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Monday, May 2, 2016

Buffett Teaches A Simple Investment Lesson: Fees Matter...But I Do Have a Question

from Bloomberg

Warren Buffett’s biggest investment tip: Be wary of fees.

At the annual meeting of his Berkshire Hathaway Inc., the billionaire warned about the enduring risk of derivatives, defended stocks in his portfolio and signaled that some of the company’s biggest subsidiaries are hitting speed bumps. But he saved a prime portion of the weekend event to argue again why investors would be better off ditching expensive money managers and consultants.
After telling shareholders that he would offer “probably the most important investment lesson in the world,” he said Wall Street salesmanship has masked poor returns for years. Consultants, he added, have steered pension funds and others to high-fee managers who, as a group, underperform what you could get “sitting on your rear end” in index funds. The arrangements “eat up capital like crazy,” he said.
Buffett was building on an argument he’s been making for years about why backing U.S. businesses in aggregate, through low-cost funds, is the more certain way to prosper over the long haul. To make his point, he made a bet that a Vanguard Group Inc. fund that tracks the S&P 500 Index could beat a basket of hedge funds from 2008 through 2017. Proceeds will go to charity.

On Saturday, he gave an update: The bundle of hedge funds picked by Protege Partners had returned 21.9 percent in the eight years through 2015. The S&P 500 index fund had soared 65.7 percent

There is not much to argue with about Buffett's views...or the numbers.

But all of this does raise a question. Why did Buffett structure his bet as hedge funds vs. the index and not hedge funds vs. Buffett (Berkshire Hathaway BRK). And why is it that when asked for investment advice he always recommends investors buy a simple index fund (not invest in BRK) ?

And why has Buffett stated that upon his death his wife's money will be invested in a combination of tbills and an S+P 500 indexcfund (not BRK) ?

It seems Buffett knows that the odds  are against consistently outperforming the market even for him and certainly for his successors ....despite his phenomenal investment success.

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