Buffett Backed Investment Keeps Beating Hedge Funds, Wall Street, and Most Everyone Else

One of the most ubiquitous investment tips among Gen-Z and Millennials is “VOO and chill”. Translation: Buy the Vanguard S&P 500 ETF (NYSE: VOO) and hold it. Ironically, the most famous old school investor hero of the Baby Boomer generation holds the exact same sentiment, and he is such a strong booster of the S&P 500 Index as an investment that he famously bet $500,000 on its 10 year future performance – and won.

Buffett Puts His Money Where His Mouth Is

The S&P 500 Index has long been a stalwart performer, something Warren Buffett has long acknowledged.

Warren Buffett’s fame as an investor is renowned. Many have tried to replicate his strategies with varying results. Cognizant of this, he has touted the strength and resilience of the S&P 500 Index as the ideal ETF investment for individual investors. The Vanguard S&P 500 ETF and SPDR S&P 500 ETF Trust (NYSE: SPY) are ETFs that Buffett not only holds personally in accounts for himself and his wife, but also in Berkshire Hathaway (NYSE: BRK.A). 

In 2007, Buffett issued an open wager of $500,000 for 10 years, betting that the S&P 500 Index would outperform any actively managed hedge fund that wanted to bet against him. Buffett was quoted: “After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?” 

Ted Seides, formerly with Protégé Partners, agreed to put his hand picked portfolio selections against the S&P 500 Index returns, with the pot proceeds going to charity. The wager was made with $500,000 worth of Berkshire Hathaway stock, and $500,000 from Seides. By 2017, the total pot was worth $1.7 million, on account of Berkshire Hathaway stock price appreciation. 

After 10 years, the results showed that Seides’ total return was roughly 22% vs. 85% for the S&P 500 Index. The winning bet money was donated to Girls Inc. Buffett has reiterated that he had absolutely zero qualms about his readiness to do it again, re-emphasizing his confidence in the stock market, and the S&P 500 Index, in particular. 

Since taking the reins of Berkshire Hathaway in 1965, the company’s annual return average has been 19.8%. In the same timespan, the S&P 500 has returned 10.4%. 

AI Fueled Magnificent 7 Tailwinds

The S&P 500’s phenomenal run over the last few years has been led by The Magnificent 7 tech stocks: Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Alphabet (Google) (NASDAQ: GOOG), Meta Platforms (Facebook) (NASDAQ: META), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA), and Tesla (NASDAQ: TSLA). As these are some of the largest market cap and fastest growing stocks (along with Berkshire Hathaway itself) in the S&P 500, the top 10 alone account for 26% of the index’s total market cap. Apple, Nvidia, and Microsoft alone account for 20.3% of the S&P 500 Index weighting, with a value of roughly $9.7 trillion. 

Going forward, a number of analysts, such as PriceWaterhouseCoopers, predict that the Magnificent 7 companies’ continued development of AI will reap huge growth numbers over the next half decade. In their purview, AI can contribute as much as $15.7 trillion to the global economy by the year 2030.

The productivity gains from AI are already being made manifest with ChatGPT, Grok, AI Copilot, and others. As more and more companies adopt AI for their operations, the Magnificent 7 companies are anticipated to see trillions of dollars in additional business, creating strong tailwinds for future growth. 

Additionally, the Millennials and Gen-Z investors already familiar with VOO will be will be approaching their 40s and 50s, thus entering their peak earning years. If “VOO and chill” continues to make consistent gains, there will likely be reluctance from those who have done well with that strategy to switch horses in midstream. The additional buying their increased liquidity will afford them in SPY, VOO, and other S&P 500 Index ETFs may reflect commensurate returns of an S&P 500 that gains a potential 147%, according to firms like Fundstrat Global Advisors. 

While Berkshire Hathaway had recently sold its direct holdings in SPY and VOO a few months before its correction, many speculated that this move was intended to build Berkshire Hathaway’s cash horde for Buffett to bottom fish on some other opportunities. Also, while Berkshire Hathaway doesn’t hold SPY or VOO directly at the time of this writing, it still retains sizable positions through some of its subsidiaries, such as its reinsurance company, General Re. Buffett may decide the time is ripe to get back in, as VOO and SPY at current levels at the time of this writing may very well be one of those bottom fishing opportunities. 

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