Buffet's bet

Presume some (maybe me and two others ) might be interested. Proves yet again that passive>active.

http://berkshirehathaway.com/letters/2016ltr.pdf Bet starts page 20.

“The Bet” (or how your money finds its way to Wall Street)

In this section, you will encounter, early on, the story of an investment bet I made nine years ago and, next, some strong opinions I have about investing. As a starter, though, I want to briefly describe Long Bets, a unique establishment that played a role in the bet.

Long Bets was seeded by Amazon’s Jeff Bezos and operates as a non-profit organization that administers just what you’d guess: long-term bets. To participate, “proposers” post a proposition at Longbets.org that will be proved right or wrong at a distant date. They then wait for a contrary-minded party to take the other side of the bet. When a “doubter” steps forward, each side names a charity that will be the beneficiary if its side wins; parks its wager with Long Bets; and posts a short essay defending its position on the Long Bets website.

When the bet is concluded, Long Bets pays off the winning charity.
Here are examples of what you will find on Long Bets’ very interesting site:
In 2002, entrepreneur Mitch Kapor asserted that “By 2029 no computer – or ‘machine intelligence’ – will have passed the Turing Test,” which deals with whether a computer can successfully impersonate a human being.

Inventor Ray Kurzweil took the opposing view. Each backed up his opinion with $10,000. I don’t know who will win this bet, but I will confidently wager that no computer will ever replicate Charlie.

That same year, Craig Mundie of Microsoft asserted that pilotless planes would routinely fly passengers by 2030, while Eric Schmidt of Google argued otherwise. The stakes were $1,000 each. To ease any heartburn Eric might be experiencing from his outsized exposure, I recently offered to take a piece of his action. He promptly laid off $500 with me. (I like his assumption that I’ll be around in 2030 to contribute my payment, should we lose.)

Now, to my bet and its history. In Berkshire’s 2005 annual report, I argued that active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still. I explained that the massive fees levied by a variety of “helpers” would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund. (See pages 114 - 115 for a reprint of the argument as I originally stated it in the 2005 report.)

Subsequently, 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. I then sat back and waited expectantly for a parade of fund managers – who could include their own fund as one of the five – to come forth and defend their occupation. After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?

What followed was the sound of silence. Though there are thousands of professional investment managers who have amassed staggering fortunes by touting their stock-selecting prowess, only one man – Ted Seides – stepped up to my challenge. Ted was a co-manager of Protégé Partners, an asset manager that had raised money from limited partners to form a fund-of-funds – in other words, a fund that invests in multiple hedge funds.

I hadn’t known Ted before our wager, but I like him and admire his willingness to put his money where his mouth was. He has been both straight-forward with me and meticulous in supplying all the data that both he and I have needed to monitor the bet.

For Protégé Partners’ side of our ten-year bet, Ted picked five funds-of-funds whose results were to be averaged and compared against my Vanguard S&P index fund. The five he selected had invested their money in more than 100 hedge funds, which meant that the overall performance of the funds-of-funds would not be distorted by the good or poor results of a single manager.
Each fund-of-funds, of course, operated with a layer of fees that sat above the fees charged by the hedge funds in which it had invested. In this doubling-up arrangement, the larger fees were levied by the underlying hedge funds; each of the fund-of-funds imposed an additional fee for its presumed skills in selecting hedge-fund managers.

Here are the results for the first nine years of the bet – figures leaving no doubt that Girls Inc. of Omaha, the charitable beneficiary I designated to get any bet winnings I earned, will be the organization eagerly opening the mail next January

By any measure Seides is an accomplished professional. If he can’t find five funds that will beat an S&P Index fund – with $500,000 of his own money on the line – then do you think it’s likely your local financial advisor on the High Street in an office above a kebab shop will do any better?

http://monevator.com/warren-buffett-picking-funds-bet/

pure when he saw the thread title, then opened the thread:

A straight index tracker on the S&P probably wouldn't be suitable for too many investors and certainly not those approaching retirement.

I've just transferred my pension and looked really hard at building my own passive asset allocation appropriate for where I am which would have saved me over £17,000 per year in fees.

As it was self-doubt got to me in the end about my own skill so i've given it to the 'professionals' to manage while I take 12 months to educate my self to a point where I feel comfortable in managing my own money.

Originally Posted by tatty

A straight index tracker on the S&P probably wouldn't be suitable for too many investors and certainly not those approaching retirement.

I've just transferred my pension and looked really hard at building my own passive asset allocation appropriate for where I am which would have saved me over £17,000 per year in fees.

As it was self-doubt got to me in the end about my own skill so i've given it to the 'professionals' to manage while I take 12 months to educate my self to a point where I feel comfortable in managing my own money.

Didn't you say you had looked at the Vanguard Life Strategies funds? The same principle applies, but you can pick your equity exposure, and reduce it as you get older.

60% Equity fund
40% Equity fund
20% Equity fund

You can also see the target retirement funds at the bottom of this list:
https://www.vanguard.co.uk/uk/portal...s/all-products

Monevator is a great source for info:
http://monevator.com/is-active-inves...zero-sum-game/

Originally Posted by Switching Off

Didn't you say you had looked at the Vanguard Life Strategies funds? The same principle applies, but you can pick your equity exposure, and reduce it as you get older.

60% Equity fund
40% Equity fund
20% Equity fund

You can also see the target retirement funds at the bottom of this list:
https://www.vanguard.co.uk/uk/portal...s/all-products

Monevator is a great source for info:
http://monevator.com/is-active-inves...zero-sum-game/

Monevator is brilliant and i've learnt a lot the questionable long-term results of active managers.

My initial plan was:

VLS60 with bolt-ons: 10% Emerging Markets tracker, 5% global small cap tracker and the some in property.

The HSBC Global Strat Balanced and L&G MI 5 are probably more balanced in their asset alloacations compared to VLS which is lacking a little.

In the end sucking up a year of charges while I got my head around it seemed the safer option.

Originally Posted by tatty

Monevator is brilliant and i've learnt a lot the questionable long-term results of active managers.

My initial plan was:

VLS60 with bolt-ons: 10% Emerging Markets tracker, 5% global small cap tracker and the some in property.

The HSBC Global Strat Balanced and L&G MI 5 are probably more balanced in their asset alloacations compared to VLS which is lacking a little.

In the end sucking up a year of charges while I got my head around it seemed the safer option.

Yeah thats sensible if you're not comfortable.

We are looking at the L&G MI Income 5 & 6 for some of our trusts where we have income requirements and Vanguard isn't suitable. I like the look of them for our purpose. The MI 5 is top quartile over 3 years, and the team look decent. Personally, I'd still be looking at the Vanguard though, take all the human bias out of it.