Buffet Slams Wall Street Monkeys

While I agree, the article goes in detail about a bet that Buffet made that started in 2008. Here is what his bet entitled:

"I publicly offered to wager $500,000 that no investment pro could select a set of at least five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match the performance of an unmanaged S&P-500 index fund charging only token fees. I suggested a ten-year bet and named a low-cost Vanguard S&P fund as my contender

The compounded annual increase of the index fund was 7.1% while the average for the five hedge funds selected was 2.2%. Looking more specifically at the returns actually makes it seem more enticing to go into index funds during / following a recession rather than attempting to mitigate risk.

There was also a good deal of volatility during that timeframe which could have allowed hedge funds to capitalize. What is most amazing is that the 5 hedge funds chosen to compete against his chosen index fund averaged only 2.2%. Even in good years some of those funds were down or underperformed pretty badly.

Yeah it held true... Nice try though...

Buffett acts like his shit doesn't stick which pisses off a lot of people

Buffett acts like his shit doesn't stick which pisses off a lot of people

Why do you think he consistently seems to go after active management?

the issue is lumping in all active in one bucket and all index in another bucket. there are certain strategies like low PE, high ROIC, high active share, some quant strategies (ran by the big shops like rentech, DE Shaw, 2 sigma, Citadel) and so on that (over long periods of time) can reliably outperform indices. on the whole, active will NEVER outperform passive, because all of passive + all of active is the market, and if the market is the median return, half of active managers underperform, and those that only barely outperform will turn into underperformers net of fees, so any given year, you have the majority of active managers underperforming net of fees. and that's not true that active managers suffer smaller losses during bear markets, that only holds water if that active manager has been holding a lot of cash and is carrying less beta than the index. my point is that when the next bear growls, people will go back to active management partially because of this perception. if you're young, in the accumulation phase, and don't get spooked by market declines, I'd put most of your money in something that doesn't require a lot of attention. if that's SPY, an active fund, a factor based ETF, whatever it is, just put it on autopilot. most investor success isn't based on whether you outperform or underperform the index by 50bps or even a point or two, it's regularly contributing a high % of your income to global stocks for decades. if you can't stand the thought of potentially paying someone high fees if they underperform, then just buy an index fund (and I'd recommend something like VTWSX that gets the global market, not just US). if you believe there are certain strategies that can outperform over time, pick those funds and stick with them for a long time. or if you're unsure, split the difference. if you want to do it yourself, have the bulk of your money in something that doesn't require attention and then pick a few names you like and see what happens. most outperformance and underperformance comes from investor behavior, not from security selection, at least in my experience.

I'll give you one. Does every active manager that strives for absolute returns has the same risk profile as an index fund?

This is such active management speak. No, you don't need to pay exorbitant fees to an active manager to hedge your risk. You can do this by diversifying between stock/bonds/CDs based on your risk profile. Takes literally