[JoshuaEddy]

Warren Buffett put his money where his mouth is: he won his $1m wager on the S&P 500 beating a basket of hedge funds over 10 years. And he won despite buying the S&P right before the great recession -- you'd think the hedge funds would have thrived in that market crash by "hedging". It's one more proof point that the vast majority of hedge funds are more risky than justified by returns, regardless of the amount.

[dsacco]

The salient caveat here is that Buffett's bet was against "fund of funds", not individual hedge funds. I would have happily taken the other side of that bet if it was about individual funds and I was allowed to choose them (Buffett also would have lost in that case, but to be fair it would be a fundamentally different claim to bet on). I'd make such a bet even today.

I don't disagree that most hedge funds are poor investment vehicles, but that's the nature of active investing. If the majority of hedge/mutual funds underperform the market, and you choose to invest in a fund of funds (essentially an index of their net performance), it doesn't really take a $1M bet to see who is going to lose.

I don't think Buffett would take a bet he didn't feel extremely confident about winning, but Ted Seides was just foolish. The only rational reason I can see for taking the other side of the bet given its terms was to generate publicity for himself and his own fund at the expense of some reputation a decade down the line. If he profited from that, I guess it was worth it for him. I really can't imagine he seriously believed he'd win.

[gmarx]

This strikes me as typical gambler mentality. I'd definitely bet against you. I saw your post above about skill and I agree there are people who have better skills at this. The problem is they are operating against a chaotic system. Their way of doing things may get huge returns consistently...until it doesn't.

[leeleelee]

This is 110% true: "Their way of doing things may get huge returns consistently...until it doesn't."

And most people will never fully understand that until it happens to them. Then you have this eye opening moment, and you understand.

[dsacco]

Sure, but when that moment happens over 20 years after you've started your "way of doing things", and you've amassed a giant fortune in the process, your eye-opening moment is not, "Well, I guess I was lucky all those years." Your eye-opening moment is, "Well, it's time to retire my strategy and change my methodology, if I can."

Nothing lasts forever. Conditions change in every arena of competition, not just the market. If a professional basketball player is incredibly successful until their bodies literally begin to degrade, do we raise philosophical questions about the inherent attribution of their skill?

People don't seem to respond well to the quant fund examples, so how about this - how has Warren Buffett consistently beat the market through Berkshire Hathaway? If he ceased beating the market this year, would it because he has been lucky all these years? Would it be because the market conditions that supported his success have fundamentally changed? If so, why does that indicate his performance was due to chance?

[lordnacho]

> People don't seem to respond well to the quant fund examples, so how about this - how has Warren Buffett consistently beat the market through Berkshire Hathaway? If he ceased beating the market this year, would it because he has been lucky all these years? Would it be because the market conditions that supported his success have fundamentally changed? If so, why does that indicate his performance was due to chance?

People were asking this back during the dotcom boom, when he lagged the market by a huge percentage.

Gotta wonder how many Warrens were unlucky enough to have this happen early on in their careers.

[gmarx]

As with many high performers he did it by fantastic returns at some point. I just looked up his returns in a business insider article and a quick calculation indicates that although someone who invested year one got rich, his returns over the past 30 years average to 6% (by my calculation- willing to be corrected)

I recall reading a stock book back in the 1980s that claimed that Buffet's legendary status at the time was entirely due to his purchase of Geico

[dsacco]

Would you like to make a bet on longbets? I'm game.

[gmarx]

Ok stranger on the internet :). How about this. You pick 20 hedge funds. If over the next 20 years they return more to investors after fees and such than the Vanguard S&P 500 Admiral fund you win, otherwise I do?

I'd even let you change your list Jan. 1st of each year as long as we agree that any hedge fund found to be a fraud of some kind counts as a zero in your sum.

This is actually a pretty good bet for you given how poorly one would expect stocks to perform over the next 10 years

[ryandrake]

If you'd be willing to take that Buffet bet using a fund that you choose, then why not instead just pour all of your own money into that "sure thing" fund? Maybe you have, in which case I applaud you for putting your money where your mouth is.

[dsacco]

I would be happy to put my money where my mouth is, which is why I trade with strategies I have developed. If those funds were accepting outside investors for less than 8 figures, I would absolutely invest in them. But the reality is that many hedge funds that achieve that sort of consistent capability soon stop accepting investor capital due to capacity constraints, which leads to a different sort of issue than those returns being fundamentally impossible.