 tracker fund would outperform a basket of five complex hedge funds selected by US based Protégé Partners over a ten year period – and won!

Why did he make the bet?

Buffett has long been a proponent of passively managed, simple low-cost tracker funds.
He has often criticised hedge funds, pointing out that they rarely outperform tracker funds over the long-term, after fees.

Warren Buffet

So what happened?

During the course of the bet, the S&P 500 tracker fund made gains of 7.1% per year on average, compared to Protégé Partners’ 2.2% per year. Buffett won the bet by a very long way!

Why does this matter to me?

Many people think they will get higher returns by paying a fund manager who cherry picks stocks for them. However, Buffett’s bet proves that you don’t always get what you pay for.

“If your wife is going to have a baby you’d be better to call an obstetrician than do it yourself. If your pipes leak, you should call a plumber. Most professions add value beyond what the average person can do for themselves. But in aggregate, the investment profession does not do this.”  Warren Buffet

In fact, when it comes to investing, simplicity is key.

This is why Moneybox helps you invest your money into low cost, tracker funds – just like the one Buffett bet on. If this low cost, long term investing strategy is good enough for the world’s best investor, it’s certainly good enough for us!

 

As with all investing, your capital is at risk and you may get back less than you originally invested. Past performance does not guarantee future performance.