Blog Archive for the ‘Long Bets’ Category

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The Warren Buffett-hedge fund bet tightens

Posted on Wednesday, April 27th, 02011 by Austin Brown
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Warren Buffett and (l to r) Protégé Partners Scott Bessent, Jeffrey Tarrant, and Ted Seides.

Warren Buffett and (l to r) Protégé Partners' Scott Bessent, Jeffrey Tarrant, and Ted Seides.

In 02008, Warren Buffet placed a Long Bet that will take until 02017 to resolve. He predicted that for those ten years, “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.

Below is a summary of how things went in the third year of this Bet, as published by Fortune Magazine:

April 26, 2011 5:00 am

Berkshire Hathaway’s chairman won the 2010 race for investment returns, but Protégé Partners retains the long-term lead.

By Carol Loomis, senior editor-at-large

FORTUNE — We’re three years into Warren Buffett’s 10-year bet with the hedge fund community, and the race has narrowed. For the second year in a row, Buffett’s horse in the contest — an S&P 500 index fund — did better than the average return booked by five funds of hedge funds picked by Protégé Partners LLC, a New York money-management firm.

The Protégé pack, though, built up a big lead in the first year of the bet, the financially torturous 2008, and is still ahead.

This contest, to look back briefly, began when Berkshire Hathaway (BRKA) chairman Buffett, no fan of the transaction and management fees that cut the returns of hedge fund investors, said publicly in 2006 that in a long-term bet he’d back an S&P index fund against hedge funds. Ted Seides, a Protégé partner, picked up the idea, and a bet was negotiated.

The Protégé camp may be out front, but that is not to say either side has done well: Neither is in the black for three years. In a sense, the only winners in this bet so far are the managers of the funds of funds, who’ve been paid fees even if their investors have lost money.

In the wicked start-off year, 2008, Vanguard’s Admiral shares — the index fund carrying Buffett’s colors — fell by a dismal 37%, and Protégé’s picks had an average loss of “only” 24%.

In the next year, 2009, the S&P index gained 26.6% to the funds’ 16%. And last year’s results — being announced here for the first time — showed the S&P rising by 15% vs. the funds gaining, on average, 8.5%.

The three-year record, therefore, puts the Protégé funds of funds in the lead with a loss of 4.2%, against the S&P’s even greater loss of 8.18%.

The year-by-year results display unsurprising patterns: Given the ability of hedge funds to sell short and invest in financial instruments other than stocks, they are the odds-on favorite in a bad year for the market — a 2008, for example — than the long-only S&P. Conversely, in a good year for the market, when many funds may continue to hedge with part of their assets, the S&P has the advantage.

Followers of this bet will remember that the names of the five funds of funds have never been disclosed — though Protégé itself runs funds of funds and the biggest of these, called Protégé Partners LP, may be assumed to be among the five.

Another reminder: The stake is $1 million — so to speak, because there’s a present-value factor built into the bet. At its start, each side put up $320,000, with the total going to buy a zero-coupon bond that will be worth $1 million when the 10-year competition is over. That money is to go to the charity that each side designated at the outset. (Buffett’s charity is Girls Inc. of Omaha; Protégé’s is Absolute Return for Kids).

The party holding the zero-coupon bond is the Long Now Foundation of San Francisco, whose wish to promote long-term thinking led it to set up a mechanism called Long Bets. On its site,, you can read the predictions that various prognosticators have made about who will win the Buffett-Protégé contest.

There are no recent posts because Long Bets ran into a spam problem and for a time wouldn’t accept comments. It will take them now, though — so you’re invited to weigh in.

The writer of this article is a longtime friend of Warren Buffett’s and the editor of his chairman’s letter in the Berkshire annual report.

Long Bet on Peak Travel

Posted on Monday, January 10th, 02011 by Austin Brown
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One of the miracles of the modern world is our capacity for getting around – hop on a plane, nap a few hours, and you’re on the other side of a continent!  Technologically enabled, we’ve embraced this ability with gusto and are currently more mobile a species than ever before.  But, according to a pair of Stanford researchers, the industrialized world is mellowing on this trend a bit. They claim that travel in several countries may have peaked earlier this decade:

A study of eight industrialized countries, including the United States, shows that seemingly inexorable trends — ever more people, more cars and more driving — came to a halt in the early years of the 21st century, well before the recent escalation in fuel prices. It could be a sign, researchers said, that the demand for travel and the demand for car ownership in those countries has reached a saturation point.


