Investors wasted billions on Wall Street money managers - Warren Buffett

In an annual letter to Berkshire Hathaway shareholders billionaire Warren Buffett has attacked hedge funds, arguing that their highly paid managers cannot beat the stock market.

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He estimates investors wasted more than $100 billion on high-fee Wall Street money managers over the past 10 years.

“The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients,” Buffett wrote to shareholders. “Both large and small investors should stick with low-cost index funds.”

During the financial crisis, Buffett bet a founder of the asset management company Protege Partners $1 million that the Vanguard S&P 500 stock index fund would outperform several groups of hedge funds over ten years through 2017.

The 86-year old investor declared an early victory on his bet. He said a $1 million investment in hedge funds would have generated a $220,000 gain in the nine years through 2016, compared with the index fund’s $854,000 increase.

He said the figures left “no doubt” that he would win the bet which ends on December 31. Buffett also called Vanguard Group founder Jack Bogle “a hero” for his early efforts to popularize index funds.

According to Buffett, Berkshire Hathaway gained 20.8 percent per year from 1965 to 2016, compared to the S&P 500’s 9.7 percent gain. In 2014, Buffett said he planned to put 90 percent of the money he leaves his wife when he dies into an S&P 500 index fund and ten percent in government bonds.

Buffett’s stock picks have turned Berkshire Hathaway into one of the world’s most successful conglomerates. The company’s stock portfolio includes significant stakes in Coca-Cola, Wells Fargo, Apple, and others.

The billionaire investor praised the US market system for its ability to allow Americans to continue building “mind-boggling amounts” of wealth.

“One word sums up our country’s achievements: miraculous,” Buffett said. “From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.”