Buffett's Million-Dollar Bet: How One Boring Index Fund Beat Wall Street's Best Hedge Funds
In May 2006, in a packed arena in Omaha, Nebraska, the most successful investor alive made Wall Street an offer it should have jumped at.
Warren Buffett said he would bet any professional money manager that a plain, unmanaged S&P 500 index fund would beat a group of hedge funds of their own choosing over ten years. No stock picks. No forecasts. No genius required. Just a fund that buys the 500 biggest companies in America and sits there.
Think about who was listening. Hedge fund managers are among the best-paid people on earth. Their entire business rests on one promise: we can beat the market. Here was a chance to prove it, in public, against an opponent that does not even try.
Buffett later described Wall Street's response in his 2016 letter to shareholders: "What followed was the sound of silence."
For more than a year, nobody stepped forward. Then one man did. What happened over the next ten years became the most famous experiment in the history of investing, and it can change how you think about every dollar you will ever invest.
In this article, I will walk you through the whole story: how the bet was set up, the shocking first year when Wall Street raced ahead, the slow collapse of that lead, the year-by-year scorecard, where the money really went, the fair case for the losing side, and seven lessons you can put to work this week. By the end, you will understand something that many people pay thousands of dollars a year never to learn.
The 60-second version (if you read nothing else) ✔ The bet: From 2008 to 2017, Buffett's low-cost S&P 500 index fund went up against five "funds-of-funds" chosen by hedge fund firm Protégé Partners, which spread their money across more than 100 hedge funds. ✔ The result: The index fund gained 125.8%. The five hedge fund groups gained between 2.8% and 87.7%, an average of about 36%. ✔ In real money: $1 million in the index fund grew to about $2.26 million. The same $1 million spread evenly across the hedge fund groups grew to about $1.36 million. ✔ The main reason: Not a lack of brains. Fees. Buffett estimated that about 60% of the hedge funds' gains went to the managers. ✔ Your lesson: For most people, the boring choice is the winning choice, as long as you can stick with it. |
What you'll discover in this article:
The Challenge Nobody on Wall Street Wanted
The seeds of the bet were planted a year earlier. In Berkshire Hathaway's 2005 annual report, Buffett told a parable about a wealthy family he called the Gotrocks. For generations they owned a slice of every company in America, and they grew richer every year simply by owning it. Then a parade of "Helpers" arrived: brokers, money managers and consultants, each promising the family could do better than everyone else if only they paid a fee. The family kept paying. Their results kept getting worse. The companies had not changed. The costs had.
At the May 2006 annual meeting, according to Fortune, Buffett turned that argument into a dare. He offered to bet any taker that over ten years an S&P 500 index fund would beat a group of hedge funds the taker selected. In his own later telling, the offer was that no investment professional could pick at least five hedge funds that would match a low-cost S&P 500 index fund over a long period.
Then came the silence.
It took until July 2007 for anyone to answer. The man who wrote to Buffett was Ted Seides, co-manager of Protégé Partners, a New York firm whose whole business was choosing hedge funds for wealthy clients. If anyone could pick winners, it should have been someone who did it for a living.
The two men negotiated the terms. Instead of single hedge funds, Protégé would choose five "funds-of-funds," which are funds that spread their money across many hedge funds at once. On December 19, 2007, the wager was set, and it was recorded publicly on the Long Bets website as Bet No. 362. The clock would start on January 1, 2008, and stop on December 31, 2017. Every result would be measured after all fees, costs and expenses.
The stakes: $1 million for charity
Each side put up $318,250 to buy zero-coupon U.S. Treasury bonds that would be worth $500,000 apiece when they matured at the end of 2017. Together, that made $1 million. The winner's chosen charity would get all of it.
Buffett chose Girls Inc. of Omaha, a local charity that supports girls and young women. Protégé chose Absolute Return for Kids, a London-based children's charity.