A Long Bet placed in 02005 hinted at this potential, though it imagined a more dire mechanism: peak oil. While the necessary statistics to certify Long Bet 197 won’t be published for some time yet, they’ll come from the U.S. Bureau of Transportation Statistics and tell us whether highway vehicle miles traveled in the U.S. for 02010 exceeded those of 02005.  The Bet is that they’ll actually be lower – essentially that Americans collectively drove less in 02010 than in 02005.

The scenario imagined by predictor Daniel Simon in 02005 was that an energy crisis brought on by peak oil production would push up the cost of personal motor vehicle travel enough to halt or reverse its growth.  Glen Raphael was doubtful enough to put up the money for a Bet and explained he expected growth to continue.  Read their full arguments Long Bets.

According to the BTS table they provided as a reference for adjudication, total vehicle miles travelled in 02005 were 2,989,430.  The most recent year published on that table is 02008 and it checks in at 2,973,509 – almost 20,000 miles fewer.  So, we can’t finalize the Bet as of yet, but the data we’ve got is in line with the Stanford study as well as Simon’s prediction, despite a seemingly more mundane overall picture.

Check back in a year or two for the exciting conclusion!  (Also, if you or someone you know works at BTS, let us know if we’ve missed more recent numbers.)

Is Kurzweil’s future arriving?

Posted on Tuesday, November 30th, 02010 by Alexander Rose - Twitter: @zander
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John Rennie over at IEEE Spectrum has an excellent article on Ray Kurzweil’s 108 predictions for 02009 from his book Age of Spiritual Machines.  Ray Kurzweil is an avid and fearless predictor who also logged the first of our Long Bets with Mitch Kapor.  I think it is great that people are taking the time to do an analysis of the predictions, and finding out how sticky it can sometimes be to adjudicate such things.

Kurzweil also stands by his claim that computer displays built into eyeglasses would project images into users’ eyes because some such systems do exist, and says, “The prediction did not say that all displays would be this way or that it would be the majority, or even common.” Similarly, he defends his claim that translation software would be “commonly used” to allow people speaking different languages to communicate by phone by pointing to smartphone apps that emerged at the end of 2009. He allows that one could quibble about how “common” their use is. [read the complete article]

Wherever you fall on these issues, I think Kurzweil deserves praise for making public predictions, along with those like Rennie and Annisimov who take any predictor to task.

Futurestates: watch, predict the future

Posted on Tuesday, October 5th, 02010 by Austin Brown
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I just happened upon a call for extras (check it out if you’re based in San Francisco) for a film that will be part of a series of sci-fi shorts called Futurestates:

What will become of America in five, 25, or even 50 years from today? FUTURESTATES is a series of 11 fictional mini-features exploring possible future scenarios through the lens of today’s global realities. Immerse yourself in the visions of these independent prognosticators as they project a future of their own imagining.

A major section of the site is the Predict-o-meter where they align predictions made by the creators of the site, predictions submitted by users, and known upcoming events on a single timeline for browsing:

The qubits entangle

Posted on Saturday, October 2nd, 02010 by Alexander Rose - Twitter: @zander
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Nature reports quantum computing researchers achieve “success at entangling three-circuit systems”.

“The entanglement of two or more qubits sets up a ‘superposition’ of states in which calculations can run in parallel — in principle allowing a quantum computer to race through problems that it would take a classical computer eons to solve. Such a quantum machine would require hundreds or even thousands of entangled qubits. The maximum reached so far is 12, but some of the systems that researchers are working with, including those depending on the spins of ions, may be hard to scale up.” [read the story]

While this is progress it does not look like we are on the road to having a commercially available 100 qubit machine by the end of 02010 as predicted on Long Bets:

There will be a quantum computer with over 100 qubits of processing capability sold either as a hardware system or whose use is made available as a commercial service by Dec 31, 2010

Looks like this is a good prediction, but just a few years off.

How good are our predictions of the next 30 years?

Posted on Thursday, May 6th, 02010 by Alexander Rose - Twitter: @zander
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From Craig et al., Can History teach us? A retrospective examination of long-term energy forecasts for the United States. Annu. Rev. Energy and Environment 27, 83(2002)

Stewart Brand sent in a piece by the Klimazweibel blog covered by Seekerblog.  It shows where the actual US energy consumption came in by 02000 vs the predictions from 01975.  It is interesting to see that we came in well below the lowest (read: most optimistic) prediction.  While the US still uses an amount of energy that would be unsustainable if adopted worldwide, it does look like all those energy efficiency programs that we started back in the seventies had a real impact…

Buffett’s longest bet looking better

Posted on Tuesday, April 27th, 02010 by Alexander Rose - Twitter: @zander
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Warren Buffett and (l to r) Protégé Partners Scott Bessent, Jeffrey Tarrant, and Ted Seides.

