The Inside Story of Warren Buffett's Million-Dollar Wager

You’ve probably been taught that “Nobody beats the market,” that nobody beats the S&P 500 return over the long term.

Maybe the most quoted example of "Nobody beats the market," is from a bet Warren Buffett made.

He challenged fund managers that their actively managed strategy could not beat the S&P 500 index over a 10 year span.

Spoiler alert! He won.

However, the intention behind making the bet gets lost in the media.

The media portrayed this bet to mean that no one actively managing money beats the S&P 500 index.

For about 4 years after hearing this I took this as absolute truth.

This was until I spent over 100 hours watching the recordings of the Berkshire Hathaway annual meetings.

What shocked me was that when Warren Buffett talked about the bet, it was not that nobody could beat the S&P 500 return.

The managers he selected in that bet were people who managed over $1 billion.

The point of the bet was that once you get to that level, you don’t have the number of opportunities because investing $1 million in something that gets you a 50% return is still only $500,000.

And $500,000 compared to $1B is 5/100ths of one percent. .0005.

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