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:
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.
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.
p.p.s. Unrelated, my thoughts on Theresa May’s vacuous ‘big Brexit speech’ – Twitter.
From the archive-ator: Another good reason to open an ISA – Monevator
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
Low volatility ETFs failed to protect investors during recent falls [Search result] – FT
A would-be £100,000 pension squandered down to £3,000 on fees – ThisIsMoney
Beat an interest rate rise by locking into a new mortgage now – Guardian
Experts warn of buy-to-let crunch – ThisIsMoney
Harvard fund blew $1 billion in bet on tomatoes, sugar, and eucalyptus – Bloomberg
Cumulative house price growth from 2009 to 2017 [Paywall] – FT
Products and services
Nationwide launches market-leading ISA savings rate – ThisIsMoney
Target Accuracy calculator to backtest model portfolios – Portfolio Charts
Innovative finance ISAs hit stumbling blocks [Search result] – FT
Sky and Netflix to join forces in single subscription package – ThisIsMoney
Comment and opinion
Modern finance must kick its addiction to indices [Search result] – FT
The importance of buying with a margin of safety – Of Dollars and Data
Will active stock funds save your bacon in a downturn? – Morningstar
Forget market timing. Think ‘expectations driven investing’ – Elm Funds
The morality of suing financial advisors – The Evidence-based Investor
Millennials can chill about not having massive savings – Simple Living in Somerset
Property is a ‘good investment’ mostly because you live in it – ThisIsMoney
A history of the Trump Slump [Speculative!] – The Economist
The case for a diverse portfolio – DIY Investor (UK)
Target date funds are underrated [Note: Tax tidbit is US] – The Finance Buff
Community care – SexHealthMoneyDeath
Can Bitcoin threaten the stability of financial markets? – Institutional Investor
Bitcoin is falling out of favour on the Dark Web – The Atlantic
BOE governor Mark Carney says it’s time to hold cryptos to account – ThisIsMoney
‘It Just Felt Like a Miracle’: A bitcoin donor’s $56 million giving spree – TCOP
Nearly half of 2017’s Initial Coin Offerings have already failed – Fortune
Off our beat
A week inside WeLive, a utopian apartment complex – GQ
Six charts that show how the world is improving – Visual Capitalist
How a small town reclaimed its energy grid and sparked a community revolution – Guardian
David Lynch teaches typing [Free downloadable game] – Rhino Stew
“No breath of wind,
No gleam of sun
Still the white snow
Whirls softly down”
– Walter de La Mare, Snow
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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”. [↩]