Betting against the stock market via the S&P 500 index has not been a winning idea.
Betting against Warren Buffett has not been one either.
Back in 2017, in an article for Bloomberg, a hedge fund manager named Ted Seides, who had also been a partner with current Treasury Secretary Scott Bessent, conceded defeat in a $1,000,000 bet with Mr. Buffett that hedge funds would outperform the biggest American stocks via the S&P 500 index between 2008 and 2018.
Buffett won.
In Seides' own words:
Nine years ago, Warren Buffett and I made a 10-year charitable wager that pitted the returns of five funds of hedge funds against a Standard & Poor's 500 index fund. With eight months remaining, for all intents and purposes, the bet is over. I lost.¹
In that same article from 2017, he looked ahead to the next decade, which will end in just a few years now, and said:
My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory. The S&P 500 looks overpriced and has a reasonable chance of disappointing passive investors.²
So far, this prognostication that the S&P 500 was "overpriced" may also be proving wrong. I do not know the metrics for hedge funds, but I do know that the total return for the S&P 500 ETF has increased by over 200% since the article was written. Surely, that outstanding return has not "disappointed passive investors" thus far.
Let's be clear: Seides and Buffett were not enemies. They met yearly, and when he lost the bet, the million dollars was given to a charity, and some of it was invested in something that ended up outperforming both the S&P 500 and hedge funds…
What was that?
Buffett's Berkshire Hathaway.
What's the takeaway here?
It is a lesson to be careful forecasting the future of anything.
It also serves as a continual reminder of the problems with betting against the stock market.
You probably are not the type who is going to wager money on this in an actual bet with a colleague, but you may be the type who bets against the stock market through your investment actions.
And there may be good reasons in your life for doing so.
But remember: whether it's 2008, 2017, 2020, or 2025, fears will never go away about risk assets and stocks.
Investment forecasts will come and go. Bullish and bearish articles will be written. Terms like "overpriced," "underweight," "overweight," "buy ratings," "sell ratings," "this president," and "the next one" will flood your news feed. New marketable products and investment ideas (like private equity – see Seides new wager around this popular investment arena) will barrage your emails, and financial advertisements algorithmically curated for your desires and fears will fill your apps.
Just know this: not investing in the S&P 500 is a risk too.
What will you do?
What are you "betting" against through your investment actions? What are you invested in for your family's future?
Most importantly, why?
If you or a friend need help making those decisions, send them our way.
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Sources:
1. "Why I Lost My Bet With Warren Buffett," published by Bloomberg on May 3, 2017. Accessed online: https://www.bloomberg.com/opinion/articles/2017-05-03/why-i-lost-my-bet-with-warren-buffett
2. Ibid.