In 2008, Warren Buffet made a bet with Protege Partners that just buying the S&P 500 Index (a fund that buys the top 500 companies in America) would outperform Protege picking the 10 ten hedge funds, who selectively pick stocks that they think will outperform the S&P. After 8 years, the results are stunning.
Whenever someone asks me advice about how to start investing, I tell them that unless you can evaluate a company’s income statement and balance sheet, and compare it’s softer attributes, such as management and competitive moat, just invest directly in the S&P 500.
Now, there are some hedge funds who don’t charge any fees until you earn 6% for the year, and then they might charge 20-25%. And some of these funds are run by very intelligent managers who outperform the market (such as Mohnish Pabrai), but for the most part, many of these managers won’t accept new clients with under $1M in assets.