What caught my eye this week.
The cheque has been in the mail for several years now. But in his latest annual letter, Warren Buffett officially declared victory in his $1 million bet that an S&P 500 tracker fund would beat a bevvy of hedge funds over 10 years.
Not that the fund managers will mind – they’ve mostly gotten rich over the decade, too.
As Buffett notes [1]:
Both the fund-of-funds managers and the hedge-fund managers they selected significantly shared in gains, even those achieved simply because the market generally moves upwards. (In 100% of the 43 ten-year periods since we took control of Berkshire, years with gains by the S&P 500 exceeded loss years.)
Those performance incentives, it should be emphasized, were frosting on a huge and tasty cake: Even if the funds lost money for their investors during the decade, their managers could grow very rich.
That would occur because fixed fees averaging a staggering 2.5% of assets or so were paid every year by the fund-of-funds’ investors, with part of these fees going to the managers at the five funds-of-funds and the balance going to the 200-plus managers of the underlying hedge funds.
Buffett concludes with a pithy new saying we could hang on the wall:
Performance comes, performance goes. Fees never falter.
Amen.
p.s. For an alternative take that I don’t quite agree with but that makes some interesting points, see this note by Albert Bridge Capital [2].
p.p.s. Unrelated, my thoughts on Theresa May’s vacuous ‘big Brexit speech’ – Twitter [3].
From Monevator
From the archive-ator: Another good reason to open an ISA – Monevator [4]
News
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1 [5]
Low volatility ETFs failed to protect investors during recent falls [Search result] – FT [6]
A would-be £100,000 pension squandered down to £3,000 on fees – ThisIsMoney [7]
Beat an interest rate rise by locking into a new mortgage now – Guardian [8]
Experts warn of buy-to-let crunch – ThisIsMoney [9]
Harvard fund blew $1 billion in bet on tomatoes, sugar, and eucalyptus – Bloomberg [10]
Cumulative house price growth from 2009 to 2017 [Paywall] – FT [11]
Products and services
Nationwide launches market-leading ISA savings rate – ThisIsMoney [12]
Target Accuracy calculator to backtest model portfolios – Portfolio Charts [13]
Innovative finance ISAs hit stumbling blocks [Search result] – FT [14]
Sky and Netflix to join forces in single subscription package – ThisIsMoney [15]
Comment and opinion
Modern finance must kick its addiction to indices [Search result] – FT [16]
The importance of buying with a margin of safety – Of Dollars and Data [17]
Will active stock funds save your bacon in a downturn? – Morningstar [18]
Forget market timing. Think ‘expectations driven investing’ – Elm Funds [19]
The morality of suing financial advisors – The Evidence-based Investor [20]
Millennials can chill about not having massive savings – Simple Living in Somerset [21]
Property is a ‘good investment’ mostly because you live in it – ThisIsMoney [22]
A history of the Trump Slump [Speculative!] – The Economist [23]
The case for a diverse portfolio – DIY Investor (UK) [24]
Target date funds are underrated [Note: Tax tidbit is US] – The Finance Buff [25]
Community care – SexHealthMoneyDeath [26]
Crypto corner
Can Bitcoin threaten the stability of financial markets? – Institutional Investor [27]
Bitcoin is falling out of favour on the Dark Web – The Atlantic [28]
BOE governor Mark Carney says it’s time to hold cryptos to account – ThisIsMoney [29]
‘It Just Felt Like a Miracle’: A bitcoin donor’s $56 million giving spree – TCOP [30]
Nearly half of 2017’s Initial Coin Offerings have already failed – Fortune [31]
Off our beat
A week inside WeLive, a utopian apartment complex – GQ [32]
Six charts that show how the world is improving – Visual Capitalist [33]
How a small town reclaimed its energy grid and sparked a community revolution – Guardian [34]
David Lynch teaches typing [Free downloadable game] – Rhino Stew [35]
And finally…
“No breath of wind,
No gleam of sun
Still the white snow
Whirls softly down”
– Walter de La Mare, Snow [36]
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [41]]