Who is More Rational? You or the Market? Practice Questions

1. In 2008, Warren Buffett and a money management firm (Protege Partners) made a million-dollar bet. Warren Buffett bet that a passive, low-fee mutual fund of his choosing could outperform an actively managed investment portfolio by a team of financial wizards. Buffett picked a boring S&P 500 index fund, like this video recommends. Protege Partners chose a “portfolio of funds of hedge funds.” While the bet doesn’t conclude until 2018, who do you think is on track to win? *

a. Warren Buffett and his boring S&P 500 index fund.

b. The very smart financial managers and their complex ‘funds of funds.’

2. The market has some known anomalies such as the January effect mentioned in this video. Given these known anomalies, should you try to beat the market? *

a. Yes.

b. No.

3. Warren Buffett tells his children to invest *

a. In actively managed mutual funds.

b. In index funds.

c. In funds of funds.

d. After speaking to a financial manager.

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