Both sides were confident. In June 2008, the celebrated Fortune journalist Carol Loomis reported that Protégé put its own chance of winning at 85%. Buffett put his at only 60%. Seides even told Fortune: "Fortunately for us, we're betting against the S&P's performance, not Buffett's."
He had a point. He wasn't betting against the world's greatest investor. He was betting against a fund that has no manager at all.
The Two Teams: Was It a Fair Fight?
On paper, it looked like a mismatch, and not in Buffett's favor.
Team Buffett was a single fund: Vanguard's 500 Index Fund Admiral Shares. It owned the roughly 500 large American companies in the S&P 500, each in proportion to its size. Nobody picked stocks. Nobody forecast interest rates. Nobody tried to predict recessions. According to Fortune, its yearly cost at the time was just 0.07% of the money invested, about $70 a year on every $100,000.
Team Wall Street was a small army. Protégé's five funds-of-funds had their money spread across more than 100 hedge funds. Those managers could do almost anything: buy stocks or bet against them, trade bonds, currencies and commodities, borrow to magnify their bets, and retreat to cash when danger loomed. The funds-of-funds, in turn, could fire weak managers and hire rising stars whenever they liked. These were smart, experienced professionals with every incentive to win.
In almost any other contest, you would bet on the army. More brains, more tools, more freedom. But there was one more difference between the two teams, and it would decide everything. We will get to it shortly.
Key insight The hedge funds had every advantage money can buy: more information, more tools, more flexibility and more talent. The index fund had only one advantage. It cost almost nothing to own. Keep your eye on that difference as the story unfolds. |
Year One: Wall Street Takes a Huge Lead
Then came 2008.
Lehman Brothers collapsed in September. Banks failed or had to be rescued. The global financial system came close to seizing up. Buffett's S&P 500 index fund fell 37.0% in a single year.
This was exactly the kind of storm hedge funds say they are built for, and they delivered. Every one of the five funds-of-funds lost less than the index fund. Their losses ranged from 16.5% to 30.1%, an average of about 23.9%.
After one year, $1 million in the index fund was worth about $630,000. The same $1 million spread across the hedge fund groups was worth about $761,000. Wall Street was ahead by more than $130,000 on every million.
If you had looked at the scoreboard in January 2009, you would probably have concluded that the professionals were right and Buffett had finally made a mistake. Plenty of people did. Acting on that conclusion turned out to be one of the most expensive mistakes an investor could make.
Veteran's note Never judge an investment strategy by its best or worst year. 2008 made hedge funds look brilliant and index funds look reckless. Investors who switched because of that one year locked in the losses of one approach and then missed the recovery of the other. A ten-year question needs a ten-year answer. |
The Slow Collapse of Wall Street's Lead
What happened next did not look dramatic at the time. There was no single day when the hedge funds collapsed. The index fund simply kept compounding, year after year, while the hedge funds' gains were nibbled away.
In 2009, the index fund gained 26.6%. The hedge fund groups gained between 11.3% and 21.4%. In 2010, the index fund rose 15.1% while the hedge fund groups rose between 4.9% and 13.3%. In 2011, a rough year for markets, the index fund still made 2.1%, while four of the five hedge fund groups lost money.
By my calculation from Buffett's published figures, the index fund overtook the average of the five hedge fund groups by the end of 2012, and it never looked back. In 2013, when the index fund gained 32.3%, the best any hedge fund group could manage was 15.2%.
Here is the complete scorecard, exactly as Buffett published it in his 2017 letter to shareholders. All figures are after fees.
