That's questionable. 1998 - 2008 was a catastrophic investment period for the SAP500 (0.8x return or so). 2008 - 2018 was quite good (2-3x)

Warren bet that the S&P 500 would out perform a managed Hedge Fund.

No he didn't. He bet the S&P500 would outperform a fund of funds. That's a colossal difference in meaning.

I think you missed Buffet's message. It was that Manager of Hedge Funds are not worth the fees they charge.

A Collection of Managed Hedge Funds UNDER performed the S&P 500.

Point - Managed funds are worth what they charge.

I didn't miss Buffett's message, because the only message he delivered through the bet was that a fund of funds underperforms the S&P 500. We cannot logically extrapolate the bet's conclusion about the aggregate industry to a conclusion about any particular fund; each fund must be examined on its own weight. There are plenty of fund managers who are worth the fees they charge, and drawing conclusions about their individual performance based on the aggregate performance of the industry is silly. Buffett didn't make any claim about individual funds.

And he would have been wrong 1998-2008, provided that the managed hedge fund literally just kept all their money in cash.

But did hedge funds keep their money in cash? Warren's point is exactly that the funds' decisions are not worth the cost.

It was a broad fund of hedge funds, the HFRI, if I remember correctly.

In particular, their 5% fees and profit (but not loss) sharing.

You're talking about a hypothetical fund with 20/20 hindsight.

Managed hedged funds that put all their money in cash would likely lose money for the investor just from all the fees.

I doubt anyone would pay 2% management fee and a 20% share on profit to a fund who is just going to keep the money in cash. Might as well do it myself for free.

I agree with you, but that isn't the point.

The point is, "Stick it in the SAP 500" would have been a losing proposition. You would have lost 20% of your money, and lost 10 years of opportunity cost to boot.

I get your point. But my point is that I doubt a hedge fund would have been performing better than the 20% loss of the S&P. Maybe it would have incurred a 40% loss. I think that in the investment world, action bias is very strong and literally doing nothing is not seen as a good thing.

We both agree that if you could have foreseen that decade, you would have sold all your stocks in 1998, put it on a savings account, and only have taken it out again in 2008.

I am glad we agree! I also 100% agree that the SAP500 may have performed better than plenty of funds 1998-2008. I'm sure we could even dig some up that did horribly. There were even funds 2008-2018 that liquidated during the Buffett bet :)

Hey, if you know a method to tell which years are better to keep money in cash than stocks (in advance), please, let us know!

You are missing the point. I conceded your point in the thread below.

Anyone who says "just stick it in the SAP500 and you'll make some money" is hiding the fact that even with a 10 year time-frame, that statement is not always true.

1998 - 2008 was a blood bath for many, despite the fact that you had 2 legitimate booms in there.

The question really is. Armed with that knowledge can you do any better without gambling?

If a basket of managed funds did the same or worse in that period then probably not for a passive investor.

I wonder what kind of bloodbath awaits us soon.

I think it's not a one-time-investment at the beginning which is being measured, but a DCA (Dollar Cost Averaging) over a long period.

Ted Seides (who was on the other side of the bet) actually has some interesting counterpoints to make about it: https://www.bloomberg.com/view/articles/2017-05-03/why-i-los...

Not really.

He got beat fair and square and there are no excuses.

The whole point is hedge funds should do better otherwise what's the point of the management fees.

And if the point is to do worse in a rising market and then beat a falling market I can do that by putting 80% money in the S&P Tracker and 20% in cash and I won't charge a massive fee to do so.

The fund of funds index that Ted Seides put in already takes into account management fees -- it's what the investor will actually return.

And I do think it's necessary to put this bet into context, because the ultimate question it is trying to ask is "are managers adding any value?" Any sort of bet is going to be an artificial way to measure that, so the caveats to the bet that: this was during the longest bull market of all time; S&P 500 is USA weighted, which out-performed international counterparts; hedge funds still provided lower volatility are important.

I think the fact that Ted challenged Warren to another 10 year bet (which he refused) does speak to something.