Buffett vs. Hedge Fund Wager: Year 8

Max Osbon - February 24, 2016

Every year at this time we update the results of a friendly one million dollar wager made in 2008 by Warren Buffett. He took the modest S&P 500 index versus five hedge funds handpicked by prominent NY money manager Protégé Partners. It’s a ten-year bet. With just two years left on the clock, who’s looking good and who’s looking for the exit? Here’s the lowdown.

2015 resultsStaying-Ahead-of-the-Curve

The Protégé picks pulled out a big win in 2015, thumping the S&P 500 with a 1.7 percent gain versus the index’s 1.4 percent return. Well, maybe that doesn’t really qualify as a big win, but after six straight years of falling short, it may have felt like one for Protégé.

The hedge funds “won” the first year of the wager, the disastrous year known as 2008, by falling only 24 percent versus a 37 percent loss by the S&P. That was followed by six straight Buffett wins, and now 2015’s near draw.

Cumulative results

Although the hedge funds, in theory, have a much bigger toolbox for producing gains, including short selling, market timing and derivatives, the five funds have an average cumulative gain of only 22 percent for the eight-year period.

Buffett’s side (the bet utilizes Vanguard’s Admiral S&P 500 mutual fund), which does nothing but buy, hold and maintain valuations in line with the index, is up 66 percent, a three-to-one margin.

Two years to go

The Oracle of Omaha would be the first to remind us that it’s impossible to know what will happen over the next two years, but for those of us who believe in the power of indexing and the perils of active management, things look good.

As for Ted Seides, the Protégé exec who orchestrated the wager, he’s probably lost interest in the whole affair. The ultimate winner, by the way, will most likely be Girls, Inc. of Omaha, the charity selected by Mr. Buffett to receive the payout should he prevail.

See ya next year.

Max Osbon – mosbon@osboncapital.com

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