Buffett Did It: He Won $1 Million In His Sleep!

Buffett Did It: He Won $1 Million In His Sleep!
Underwater by Andy Deitsch. Why?

Warren Buffett won a cool $1 million from a 10 year bet that a passive index fund would outperform some actively managed hedge funds

One Of The World’s Richest Men ‘Puts His Money Where His Mouth Is’ By Proving An Index Fund Can Deliver A Better Result Than Managed Investments

An Index Fund Comes Out On Top

Warren Buffett won his 10 year bet against a selection of hedge funds.

Though the real winner is a charity called Girls Inc of Omaha, Nebraska, a non-profit organisation empowering young women, which Buffett has long supported.  It was given the $1 million prize.

Buffett has long been critical of the hedge fund industry, attacking its high fees and its relatively low returns when compared to promises made to investors.  So in 2007, he bet Protégé Partners that a low cost index fund would outperform them.

And boy was he right!

Buffett's S&P 500 index fund compounded a 7.1 per cent annual gain over the decade, surpassing an average gain of 2.2 per cent by the basket of funds selected by Protégé Partners.

The bet saw each party initially put $320,000 into a zero-coupon Treasury bond, which they estimated would be worth $1 million by 2018.  But it was moved into Berkshire Hathaway's class B shares when the bond's value rose faster than expected.  The 11,200 shares they bought in 2012 are understood to have been worth $2.2 million when the bet ended.

Ted Seides, a founder of Protégé Partners, conceded the bet in May 2017, saying:

My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory.

Buffett Has Long Been A Supporter Of Passive Funds

In his annual letter to shareholders of his company, Berkshire Hathaway, he wrote:

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.

Both large and small investors should stick with low-cost index funds.

The world’s second richest person, known to fans as “the Oracle of Omaha”, has estimated the search for outperformance has caused investors to “waste” more than $100 billion over the past decade. 

He recently called Vanguard Group founder Jack Bogle “a hero” for his early efforts to popularise index funds.

So if you want to earn money while you sleep, take a leaf out of Buffett’s book and get to grips with passive funds.

And even when markets fall, passive funds may still be your best bet.

All You Need To Know About Passive Funds

To view a series of articles on passive funds, click the button below.

All About Passive Funds

At 87, Buffett is not intending to retire at any time soon, as you can see in this short video.

Buffett Is Not Just Famous For His Extraordinary Wealth

He’s also famous for his wise and informative quotes on investing and for life. 

According to an article in the Observer, here are 10 of the best.

Unconditional Love Is Huge In This World

I Don’t Work To Collect Money

Live Your Life By An Inner Scorecard

Hang Out With People Who Are Better Than You

You’ve Got To Keep Control Of Your Time

It Takes 20 Years To Build A Reputation And Five Minutes To Ruin It

Stick Within Your Circle Of Competence

Predicting Rain Doesn’t Count. Building Arks Does

Nice People Come In All Colors

The More You Give Love Away, The More You Get

Please Share This

If you’ve found this page of interest, please would you kindly send a link to it to your friends and colleagues using the buttons below.  You’ll be helping us out, and they might like it too.  Thanks, it's much appreciated.


AJ Bell Is Often The Best Value SIPP For Stockmarket Assets

That's our opinion.  Not just because AJ Bell was the first company to offer an online SIPP.  Nor that it's received many prestigious awards.  And not even because the wife of SIPPclub's Founder has an AJ Bell SIPP.  It's because it's one of the most competitive stockmarket SIPPs on the market. 

Over time, charges can wipe out a huge part of your fund.  We like AJ Bell because there are no set-up costs.  If you hold passive funds, which is our preference, or shares, investment trusts, EFTs, gilts or bonds, you pay one small fixed fee no matter how large your fund.  And when you come to draw your benefits either as occasional drawdown or UFPLS payments, there's a small charge for the whole year no matter how many times you access your money (many SIPP and SSAS providers charge more than this for each payment).  However, you should always compare charges in detail, because AJ Bell could be more expensive than other providers, depending on the type of stockmarket assets you hold.

Visit AJ Bell

Get Valuable SIPP And SSAS Insights Emailed Directly To Your Inbox Every Monday

  • Please use an email address you can access. You can unsubscribe at any time.

As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk.  Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.

Please read our full Terms which includes criteria for SIPPclub membership.