Personal Finance

Warren Buffett’s Big Bet

Nine years ago, Warren Buffett made a bet with a hedge fund manager that's about to come due. Buffett bet that a collection of hedge funds would not be able to beat the 10-year return on the S&P 500 . He's now on the verge of winning that bet.

With only a single year left on the wager and the large-cap index up over the best-performing fund by more than 20 percentage points, there seems to be little chance that Buffett will not prevail. Listen in on this week's episode of Industry Focus: Financials to hear what Gaby Lapera and John Maxfield think this means for individual investors.

A full transcript follows the video.

10 stocks we like better than Berkshire Hathaway

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Berkshire Hathaway wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

This podcast was recorded on March 6, 2017.

Gaby Lapera: I don't know if you remember this, but back in 2008, Warren Buffett made this bet with some hedge fund managers, saying that he bet them the S&P 500 would outperform the hedge funds over a 10-year period. And whoever won, so, whoever's moneymaking device went up in a greater percentage over the course of the 10 years, would pay $1 million to a charity of their choice. And we are nearing the end of that. There's only one year left in that competition.

John Maxfield: Yeah, we have one year. To recap, Buffett has basically said, "Nine years ago, I bet a hedge fund manager that a selection of hedge funds that they choose can't beat the S&P 500." So now, fast-forward to today, one hedge fund manager took him up on that offer, selected five hedge-fund funds of funds, that's a hedge fund that invests in other hedge funds, so that gives you even greater diversity, which would presumably give you a better chance to beat the S&P 500. The best of the five funds that this manager selected is up 62.8% since the bet was made. The S&P 500 is up by 85.4%. And that was the best group, by far. The other ones are like 2.9%, 7.5%, 8.7%, and 28.3%.

Lapera: That's so rough.

Maxfield: Yeah. And it just goes to show, and he talked extensively about this in the letter, maybe these investors -- the rate structure for hedge funds, they pay a ton of money for these things -- maybe there isn't as much value there as people think.

Lapera: Yeah, and this is a big thing that Warren Buffett is about, and The Motley Fool, to some extent, too. If you don't have time to closely monitor your investments, consider investing in the S&P 500. It will probably get you a better rate of return over time for much cheaper than a hedge fund, without the potential pitfalls of owning individual stocks. But yeah, I bet those hedge fund managers are kept up at night by this bet.

Maxfield: Yeah, but you know what I love about this? Buffett is basically telling people, "Look, complicated investing isn't necessarily the best investing." The Motley Fool, we're a company that speaks to individual investors that don't have all the money and sophistication to pour into developing models and doing all of these things. And what this shows is, you don't need that to compete in the markets in a competitive way. It's just a reassuring thing for investors, and it's something that I think investors should really listen to, and take that advice.

The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More