I was reading yesterday about the famous Warren Buffett bet. This was a $1 million bet between Buffett and Ted Seides, a hedge fund manager. It was made in 2008 and Buffett wagered that a simple S&P index fund would outperform, over a ten year period, a portfolio of hedge funds.
Even with a 40% drop in the index the first year, it is a stomp. Buffett's approach is up 63% versus a paltry 20% for the hedge funds. A big part of the differential is fees. Hedge funds have a lot more frictional costs than a simple index. The hedge funds, x fees are up 44%. So still trailing.
Now for the irony. The bet was for $1 million. It seems the $1 million was put aside at the very beginning and was earmarked for the charity Girls Incorporated of Omaha. There was discussion at the outset what to do with the $1 million. It was decided to put into into zero coupon treasury bonds. Even they have beaten the hedge funds! The $1 million is now worth $1.5 million (I do think they recently took out of zero coupons).
You hear buy and hold is dead. You see people frantically trading and wonder if you would do better. But it appears that my comment, "Step Away from the Batter" does hold true. Just as you can stir pancake batter too much and make the pancakes tougher (appropriate today as it is National Pancake Day), you can also trade too much and be your own worst enemy.