Eight years ago, nicknamed “investguru” the head of Berkshire Hathaway Warren Buffett had bet that the U.S. stock index S&P 500 over the coming decade will perform better than the index, the hedge funds, if the latest figures will be included fees from investors. His opponents in the dispute were the management of the investment Fund Protégé Patrners LLC.
Despite difficult markets for 2015 and not less difficult beginning 2016, the forecast Buffett still comes true and in two years he needs to win a bet, writes Marketwatch.
Bet in bet was $1 million Then each party bought for $640 thousand Treasury bond USA, cost of which after ten years will reach $1 million This amount will go to charity regardless of the outcome of the dispute.
Buffett had bet that investments in hedge funds in the long term, given the high fees that have to pay investors cannot exceed the investment in one of the U.S. indices that track the average performance of the market. Protégé Partners, which manages investments in hedge funds that in turn put that funds carefully selected by experts, will perform better than the market and bring more profit to the investor.
In 2008, Buffett explained that betting is concluded, in essence, the dispute about the comparative effectiveness of the two investment strategies is “active” and “passive” investment management. The billionaire has bet that the “passive” strategy in the long run will prove more effective than attempts to outperform the market.
The initiator of the bet made by Protégé after Buffett questioned the Fund’s strategy in one of his speeches. Protégé decided to establish the important terms of the dispute — the names of the chosen five hedge funds, which indicators will be compared with the S&P 500 will not be made public.
By the end of last year, that is, during the eight years of the dispute, the yield of positions in the Buffett Fund Vanguard S&P 500 Index Fund that tracks the movement of the S&P 500 index amounted to $ 65,67%, reported Fortune. The yield of the chosen Protégé of hedge funds at this time amounted to $ 21,87%.
Thus, to win in a dispute the hedge funds you need to overcome the huge gap between their performance and the yield of Vanguard S&P 500 Index Fund. This can happen under two conditions.
First, if will increase significantly the returns of the individual investments already made by the management Device, or the Fund will now take only a few far-sighted investment decisions, which in the future will bring a good return. Before the end of the bet remains two years, and this is a significant period for the stock market.
Secondly, Protégé will be able to win, if the stock market falls on a scale comparable with 2008, but will not go down with him investment. Analysis of the recent financial crisis suggests that the chances of such a scenario is very small, because the first thing that investors with a sharp deterioration of the situation, it’s taking my money, and what happened eight years ago.
At the time of betting in June 2008, Buffett c $62 billion ranked first in the ranking of the richest people in the world by Forbes magazine. On February 20, 2016 the state is almost on the same level — $61,8 billion, while the investor only takes the 13th place among the world’s richest people according to Forbes.