Warren Buffett's Million-Dollar Bet: What Investors Can Learn from His Victory Over Hedge Funds

In late 2007, legendary investor Warren Buffett made a bold wager that would become one of the most instructive lessons in investing history.

Buffett bet $1 million against Ted Seides of Protégé Partners, a firm specializing in selecting hedge funds.

The terms were simple: Buffett claimed that over a ten-year period (January 1, 2008, to December 31, 2017), a low-cost S&P 500 index fund would outperform a carefully selected portfolio of five hedge funds, after all fees and expenses.

Buffett chose Vanguard's S&P 500 Index Fund—a passive investment that tracks the performance of America's largest companies.

Protégé Partners selected five actively managed hedge funds, which employed sophisticated strategies aiming to beat the market. Buffett argued that the simplicity, low fees, and passive management style of index funds would ultimately deliver superior returns compared to the high fees and active management approach of hedge funds.

The results were decisive.

By the end of the ten-year period, Buffett's index fund had delivered an average annual return of approximately 7.1%.

In contrast, Protégé Partners' hedge fund portfolio returned only about 2.2% annually after fees. The difference was so significant that Seides conceded defeat ahead of schedule in 2017.

Buffett donated his winnings—more than $2 million due to investment growth—to Girls Inc. of Omaha, a nonprofit organization dedicated to empowering young women.

This famous bet underscores a critical lesson for investors: high fees can severely erode investment returns over time, and simple, low-cost index funds often outperform more expensive actively managed alternatives.

Buffett's victory serves as a powerful reminder that complexity and high costs don't necessarily equate to better performance—often, simplicity is the smartest strategy.

Disclaimer:

This content is for informational purposes only and does not constitute legal, tax, financial or investment advice. The information provided may not be applicable to your specific circumstances and should not be relied upon as a substitute for individualized professional advice. This article is not intended to create, and it does not constitute, an attorney-client relationship. Megan Walukiewicz Robin is not a registered financial planner, accountant, investment advisor, or broker-dealer. Megan Walukiewicz Robin and Megan Robin Law are not responsible for any losses or damages resulting from actions taken based on the information provided on this website. Circular 230 Notice: Any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under U.S. federal tax law.