Year | Fund A | Fund B | Fund C | Fund D | Fund E | Index fund |
2008 | -16.5% | -22.3% | -21.3% | -29.3% | -30.1% | -37.0% |
2009 | 11.3% | 14.5% | 21.4% | 16.5% | 16.8% | 26.6% |
2010 | 5.9% | 6.8% | 13.3% | 4.9% | 11.9% | 15.1% |
2011 | -6.3% | -1.3% | 5.9% | -6.3% | -2.8% | 2.1% |
2012 | 3.4% | 9.6% | 5.7% | 6.2% | 9.1% | 16.0% |
2013 | 10.5% | 15.2% | 8.8% | 14.2% | 14.4% | 32.3% |
2014 | 4.7% | 4.0% | 18.9% | 0.7% | -2.1% | 13.6% |
2015 | 1.6% | 2.5% | 5.4% | 1.4% | -5.0% | 1.4% |
2016 | -3.2% | 1.9% | -1.7% | 2.5% | 4.4% | 11.9% |
2017 | 12.2% | 10.6% | 15.6% | Closed | 18.0% | 21.8% |
Total gain | 21.7% | 42.3% | 87.7% | 2.8% | 27.0% | 125.8% |
Per year | 2.0% | 3.6% | 6.5% | 0.3% | 2.4% | 8.5% |
Fund D was liquidated in 2017, so its yearly average covers nine years. Source: Berkshire Hathaway 2017 shareholder letter.
Notice something important. The hedge funds were not foolish, and they were not always behind. Fund C, the best of the five, beat the index fund in 2011, 2014 and 2015, and several groups edged ahead in 2015. Over ten years, though, not one of them came close.
The Final Scorecard: $2.26 Million vs. $1.36 Million
When the final bell rang on December 31, 2017, the S&P 500 index fund had gained 125.8%, or 8.5% a year. The five hedge fund groups had gained 21.7%, 42.3%, 87.7%, 2.8% and 27.0%.
Now translate that into money. $1 million in Buffett's index fund became about $2.26 million. The same $1 million split evenly across the five hedge fund groups became about $1.36 million. The difference was roughly $895,000 on every $1 million invested. That was the price of the "sophisticated" option.
Buffett had already shown the trend a year earlier. In his 2016 letter, he reported that after nine years the index fund had compounded at 7.1% a year, against just 2.2% for the funds-of-funds. On $1 million, that meant a gain of $854,000 for the index fund versus $220,000 for the hedge funds.
Seides did not wait for the final whistle. In May 2017, with about eight months still to go, he published an essay in Bloomberg View titled "Why I Lost My Bet With Warren Buffett." His admission was honest and gracious: "for all intents and purposes, the game is over. I lost."
In early 2018, the money went to Omaha. Girls Inc. of Omaha received $2,222,279. According to reports in Fortune and on CNBC, the charity planned to use it to help provide housing for young women who had aged out of the foster care system.
Hold on. $2.2 million? The bet was for $1 million. That is the next part of the story.
The Bet Inside the Bet: How $1 Million Became $2.2 Million
The two sides put up about $636,500 that was supposed to grow into $1 million. Yet the charity received more than $2.2 million. How?
The answer is a second lesson hiding inside the first, one Buffett himself said he never saw coming when the bet began.
In 2008, those zero-coupon Treasury bonds were expected to earn about 4.56% a year, just enough to turn $636,500 into $1 million by the end of 2017. But after the financial crisis, interest rates collapsed. By November 2012, the bonds were yielding only about 0.88% a year. Their price had already risen so much that there was almost nothing left to gain.
So Buffett and Seides agreed to sell the bonds and put the money into 11,200 shares of Berkshire Hathaway Class B stock instead. Buffett's reasoning was simple. Berkshire was very likely to grow by at least 8% a year over the following five years. The bonds would earn less than 1%. Over time, 8% was almost certain to beat 0.88%, and by a lot.
It did. The Berkshire shares grew the pot to $2,222,279, more than double the original target.
The lesson Buffett drew from it deserves a place on every investor's fridge. In plain words: stick with big, easy decisions and avoid needless activity. The switch from bonds to stock was not a clever trade. It was an obvious call about which asset would grow more over five years. Once it was made, nobody touched it.
