Support Long-term Thinking
Support Long-term Thinking

Warren Buffett Wins Multi-Million Dollar Long Bet

by Ahmed Kabil on February 9th, 02018

SAN FRANCISCO, CA. February 9, 02018.* The Long Now Foundation today announced that it has arrived at a decision for Long Bets #362, popularly known as the “Million Dollar Buffett Bet,” between Warren Buffett and Protégé Partners LLC. Warren Buffett has won the bet, and by a significant margin.

In the bet, Warren Buffett predicted that “Over a ten-year period commencing on January 1, 02008, and ending on December 31, 02017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”

Warren Buffett invested in the Vanguard index fund. Protégé picked five hedge fund of funds (whose names have never been publicly disclosed—although Buffett does see their annual audits).

While Protégé’s position pulled ahead in the early years of the bet, which occurred during the global financial collapse, Buffett’s position more than made up for it, taking the lead for the first time in the bet’s fifth year. Over the decade-long bet, the index fund returned 7.1% compounded annually. Protégé funds returned an average of only 2.2% net of all fees. Buffett’s point, which was well-illustrated, is that when looking at returns, fees are often ignored or obscured. And when that money is not re-invested each year with the principal, it can almost never overtake an index fund if you take the long view.

“In my opinion, the disappointing results for hedge-fund investors that this bet exposed are almost certain to recur in the future,” Buffett said in last year’s Berkshire Hathaway annual report. “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.”

Girls Inc. of Omaha

Buffett and Protégé initially wagered an investment that would become $1 million at the end of the bet, but the bond value appreciated faster than expected, resulting in shifting the investment strategy and growing the winnings to $2.2 million. The winnings will go to the charity of Buffett’s choosing, Girls Inc. of Omaha. Given that Girls Inc. currently has an operating budget of $2.8 million annually, the winnings will go a long way in furthering the charity’s mission to inspire girls to be “strong, smart and bold.”

“Long Bets is honored to have hosted this decade-long wager,” said Alexander Rose, Executive Director of The Long Now Foundation. “It is both gratifying to see long-term thinking winning the bet, and to have such a great outcome for the worthy charity receiving the winning stakes.”

About Long Bets

Long Bets is a public arena for enjoyably competitive predictions of interest to society, with philanthropic money at stake. The Long Now Foundation furnishes the continuity to see even the longest bets through to public resolution.

The Long Bets forum is intended as a tool to improve long-term thinking. We often make statements about the future, but there’s little that compels us to really think about what we say: even the craziest statements will never have to be revisited. We only remember the tiny fraction of statements that turn out to be correct, leading us to think all predictions generally come true.

Long Bets is changing all this by encouraging us to hold ourselves accountable for the predictions we make. We ask all predictors to put their name, a solid argument, and a financial pledge down in support of their statement about the future. And Long Now, in turn, provides a long-term record where any prediction can be revisited, reviewed, and discussed at any time.

How to make a Long Bet

A Long Bet always starts with a prediction. Anyone can visit the Long Bets website and click on “Make a prediction.” All predictions should come with an argument in support, a financial pledge, and an end-date. The minimum term for a prediction is two years; there is no maximum term.

A prediction becomes a bet when a challenger comes forward with a counterargument. The predictor may then choose to make a bet with the challenger. The predictor and challenger will agree on a wager, and each will choose a charitable cause to receive the winnings.

When the end-date for the bet passes, The Long Now Foundation will adjudicate the bet and donate the proceeds to the winner’s charity of choice.

The Long Bets site offers a public record of all predictions and bets. We highly encourage discussion about what we may learn, or what we have learned, from bets and their outcomes. This is what feeds improvement of long-term thinking—the real pay-off.

*The Long Now Foundation uses five-digit dates. The extra zero is to solve the deca-millennium bug which will come into effect in about 8,000 years.