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Alternative Market Briefing

Comment: Buffett's Lucky Bet

Tuesday, March 07, 2017

Matthias Knab, Opalesque:

Christopher Pavese, Chief Investment Officer of Broyhill Asset Management, writes on Harvest Exchange:

Pilotless planes will routinely fly passengers by 2030. Machine intelligence will have passed the "Turing Test" by 2029.

These are two examples of Long Bets sited in Berkshire Hathaway's annual letter to shareholders.

Of course, the bet that received the most attention was the one that Mr. Buffett placed himself. In 2005, Warren wagered $1,000,000 that no investment pro could select a set of hedge funds that would outperform an S&P index fund over ten years.

Ted Seides, co-manager of Protege Partners, stepped up to the challenge in 2008. And with one year left on the clock, his odds look pretty grim.

Through nine years, the compounded annual increase for the Vanguard S&P Index Fund was 7.1%. Mr. Seides' five picks fell far short of this benchmark, gaining an average of only 2.2% annually through 2016.

Buffett laid out his reasons for the bet in a statement that was posted on the Long Bets website when the bet commenced. Here are his assertions at the time [see image on Harvest] - In other words: If Group A (active investors) and Group B (do-nothing investors) comprise the total investing universe, and B is destined to achieve average results before costs, so, too, must A. Whichever group has the lower cost......................

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