Key insight Buffett's two best decisions in this story were both simple. First, buy the whole market cheaply. Second, when the math clearly favored owning businesses over owning bonds, switch once and sit still. Neither decision required a forecast. Both required patience. |
Where Did the Money Go? Inside Wall Street's Fee Machine
So why did a team of highly paid, highly skilled professionals lose to a fund with no manager at all? It wasn't a lack of intelligence. It was arithmetic.
Hedge funds traditionally charge what the industry calls "2 and 20": a management fee of 2% of your money every year, whether they make you money or not, plus 20% of any profits. Funds-of-funds then add their own layer on top, usually around 1% of assets a year.
Look at what those layers do to a good year:
In this simple illustration, $1 million earns $100,000 before fees. The hedge fund takes $20,000 for managing the money and another $16,000 as its share of the profit. The fund-of-funds then takes $10,000 more. You keep $54,000, barely half of what your own money earned.
This is not just a classroom example. Buffett estimated in his 2016 letter that roughly 60% of all the gains the five funds-of-funds achieved over nine years went to the two layers of managers. In his 2017 letter, he noted that the fixed fees alone averaged about 2.5% of assets a year. And he summed up the whole bet in six words that every investor should memorize: "Performance comes, performance goes. Fees never falter."
Buffett also did some rough math for the wider industry. He estimated that wealthy investors' search for superior advice had cost them, in total, more than $100 billion in wasted fees over the previous ten years.
Now apply the same logic to your own savings over a lifetime:
$100,000 invested for 30 years at 8% a year before costs grows to about $995,000 in a fund that charges 0.04% a year. In a fund that charges 0.64%, which the Investment Company Institute reports as the average for actively managed stock mutual funds in 2025, it grows to about $842,000. At 2.5% a year, close to the fixed fees in Buffett's bet, it grows to only about $498,000. The fees quietly swallow about half of everything.
Hedge funds have trimmed their prices since 2008, but not by much. According to the research firm HFR, the average hedge fund in early 2026 still charged a management fee of 1.32% a year plus 15.78% of profits. And in many countries, retail funds sold through agents can still charge an upfront sales fee of several percent plus well over 1% a year.
Do the fee test today Look up the "expense ratio" or "annual management fee" of every fund you own. It is printed on the fund's factsheet. A broad S&P 500 index fund from a major provider typically costs well under 0.1% a year. Vanguard's 500 Index Fund Admiral Shares, the same fund Buffett used, costs 0.04% today. If you are paying 1.5% or 2%, ask yourself one question: what am I getting for paying 20 to 50 times more? |
For more on the hidden costs that drain ordinary portfolios, read The 3 Silent Portfolio Killers Wiping Out Retail Investors.
Ted Seides' Side of the Story
Every fair trial deserves a defense, and Seides' arguments are worth hearing. A thoughtful investor should understand them before drawing conclusions.
In his Bloomberg View essay and in interviews afterward, Seides made several points. Here they are in plain English:
The starting point was unusual. He believed U.S. stocks were expensive at the start of 2008 and expected below-average returns. Instead, the S&P 500 enjoyed an exceptional run, helped by near-zero interest rates after the crisis.
Hedge funds are not built to beat a stock index in a bull market. They usually hold less in stocks and aim to soften losses, as they did in 2008. He compared the match-up to a basketball team playing a football team.
Risk matters. Measured against the risk they took, he argued, the hedge funds looked better than the raw returns suggest.
Fees matter, but they were not the whole story. He accepted that Buffett's point about costs was persuasive.
Some of these points are true. Hedge funds did cushion the 2008 crash. Ten years is one decade, not forever. And low interest rates did help stocks.
But here is what I tell anyone who asks me about it. The cushion in 2008 was real, but it was expensive. The index fund's deeper loss was fully made up and then some: by the end of 2012 it was ahead of the average hedge fund group, and it stayed ahead for every remaining year of the bet. Paying around 2.5% a year for protection you might need once a decade is like buying flood insurance that costs more than the house.
