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Warren Buffett built his empire from the ground up and amassed a net worth of $143 billion, making him the sixth richest person in the world, according to Forbes. His straightforward investment advice resonates with many, earning him the nickname “Oracle of Omaha.”
While only a portion of Buffett’s massive net worth comes from his stock holdings, he has repeatedly preached about the wonders of compounding, which earns him millions every year.
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Instead of paying exorbitant fees to financial advisors and investment managers, Buffett advises people to buy blue chip stocks for cheap and hold them.
“You can have monkeys throwing darts at the page and, you know, take away the management fees and everything, I’ll bet on the monkeys [over the advisors],” Buffett said at the annual Berkshire Hathaway meeting back in 2017. “It’s amazing how hard people make what is a simple game.”
To prove his point, in 2007, Buffett made a $1 million bet against Protege Partners that hedge funds wouldn’t outperform an S&P 500 index fund and he won.
According to the Wall Street Journal, the Oracle of Omaha’s fund of choice, the Vanguard 500 Index Fund Admiral Shares, returned 7.1% compounded annually, while his competitor’s basket of hedge funds returned an average of only 2.2% over the 10 years.
Ted Seides, the co-founder and former co-chief investment officer of Protege Partners, conceded defeat almost a year earlier.
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“Nine years ago, Warren Buffett and I made a 10-year charitable wager that pitted the returns of five funds of hedge funds against an S&P 500 fund. With eight months remaining, the bet is over. I lost,” Seides wrote in a Bloomberg column in May 2017.
As decided in the original bet, the money went to charity, with Buffett donating the proceeds to Girls Inc., an organization that supports young girls in Omaha through after-school and summer programs.
Buffett has backed up his conviction by placing a bet against a formidable hedge fund based in New York – and won. In an op-ed for the New York Times, he claimed that he “can’t predict the short-term movements of the stock market” but believes that “over the long term, the stock market news will be good.”
However, according to Buffett, one key thing to be mindful of when it comes to investing in passively managed funds is to buy them through thick and thin, especially thin. He believes this to be the “thing that makes the most sense practically all the time.”
This insight is particularly helpful in today’s economic climate as investors navigate the implications of rising geopolitical tensions ahead of elections.
“The temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something. Just keep buying,” Buffett said during an interview with CNBC On The Money in 2017. “American business is going to do fine over time, so you know the investment universe is going to do very well.”
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This article How Warren Buffett’s Big Bet Paid Off – He Nearly Doubled His Money By Simply Investing In High-Yield Index Funds originally appeared on Benzinga.com