This year-end will see the finalisation of Warren Buffet’s most famous bet. In 2008 Mr. Buffet bet a hedge fund manager USD1m that a passive investment in the S&P500 Index would outperform a basket of hedge funds over a 10 year period ending 31 Dec 2017. As at June 2017, he had a return of 85.4% (7.1% per annum) compared to 22% (2.2% per annum) for the hedge fund basket. Mr. Buffet, therefore, looks on-track to win the bet with a charity of his choice being the ultimate beneficiary of the proceeds.
There are a couple of lessons to be learned from the results of the bet. Firstly, the importance of picking a reasonable investment strategy and sticking with it for the long-term. Secondly, that fees matter a great deal since they eat into long-term investment returns.
What is not as well-known as the headlines of this bet, is that 14% of actively managed US large cap blend strategies outperformed the S&P500 Index, net of fees for the decade ending 31 Dec 2016. Good active managers, therefore, can and have outperformed low-cost, passive instruments such as the S&P500 ETF over long-time periods, net of fees. It is, therefore, important to pick a good long-term investment strategy, with reasonable fees that has the ability to outperform, and to stick with it over the long-term www.fintaxgroup.com.