To his credit, Seides has stayed a good sport about all of this. In 2025 he even floated a fresh wager, this time pitting private equity against the S&P 500.
And if the original bet were simply one unlucky decade, we would expect the next one to look different. It didn't.
Not a Fluke: What 20 Years of Evidence Says
Buffett's bet was a single contest with five opponents. So let's widen the lens.
Hedge funds as a whole. The HFRI Fund Weighted Composite Index, a widely used yardstick for hedge fund performance, returned about 3.2% a year from 2008 through 2017, by my calculation from HFR's yearly figures. The S&P 500 returned about 8.5% a year over the same ten years. In the eight years after the bet ended, from 2018 through 2025, hedge funds improved to about 6.6% a year. The S&P 500 returned about 14.3% a year. Even in 2025, the hedge fund industry's best year since 2009 with a gain of 12.6%, it still trailed the S&P 500's 17.9%.
Professional fund managers. Every year, S&P Dow Jones Indices publishes its SPIVA Scorecard, which compares actively managed funds with their benchmark indexes. The latest U.S. edition, covering data to the end of 2025, is brutal:
Over 20 years, 92.89% of U.S. large-company stock funds did worse than the S&P 500. Over 15 years, 89.93% did worse. Across all U.S. stock funds, 95% fell short over 20 years. Put another way: if you had picked a professionally managed U.S. large-company fund twenty years ago, your odds of beating a simple index fund were roughly 1 in 14.
And the winners rarely stay winners. You might think the answer is simply to find the few managers who do beat the market. S&P's Persistence Scorecard shows why that is so hard. Of 164 large-company funds that ranked in the top quarter of their peers in 2021, only about 33 were still there the following year. By 2023, none were left. Not one.
I walk through the full 20-year record of professional stock pickers in Stock Picking vs. the S&P 500: What 20 Years of Results Say About Who Actually Wins.
What the Bet Did Not Prove
A trustworthy guide tells you the limits of the evidence, not just the parts that support his case. So here is what Buffett's bet does not show.
It does not prove stocks always win. Index funds rise and fall with the market. From 2000 through 2009, the S&P 500 actually lost money over ten full years, even with dividends, a period now called the "lost decade." An index investor who needed their money in 2009 had a miserable time.
It does not prove that no manager ever beats the market. A small number do, over long periods. The problem is that almost nobody can identify them in advance, and the persistence numbers above show how quickly yesterday's winners fade.
It does not prove you should put every dollar into one U.S. index. Buffett's own instructions for his family keep 10% in short-term government bonds, so there is always cash on hand without selling stocks in a crash. Many investors also prefer to spread money across the world.
What the bet does prove is narrower and more powerful: when smart professionals and a cheap index fund compete over a long period, the costs of being "smart" usually outweigh the benefits. The index fund doesn't need to be brilliant. It only needs to be cheap, broad and left alone.
Why the Smartest Money Keeps Losing This Game
None of this means hedge fund managers are stupid. Many are brilliant. That is precisely the problem.
In 1975, the investment consultant Charles Ellis published a famous essay in the Financial Analysts Journal called "The Loser's Game." His point was that professional investing had become like amateur tennis, where the winner is usually not the player with the most brilliant shots but the one who makes the fewest mistakes. When a market is full of talented, well-informed professionals, they mostly compete against each other. One professional's edge is another professional's loss.
In 1991, Nobel Prize-winning economist William Sharpe explained the math in a three-page paper called "The Arithmetic of Active Management." Before costs, the average actively managed dollar must earn exactly the market's return, because all active investors together are the market. After costs, the average active dollar must earn less than the market. No forecast is needed. It is simple arithmetic.
That leaves three forces working against every expensive fund:
Costs come out every single year, in good times and bad.
Competition means easy opportunities are spotted and gone in seconds.
