Seides: Buffett bet collateral held in Berkshire stock outperformed the S&P 500
Ted Seides · The Bet with Buffett (Capital Allocators, EP.05) · May 2, 2017 · at 1:12:39
Ted Seides reflects on the collateral management for his 10-year, $1 million wager against Warren Buffett, revealing that buying zero-coupon bonds and switching into Berkshire stock generated superior returns.
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“And there's one closing point I'd make that's an undercurrent of the bet, which is we all talk about and focus about how great the S&P five hundred's been. But what we actually did with the money, the collateral of the bet, outperformed the S&P 500 by a mile. And what that was we, you know, we had pre-funded the bet a million dollars 10 years ago, and we said, look, If we invest in something and it makes more than a million dollars, that's great. But we don't want to pledge a million dollars to charity and then not have a million dollars. So let's just buy a zero-coupon bond that'll accrete to a million dollars in 10 years. Again, 2000, you know, January one, 2008. After four or five years, that amount, which started, I think, as 640,000 dollars, had grown to 950,000 dollars, and you had about six years left to make 50,000 dollars. I called Warren one day and said, oh, by the way, do you remember what we did with the collateral? He just started laughing, because it was an afterthought. And we made one trade, and that trade was effectively to put it in equities. We did it in Berkshire Hathaway. And now the collateral is, I don't know what it is, it's made like 300% over this period of time. So, and that was, so the real winner was the charities and cash. Not even the S&P.”
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