Warren Buffett Won His 10-Year Bet Against Hedge Funds. Here's What the S&P 500 Has Done Since It Ended.
Key PointsThe S&P 500 index fund in Buffett's bet returned 125.8% from 2008 through 2017, topping all five funds of hedge funds chosen against it.
In December 2007, Warren Buffett dared five hedge funds to outperform a low-cost index fund tracking the S&P 500 over a 10-year period from 2008 to 2017. The index fund proved victorious, delivering a 125.8% return over the decade, or roughly 8.5% annually. In contrast, the hedge funds managed returns ranging from 2.8% to 87.7%.
With dividends reinvested, the S&P 500 index fund has since more than tripled in value, outpacing the hedge funds' collective gains. However, the index fund experienced a 37% decline in its first year, the same year the financial crisis began. Despite this initial setback, the index fund's annual returns averaged around 15% over the subsequent nine years, nearly matching the 10-year performance of the bet's winner.
The hedge funds, on the other hand, failed to keep pace, with one liquidated in 2017 and the others underperforming. While the index fund's nearly 15% annual return over the past two years reflects its resilience, investors should consider that the period before the bet began, marked by the financial crisis, artificially boosted the index fund's performance.
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