Warren Buffett and (l to r) Protégé Partners' Scott Bessent, Jeffrey Tarrant, and Ted Seides.

The second year’s results on Buffett’s Million Dollar Long Bet are in.  Article from Fortune Magazine below:

By Carol J. Loomis, senior editor-at-large. April 27, 2010: 9:34 AM ET

(Fortune) — Unaudited results are in for the second year of “Buffett’s Big Bet” — Warren Buffett’s 2008 wager against Protégé Partners that a low-fee index fund will outperform certain funds of hedge funds — and the famous investor has gained some ground on his challenger. In the 2009 segment of the 10-year bet, an S&P 500 index fund — that’s Buffett’s pick — outdid the average performance of the five funds of funds that New York-based money management firm Protégé backs, 26.2% to 15.9%.

But Buffett’s spurt was not enough to undo the lead that Protégé’s funds had racked up in the turbulent year of 2008. True, the standings for the two years combined show both contenders having lost money. But Protégé’s picks are down 11.8%, less than the S & P’s minus 20.2%.

Both sides are measured net of all fees, costs, and expenses. By the terms of the bet, Protégé has never publicly disclosed the names of the five funds it picked. One of them is assumed to be the fund of funds that Protégé itself runs.

Buffett does know the names of the five funds and has seen their audited results for 2008. He will not see 2009 audited results for the funds until later this year.

The two sides, however, agreed last fall that “approximate” results for the previous year would be announced each spring, in time to be discussed by Buffett at the Berkshire Hathaway (BRKA, Fortune 500) annual meeting, which is to take place in Omaha this week, on Saturday, May 1st.

The precise index fund “bought” by Buffett is Vanguard’s S&P 500 Admiral fund
In a sense, the horses in this race have so far run true to form. In an up period for the market, which 2009 obviously was, the general market often beats hedge funds.

But in a bad year, and 2008 certainly fits that description, the short selling that many hedge funds engage in and their freedom to roam beyond stocks allows them to cut their losses and whip the S&P. In 2008, S&P’s Admiral shares were down a devastating 37.02%, The Protégé funds managed to fall by “only” 23.9%.

The money involved in this bet is $1 million — sort of. That qualification is necessary because of a present-value factor. Each side originally put up $320,000 as its wager. The total funds of about $640,000 were next used to buy a zero-coupon bond that will have appreciated to a value of $1 million at the end of 2017, when the bet concludes.

That prize will then go to the winner’s charity. If Protégé wins, it wishes the money to go to Absolute Return for Kids, an international philanthropy based in London. Buffett has designated Girls Inc. to get the money if he wins.

The party holding the money — that zero-coupon bond — is Long Now Foundation of San Francisco, which oversees a mechanism called Long Bets that will pay off the bet. Both Buffett and Protégé have posted arguments on Long Bets’ Website that explain why each thinks its bet will win.

The writer of this article is a friend of Warren Buffett’s and the editor of his annual letter to Berkshire Hathaway’s shareholders. To top of page

Long Bets in 02010

Posted on Thursday, December 31st, 02009 by Alexander Rose - Twitter: @zander
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This year there are several Long Bets and Predictions up for adjudication.  We will be contacting these bettors this year to ask them to make a self assessment of the bet, if the parties cannot come to an agreement we will make a determination.  Some wont be decided officially until the end of the year, but we may have passed the tipping point on some of these already.

We welcome your input as comments on this thread…
A profitable video-on-demand service aimed at consumers will offer 10,000 titles to 5 million subscribers by 2010.

The U.S Department of Transportation Bureau of Transportation Statistics ( will report a lower number of total highway vehicle miles traveled in 2010 than in 2005.

Predictions:  While we dont officially make adjudications on predictions, they are posted for the world the judge.  Tell us what you think.

By 2010 more than 50 percent of books worldwide will be read on digital devices rather than in print form.

Within 5 years all power plants will be converted to full-spectrum laser-fired—all oil/gas/coal/nuclear power plants will be obsolete and retired.

Within the next 5 years, Google employees will become dissatisfied, and kick-start a new wave of new technology and prosperity in Silicon Valley.

The world will not reach ‘Peak Oil’ by 2010.

There will be a quantum computer with over 100 qubits of processing capability sold either as a hardware system or whose use is made available as a commercial service by Dec 31, 2010

By 2010, the use of dial-up modems will represent less than 5 percent of all Internet access (represented as a percentage of all households) in the United States.

