Hedge Funds Continue to Lose to the Index

Many call it Warren Buffett’s bet against hedge funds. 

Keep in mind the bet doesn’t pit Warren Buffett’s skill against other hedge fund managers. Buffett simply picked the world’s simplest index fund and bet its performance against hedge funds for a 10 year time period.

So what is the bet really? It isn’t Buffett against hedge funds. Rather, it is a challenge to hedge funds to prove aren’t utterly worthless……and they are losing.

There has been a lot of media coverage since the bet was made seven years ago. I wrote about it in the links below:

Hedge Funds for the Massess — Don’t Fall for it

Buffett’s Lead Widens in Bet Against Hedge Funds

As time keeps marching on, it just gets worse and worse for the hedge funds. CNBC, covering the story, stated that Buffett is up 64% while the hedge funds are up 20%. That is a substantial difference! If you started with $1 million invested, the difference is over $400,000.

I can’t impress enough onto families the costs of following more complex and more expensive investment strategies. Most of the time they just don’t work, and on top of the costs, there is a large chance you will miss out on return you could get with a simpler strategy. When you dig into the returns and lost wealth from these ventures, it usually has the feel of running a race with a ball and chain around your foot.

For a family that is investing for multiple decades, the difference can literally be millions and millions of dollars.

 Image by Indiamos