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Buffett’s Bet

Jun 18 2008

Legendary investor Warren Buffett has made an interesting wager with the management of a New York hedge fund. Buffett is betting that over the course of ten years, the hedge fund won’t be able to outperform a passive S&P 500 index fund after fees are considered.

The bet – each side is putting up $320,000, to be held by a third party and invested in a zero-coupon Treasury bond for ten years – is Buffett’s way of ridiculing the high fees charged by hedge funds. Protégé Partners, the other party in the wager, runs a fund of hedge funds. …

An Investment That Seemed too Good to Be True – Because It Was….

May 22 2008

There is a warm place in the Bostonian heart for locals who have become famous (or notorious, at least). One such was Charles Ponzi, the colorful fraud who emigrated to Boston in 1903 with a couple of dollars in his pocket and managed to become a millionaire by 1920 (before he got caught). Although he did not invent the “Ponzi Scheme,” he carried it off with such flair that when it recurs – as it does fairly often – it is invariably referred to by his name. The Associated Press reported recently that the SEC has frozen the assets of

What’s an Index? – An Introduction to Market Indices

May 16 2008

When I meet with a prospective client for the first time, I try to explain a little about my approach to investments. On a couple of occasions when I’ve mentioned “index mutual funds,” someone has asked me, “what’s an index?” I’m always happy to get this kind of question; such questions help me remember that not everyone on the planet is a personal finance geek (and that’s a good thing).

The Earliest US Market Index

The idea of a market index, in the US at least, apparently began with Charles Dow, the founder of the venerable Wall Street Journal. He …

The Sage of Omaha says, “Buy Index Funds”

May 05 2008

The question of whether one should use a passive investment strategy (in which you buy an entire market index) vs. an active strategy (in which you try to figure out which specific securities will outperform and invest in those) is one that can produce passionate responses. Express a strong opinion in favor of one dogma or the other in the midst of a bunch of financial types, and a brawl may ensue.

So it’s interesting to hear that Warren Buffett, who has made his fortune and reputation as an active investor, has publicly opined that index funds can be a …

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