But first, an apology is in order. I get to travel a lot with my daughter and business partner Tiffani (actually, she runs the business) and meet new people. Over the years, she has become as fascinated as I have with their individual stories. Everyone has a story to be told or a lesson to teach. We have decided to write a book about those stories, looking at the differences in perspective between old and young, retired and working, those who are wealthy and those who aspire to wealth. What are the differences in attitudes, in work habits, in how you manage money, in how you look at the future, and a score of other items? How do all of these things correlate?

We sent an email to some of you a few days ago, asking you to fill out a survey to help us gather data, with the intention of sending it to everyone over time. After you complete this survey, I offer an audio stream of a speech I recently made.

The survey software we're using had been stress tested to handle 50,000 surveys in a 24-hour period. For whatever reason, though, the server on which the survey was hosted simply collapsed under the number of people trying to complete the survey and listen to the speech.

I am sorry about the frustration some of you had not being able to get into the survey. We are working on getting the problem fixed and will send an email out sometime next week with a properly working link. I am really quite excited about this project, as we will all learn a lot, Tiffani and I most of all. Thanks for your help, patience, and indulgence.

Warren Makes a Bet

The Motley Fool did a foolish thing and made me one of five nominees for Investor of the Year for 2007. Warren Buffett of course won, but I was surprised (as was The Motley Fool) that I came in second. Buffett is the clear winner in investing, and his wisdom is followed by a large legion of fans, among which I am one. So, let me get myself in trouble and disagree with him on a small matter.

Carol Loomis (one of my favorite financial writers) writes in this week's Fortune about a bet that Warren Buffett made with a hedge fund management company. You can read the fascinating story at http://money.cnn.com/2008/06/04/news/newsmakers/buffett_bet.fortune/index.htm. Quoting:

"And to that there is a certain history, which began at Berkshire's May 2006 annual meeting. Expounding that weekend on the transaction and management costs borne by investors, Buffett offered to bet any taker $1 million that over 10 years and after fees, the performance of an S&P index fund would beat 10 hedge funds that any opponent might choose. Some time later he repeated the offer, adding that since he hadn't been taken up on the bet, he must be right in his thinking."

A New York firm, Protege Partners, which manages $3.5 billion in a fund of hedge funds, decided to accept that bet. Basically, Buffet and Protege each put $320,000 into 10-year zero-coupon Treasury bonds that will be worth $1 million in 10 years. The bet is straightforward. Protege has chosen five funds of hedge funds, and these funds must return more than the S&P 500 over the 10 years beginning January of 2008. (The list of funds is a secret.) The winner gets the $1 million donated to their favorite charity.

Which way would you bet? If the online response at Fortune is any indication, 90% of you would bet with Warren. As one enthusiastic responder wrote, "How can you bet against Buffett? I'd bet my life savings on it ..." Well, Tom, you might want to hedge your bet. Even Warren said he thinks his odds are only 60%.

The basic premise to Buffett's position is that the high fees simply eat up any potential for extra profits, over those of a simple index fund. As Buffett writes:

"A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund than with a group of funds of funds."

And he is right about the fees. Hedge funds, and especially funds of funds, must do much better than average to overcome their high fees. Loomis sums it up as follows:

"As for the fees that investors pay in the hedge fund world - and that, of course, is the crux of Buffett's argument - they are both complicated and costly. A fund of funds normally charges a 1% annual management fee. The hedge funds it puts that money into charge an annual management fee of their own, which for funds of funds is typically 1.5%. (The fees are paid quarterly by an investor and are figured on the value of his account at the time.)

"So that's 2.5% of an investor's capital that continually goes for these fees, regardless of the returns earned during a year. In contrast, Vanguard's S&P 500 index fund had an expense ratio last year of 15 basis points (0.15%) for ordinary shares and only seven basis points for Admiral shares, which are available to large investors. Admiral shares are the ones 'bought' by Buffett in the bet.

"On top of the management fee, the hedge funds typically collect 20% of any gains they make. That leaves 80% for the investors. The fund of funds takes 5% (or more) of that 80% as its share of the gains.