Luck fades. A hot streak attracts attention and new money, then drifts back toward average.
Meanwhile, the index fund wins by refusing to play. It doesn't try to outsmart anyone. It simply owns everything, at almost no cost, and lets the growth of real businesses do the work.
The Man Who Made the Bet Possible
There is a beautiful twist in this story that most retellings miss.
The kind of fund Buffett chose did not exist for ordinary investors until 1976. On August 31 of that year, a stubborn man named John Bogle launched the First Index Investment Trust, the first index mutual fund for the public. Wall Street mocked it, and some critics called it "Bogle's Folly." Its backers hoped to raise as much as $150 million. They raised about $11.3 million.
That little fund grew into the Vanguard 500 Index Fund, the very fund that beat Wall Street's hedge funds three decades later. It celebrated its 50th birthday in August 2026.
Buffett never forgot who made it possible. In his 2016 letter, he wrote that if a statue is ever built to honor the person who has done the most for American investors, it should be of Jack Bogle. At the Berkshire annual meeting on May 6, 2017, Buffett introduced Bogle, who was sitting in the audience. According to CNBC, Buffett said Bogle had "done more for the American investor than any man in the country."
Ordinary investors eventually caught on. By the end of 2023, according to Morningstar, U.S. index funds held more money than actively managed funds for the first time, about $13.3 trillion against just over $13.2 trillion. "Bogle's Folly" had become the mainstream.
What Buffett Tells His Own Family to Do
You can learn a lot about any advice by watching what the adviser does with his own family's money.
In his 2013 letter to shareholders, Buffett revealed the instructions he has left for the money his wife will inherit. 10% goes into short-term U.S. government bonds. 90% goes into a very low-cost S&P 500 index fund, and he suggested Vanguard's.
Not his own stock picks. Not a hedge fund. Not a team of expensive advisers. One of the greatest investors in history chose, for the person he loves most, the same boring strategy that won his bet.
I explain why so few people follow this simple advice in Warren Buffett's Advice for 99% of Investors Fits in One Sentence. Almost Nobody Follows It.
7 Lessons From Buffett's Bet You Can Use This Week
Lesson 1: Costs are the one thing you fully control
You cannot control the market. You cannot control interest rates, wars or elections. You can control what you pay. Every dollar of fees you avoid stays in your account and compounds for you, year after year. Check every fund's expense ratio, every adviser's fee and every platform charge, then ask what each one is really buying you.
Lesson 2: Complicated is not the same as clever
Wall Street sells complexity because complexity justifies high fees. Five funds-of-funds holding more than 100 hedge funds sounded sophisticated. It lost to one fund a 12-year-old could understand. If you cannot explain an investment to a friend in two sentences, be very careful about paying extra for it. The same trap catches many active traders, as I show in Why Most Day Traders Lose Money, and the Boring Alternative That Quietly Wins.
Lesson 3: Never judge a strategy by one year
After 2008, the hedge funds looked like geniuses. After 2017, they looked like an expensive mistake. Both judgments were about the same funds. The first was based on one year, the second on ten. When the next sharp drop arrives, remember 2008, and read The Market Just Dropped 20%. Here's What Calm Investors Do Next.
Lesson 4: Yesterday's star fund rarely repeats
The persistence numbers show that today's top-ranked fund is usually tomorrow's ordinary fund. Chasing last year's winner usually means buying after the good years are already over, and paying high fees for the privilege.
Lesson 5: Time in the market does the heavy lifting
The index fund did not win in year one. It won because it stayed fully invested through the crash and the long recovery that followed. Some of its biggest gains came in years nobody predicted, such as the 32.3% jump in 2013. Steady monthly investing turns that patience into real wealth, as you can see in What $500 a Month in an S&P 500 Index Fund Becomes After 10, 20 and 30 Years.