The U.S. will not pull all of its troops out of Iraq until the 10 largest corporations in the U.S. use their influence to make it happen. I don’t see this as a possibility until after Nov. 9, 2010 the next mid-term elections.

Failed Predictions

Posted on Thursday, December 3rd, 02009 by Alexander Rose - Twitter: @zander
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Stewart brand set over this excellently illustrated set of failed predictions listed over at Excerpts below:

“It will be years –not in my time– before a woman will become Prime Minister.”
–Margaret Thatcher, October 26th, 1969.

She became Prime Minister of the United Kingdom only 10 years after saying that, holding her chair from 1979 to 1990. But she wasn’t all that wrong since she is the only woman to have held this post. Maybe she should have added the word “again.”

“Rail travel at high speed is not possible because passengers, unable to breathe, would die of asphyxia.”
–Dr Dionysys Larder (1793-1859)

It may sound impossible to Dr Larder, professor of Natural Philosophy and Astronomy at the University College London back in the 1800, but in 1939 the first high speed train went from Milan to Florence at 165 km/h (102.5 mph). Thankfully no one died. Nowadays these trains go at 200 km/h (125 mph) and faster.

This also reminded of what has become my favorite bathroom reading: The Experts Speak by Christopher Cerf and Victor S. Navasky.  It is a brilliant listing of predictions and quotes like the ones above organized by category.  I have been paying attention to books and listings of future predictions since we started the Long Bets project.  The Experts Speak is most certainly the best compendium  I have come across to date.  It turns out there are several books and lists like this as they are endlessly entertaining.  What is curious though is how little attention is paid to good predictions, I have yet to find a good list or book about successful predictions.  I cant tell if its because there are so few correct predictions, or just because they are less interesting to us.

On a side note, the way I found the book was by a round about recommendation from Douglas Adams of all people.  In his last book Salmon of Doubt Adams discusses The Experts Speak along with Stewart Brand’s original idea for Long Bets as he wrote in Clock of the Long Now.

Buffet’s Big Bet Update – Year 1

Posted on Tuesday, November 24th, 02009 by Austin Brown
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It took a while to get all the numbers crunched, but the first year’s results from the Long Bet with the highest prize are in.  Over a year ago Warren Buffet challenged the managers of several funds-of-funds to outperform the S&P 500 over a 10 year period.  A one million dollar charitable donation is on the line and so far Buffet’s opponents, Protege Partners, are doing less bad.  Carol Loomis, author of the original story on the contest, gives us the details:

Remember “Buffett’s Big Bet” (see, in which the noted
investor and Ceo of Berkshire Hathaway maintained that an S&P 500 index
fund would outperform five funds-of-hedge-funds over 10 years? Well, the
results for the first lap, the ago-nizing year of 2008, are finally in,
and the funds-of-funds soundly whipped the index. Vanguard’s S&P 500
Admiral shares, the index fund “bought” by Buffett, were down 37.02%. on
the average, and net of all fees, costs, and expenses, the five
funds-of-funds backed by Buffett’s opponent, Protégé Partners llC, a new
York money-management firm, delivered –23.9%.

Considering that hedge funds can and do sell short, and that they are
not limited to investing in stocks, Protégé’s victory in a bear market
year like 2008 was not surprising to anyone involved in the bet. Ted
Seides, the Protégé partner who engineered the bet with Buffett, says
that until September of that year the five funds-of-funds were in fact
doing well enough that they still anticipated achieving the up year that
hedge fund seek to deliver, even in difficult markets. “But when markets
failed in the aftermath of the Lehman bankruptcy,” says Seides, “the
funds couldn’t avoid the storm.”

Which funds are these, you ask? The bet stipulates that their identities
would not be disclosed. Buffett, however, knows their names and has seen
their audited results. About his trailing position, he says, “I just
hope that Aesop was right when he envisioned the tortoise overtaking the

The reader will note that we said the results of the bet are “finally”
in, and therein lies a little story. originally, the thought was that an
update on the bet would be announced each year at Berkshire’s annual
meeting, held in late spring. But the five funds-of-funds did not have
audited financial statements at that time, which made Buffett unwilling
to announce results. only in late october, when the last of the five
funds finally delivered its audited figures to Protégé, were complete
results known. They were very close to what Protégé had earlier
estimated they would be, so it is likely that next year Buffett will
indeed announce 2009 “approximate” results at Berkshire’s meeting in the

The author of this article is both a friend of Buffett’s and the editor
of his chairman’s letter in the Berkshire Hathaway annual report.