Six years ago, Dividend Growth Investor (DGI) asked me if I’d like to participate in the Warren Buffett bet. For those unfamiliar, in 2008 Buffett famously challenged the hedge fund industry::
Can you beat the S&P 500 over a period of 10 years?
Buffett won as the hedge fund got clobbered by the S&P 500.
But I like fun experiments and a little drama, so I agreed. It went well until it didn’t…
Results 6 Years In
The first 4 years were great. I stayed ahead of the S&P:
Everything went to crap in year 5 when growth stocks imploded, taking down my tech heavy portfolio. In year 6 (2023), I recovered, but not enough to get ahead of the S&P:
My Picks
I picked four stocks and I decided that I wouldn’t change my portfolio the entire time. Here were my original thoughts:
- Amazon: Good luck disrupting this one. And what’s this AWS thing?
- Alibaba: China rising.
- Berkshire Hathaway: Consistently undervalued. Munger/Buffett.
- Alphabet: A behemoth that’s just getting started. Waymo is winning.
Here is how my picks did this year:
And here is how they’re doing after 6 years:
Scorecard
- Amazon: Killing it!
- Alibaba: Getting killed.
- Berkshire Hathaway: Underperforming the S&P by about 10%.
- Google (AKA Alphabet): My top performer.
So two of my picks are crushing the S&P, one is slightly underperforming, and one has been a complete disaster. Amazon and Google have done very well, but not well enough to offset the losers.
Reasons I Could Win This Thing
Tech keeps going. Amazon and Google are members of the tech heavy Magnificent Seven which have done very well. Perhaps tech will continue to dominate. I’m bullish on tech and perhaps Amazon and Google will continue to outperform.
Waymo finally hits its stride. Google’s autonomous car service is ahead of everyone else. By the end of this bet, Waymo is going to be servicing a lot more cities. Will Waymo finally become profitable?
Alibaba makes a comeback. Jack Ma, the co-founder of Alibaba ran afoul of the Chinese government and the company didn’t fare well. Perhaps its fortunes turn around?
Berkshire Hathaway gets new leadership. Charlie Munger passed away last year and at 93, Buffett may reunite with him before the end of this bet. I don’t wish this, but perhaps new leadership will revitalize the business?
Reasons I Could Lose
Big Tech gets shut down. Amazon and Google are huge. Will the U.S. government step in to regulate or break them up?
Berkshire Hathaway gets new leadership. Yeah, same one as the win column. Who knows what becomes of Berkshire after Warren passes. Ted Weschler and Todd Combs have already changed much about the company.
??? The future is just too damn hard to predict. And I believe its getting harder. Even if you knew how the rest of the decade would unfold, would you be able to use that information to pick stock winners? I don’t think so.
Is This Worth It?
I’ve already started to let go of my individual stock holdings in favor of index funds (most companies will die, but VTSAX won’t go to $0). The older I get, the less I want to think about investments. Even if I was confident I could beat the S&P, winning isn’t everything.
More 1500 Days!!!
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I like the straightforward simplicity of your article. It reminds me of the very true acronym- KISS.
Over several decades it has become apparent to me that investing in indexes ( especially the 500) is often the wisest route to pursue. In essence, it is actively managed, but in a different way. It will change as companies get added or deleted. It’s alive. It will represent the biggest, brightest and most successful publicly traded companies. So why fight it? To maybe, possibly, by chance beat it once in awhile by a hairsbreadth?
Not to mention the time (which is invaluable and why we invest anyway) we save from analyzing and worrying about individual picks like a professionally licensed analyst (which the large majority of us are not).