Buffett's big bet: Trailing behind after lap one

The hedge funds - and Buffett's opponent - take an early lead as they trounce the S&P 500 in one of the worst markets on record. But there are nine years to go.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Carol J. Loomis, senior editor at large

Buffett vs. the hedge funds: Which do you think will do better over 10 years?
  • S&P 500 index fund
  • A collection of hedge funds
CDs & Money Market
MMA 0.69%
$10K MMA 0.42%
6 month CD 0.94%
1 yr CD 1.49%
5 yr CD 1.93%

Find personalized rates:

Rates provided by Bankrate.com.

(Fortune magazine) -- Remember "Buffett's Big Bet", in which the noted investor and CEO of Berkshire Hathaway maintained that an S&P 500 index fund would outperform five funds-of-hedge-funds over 10 years? Well, the results for the first lap, the agonizing year of 2008, are finally in, and the funds-of-funds soundly whipped the index. Vanguard's S&P 500 Admiral shares, the index fund "bought" by Buffett, were down 37%. On the average, and net of all fees, costs, and expenses, the five funds-of-funds backed by Buffett's opponent, Protégé Partners LLC, a New York money-management firm, delivered: -23.9%.

Considering that hedge funds can and do sell short, and that they are not limited to investing in stocks, Protégé's victory in a bear market year like 2008 was not surprising to anyone involved in the bet. Ted Seides, the Protégé partner who engineered the bet with Buffett, says that until September of that year the five funds-of-funds were in fact doing well enough that they still anticipated achieving the up year that hedge funds seek to deliver, even in difficult markets. "But when markets failed in the aftermath of the Lehman bankruptcy," says Seides, "the funds couldn't avoid the storm."

Which funds are these, you ask? The bet stipulates that their identities would not be disclosed. Buffett, however, knows their names and has seen their audited results. About his trailing position, he says, "I just hope that Aesop was right when he envisioned the tortoise overtaking the hare."

The reader will note that we said the results of the bet are "finally" in, and therein lies a little story. Originally, the thought was that an update on the bet would be announced each year at Berkshire's annual meeting, held in late spring. But the five funds-of-funds did not have audited financial statements at that time, which made Buffett unwilling to announce results. Only in late October, when the last of the five funds finally delivered its audited figures to Protégé, were complete results known. They were very close to what Protégé had earlier estimated they would be, so it is likely that next year Buffett will indeed announce 2009 "approximate" results at Berkshire's meeting in the spring.

The author of this article is both a friend of Buffett's and the editor of his chairman's letter in the Berkshire Hathaway annual report. To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.