Buffett: Only handful of managers can really outperform

In Berkshire Hathaway's 2005 annual report, Buffett argued that active investment management, in aggregate, would always underperform the returns of passive funds.

"I explained that the massive fees levied by a variety of 'helpers' would leave their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund," he said in this year's letter to shareholders.

"I publicly offered to wager $500,000 that no investment pro could select a set of at least five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match the performance of an unmanaged S&P-500 index fund charging only token fees.

"I suggested a ten-year bet and named a low-cost Vanguard S&P fund as my contender. I then sat back and waited expectantly for a parade of fund managers – who could include their own fund as one of the five – to come forth and defend their occupation. 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? What followed was the sound of silence."