Index Strategy & Portfolio Building
Core-satellite, DCA, and model portfolios
In December 2007 Warren Buffett offered a public bet of \$1 million against any hedge-fund-of-funds manager who could pick five hedge funds whose returns, net of all fees, would beat the unmanaged Vanguard S&P 500 index fund over the ten years from 1 January 2008 through 31 December 2017. One person took the bet: Ted Seides of Protégé Partners. Both sides put up the capital, set the rules in writing, and waited.
Through 2017 the S&P 500 index fund returned a cumulative 125.8%. The five funds-of-funds Seides selected returned, on average, 36.
3%. The index fund did not just win — it won by an order of magnitude on absolute compounded return. Buffett donated his share of the proceeds to Girls Inc.
of Omaha. He published the running scoreboard in his annual chairman's letters every year of the bet, and the final accounting in his 2017 letter.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 5 sections and ends with 3 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Dollar-cost averaging — the discipline that doesn't require timing
- 2Sharpe's arithmetic, plus the index-tracking equation
- 3The Buffett-Protégé bet — ten years, real money, public scoreboard
- 4Where to see this on the platform
- 5Summary