Lesson 6: Make the big, easy decision, then sit still
The 2012 switch from bonds to Berkshire shares was one decision, made once, based on plain arithmetic. Then nobody touched it for five years. Most investors do the opposite: many small decisions, made often, driven by feelings. That urge to act sits behind several of the traps I describe in Why Smart People Lose Money in the Stock Market: 8 Mental Traps and How to Escape Them.
Lesson 7: Ask who gets paid if you say yes
Before you buy any investment product, ask one question: how does the person recommending it get paid? Low-cost index funds are rarely pushed hard by salespeople, because there is very little commission in them. That is not a flaw. That is the point.
How to Put Buffett's Bet to Work in Your Own Life
You don't need $1 million, and you don't need to live in America. Here is the practical version of what Buffett's bet teaches, in five steps:
Choose one broad, low-cost index fund. An S&P 500 fund or a global stock index fund, ideally with yearly costs well below 0.2%.
Set up an automatic monthly investment. Pick an amount you can keep paying in bad times as well as good.
Keep a safety cushion outside the stock market. Hold several months of living costs in cash, plus safe short-term bonds or deposits for money you will need within a few years, much like Buffett's 10%.
Write down your rule for crashes. For example: "When the market falls 30%, I keep investing and change nothing." Sign it and keep it with your account details.
Check once a year, not once a day. Rebalance if you need to. Otherwise, leave it alone.
Here is how the main choices compare:
Feature | Low-cost index fund | Average active fund | Typical hedge fund |
Yearly cost | Often under 0.1% | About 0.64% (U.S. average) | About 1.3% plus 16% of profits |
Who picks the stocks? | Nobody, it owns the market | A fund manager | A fund manager |
Beat the S&P 500 long term? | Matches it, minus tiny costs | Only about 7 in 100 large-cap funds over 20 years | Hedge fund index trailed it from 2008 to 2025 |
Easy to understand? | Yes, in one sentence | Usually | Often not |
If you live outside the United States, you can still own the same companies. My guide How to Invest in the S&P 500 If You Live Outside the United States walks through the options. And if you have been burned before and feel nervous about starting again, begin with Index Funds for People Who've Been Burned: A Plain-English Guide to Starting Over.
Frequently Asked Questions
What was Warren Buffett's million-dollar bet?
It was a 10-year wager between Warren Buffett and Ted Seides of Protégé Partners. Buffett bet that a low-cost S&P 500 index fund would beat a portfolio of hedge funds chosen by professionals, after all fees, from January 1, 2008 to December 31, 2017. The prize went to the winner's chosen charity.
Who won Buffett's bet, and by how much?
Buffett won easily. His S&P 500 index fund gained 125.8% over ten years, or 8.5% a year. The five funds-of-funds chosen by Protégé gained between 2.8% and 87.7%. On $1 million, the index fund grew to about $2.26 million, while an equal split across the five hedge fund groups grew to about $1.36 million.
Which index fund did Buffett choose for the bet?
Vanguard's 500 Index Fund Admiral Shares, which tracks the S&P 500. At the time it cost 0.07% a year. Today the same share class costs 0.04% a year.
Why did the hedge funds lose to the index fund?
Mainly because of fees. Hedge funds typically charged 2% of assets a year plus 20% of profits, and the funds-of-funds added roughly another 1% on top. Buffett estimated that about 60% of the gains went to the managers. The hedge funds also held less in stocks during a decade when stocks did very well.
Did the hedge funds ever beat the index fund?
Yes. In 2008, every hedge fund group lost less than the index fund, which fell 37%. Some groups also beat it in individual years such as 2011, 2014 and 2015. Over the full ten years, none came close.
Where did the money from the bet go?
Girls Inc. of Omaha received $2,222,279 in early 2018. The pot grew from $1 million to over $2.2 million because, in 2012, the original Treasury bonds were sold and the money was put into Berkshire Hathaway shares.
Is Buffett's bet still relevant today?
