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Warren Buffett Summarizes Investment Lessons From Winning His 10-Year Bet That A Passive S&P 500 Index Fund Would Outperform Actively-Managed Hedge Funds


In Warren Buffett’s 2017 annual letter to shareholders, released on Saturday, he discussed the ten-year bet he made in 2007 that an unmanaged, low-cost S&P 500 index fund would outperform an actively managed group of high-cost hedge funds over a ten-year period from 2008 to 2017, when performance is measured on a basis net of fees, costs, and all expenses. See posts herehere and here for past coverage of Buffett’s famous bet. Here’s what Buffett wrote about his index fund vs. hedge fund bet in the section of his letter titled “‘The Bet’ is Over and Has Delivered an Unforeseen Investment Lesson” (bold added):

The bet illuminated another important investment lesson: Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta. What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential.

A final lesson from our bet: Stick with big, “easy” decisions and eschew activity. During the ten-year bet, the 200-plus hedge-fund managers who were involved almost certainly made tens of thousands of buy and sell decisions. Most of those managers undoubtedly thought hard about their decisions, each of which they believed would prove advantageous. In the process of investing, they studied 10-Ks, interviewed managements, read trade journals and conferred with Wall Street analysts.


S&P Index Fund 100 year historical


Low fee Index funds

Another article “how to beat 80% of investors with 1% of effort” which I have enjoyed