Yes. Since the bet ended, hedge funds as a group have still trailed the S&P 500, returning about 6.6% a year from 2018 to 2025 versus about 14.3% for the S&P 500. The latest SPIVA data also shows about 93% of U.S. large-company funds trailed the S&P 500 over 20 years.
Can I follow Buffett's approach if I don't live in the United States?
In most countries, yes. Many brokers and investment platforms offer low-cost S&P 500 or global index funds and ETFs. Check the fund's yearly costs, how dividends are taxed in your country, and whether the provider is licensed where you live.
The Boring Pawn Wins in the End
Go back to that arena in Omaha in 2006. Buffett offered Wall Street a fair fight on its own terms: its own chosen champions, its own strategies and ten full years to prove its worth. The best-paid professionals in finance mostly stayed silent. The one man brave enough to accept lost by a mile, and admitted it with grace.
The winning strategy was not a secret. It was not complicated. Something very like it has been available to ordinary investors since 1976. It simply asks you to accept the market's return, pay almost nothing for it and wait.
That is the hard part. Not the knowledge. The patience. The hedge funds' biggest lead came in the scariest year, 2008, exactly when many ordinary investors panicked and sold. The index fund's biggest gains came in the years that followed, when those same investors were too frightened to come back.
If you have lost money in the stock market before, I want you to hear this clearly: it probably wasn't because you weren't smart enough. It was because the game you were sold was built to reward almost everyone except you. Buffett's bet proves there is another game, a quieter and cheaper one. It is the one the professionals keep losing to.
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Important: This article is for education only and is not personal financial, investment or tax advice. Past performance does not guarantee future results. Hedge fund index averages for 2008–2017 and 2018–2025 are the author's calculations from published yearly figures, and the fee examples are illustrations, not forecasts. Stocks and index funds can lose value. Please consider your own situation and speak with a licensed adviser before investing.
Sources
Warren E. Buffett, Berkshire Hathaway 2005 shareholder letter (the Gotrocks parable)
Warren E. Buffett, Berkshire Hathaway 2016 shareholder letter, section "The Bet"
Warren E. Buffett, Berkshire Hathaway 2017 shareholder letter, "'The Bet' is Over"
Ted Seides, "Why I Lost My Bet With Warren Buffett," Bloomberg View (May 3, 2017)
"Hedge fund manager loses bet against Buffett but hints at doubling down," CNBC (May 3, 2017)
Leanna Orr, "Protégé Partners Pays Up in Buffett Bet," Institutional Investor (January 8, 2018)
CNBC report on the $2.2 million gift to Girls Inc. of Omaha (February 16, 2018)
CNBC, "Warren Buffett taught Vanguard's Jack Bogle this lesson on friendship" (April 16, 2018)
David Kass, notes from the 2017 Berkshire Hathaway annual meeting, University of Maryland
S&P Dow Jones Indices, SPIVA U.S. Scorecard, Year-End 2025 (March 2026)
S&P Dow Jones Indices, U.S. Persistence Scorecard, Year-End 2025 (May 2026)
HFR, hedge fund launches, liquidations and fees, 1Q 2026 (July 2026)
"Hedge funds end 2018 down but still beat the market," HedgeFundAlpha (HFRI 2018)
Investment Company Institute, "Trends in the Expenses and Fees of Funds, 2025" (March 2026)
Vanguard, "50 Years, 50 Facts: Indexing Since 1976" (April 2026)
PSCA, "Vanguard's S&P 500 Fund Celebrates 50th Anniversary" (August 2026)
Morningstar, "It's Official: Passive Funds Overtake Active Funds" (January 2024)
Financial Times report on passive vs active U.S. fund assets, via Hargreaves Lansdown (January 2024)
Charles D. Ellis, "The Loser's Game," Financial Analysts Journal (1975; reprinted 1995)
William F. Sharpe, "The Arithmetic of Active Management," Financial Analysts Journal (1991)
Capital Allocators, Ted Seides' 2025 private equity bet proposal
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