Warren Buffett believes investors do not need to be brilliant to do well in the financial markets.

The Oracle of Omaha made a winning 10-year bet with Protégé Partners in Dec. 2007 that the S&P 500 would outperform a basket of fund of hedge funds.

But perhaps more interesting than how a simple index fund beat out some of the brightest Wall Street minds is what Buffett did with the initial proceeds for the bet.

He explained in his 2017 annual letter to shareholders released on Saturday how he turned his $318,250 outlay for the bet into $2.2 million for the Girls Inc. of Omaha charity.

"Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta," he wrote. "What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period – or even to look foolish – is also essential."

Buffett and Protégé both purchased a face amount of $500,000 in zero-coupon Treasury bonds that cost each of them $318,250 to fund the bet ten-years ago, according to the letter. If the bonds were held to maturity, the investments would have earned a 4.56 percent annual return and equaled $1 million to the winner's charity after ten-years.

"After our purchase, however, some very strange things took place in the bond market. By November 2012, our bonds – now with about five years to go before they matured – were selling for 95.7% of their face value. At that price, their annual yield to maturity was less than 1%. Or, to be precise, .88%," he wrote. "Given that pathetic return, our bonds had become a dumb – a really dumb – investment compared to American equities."

Buffett noted how the annual dividend yield of the S&P 500 at the time was 2.5 percent or about triple the yield of their Treasury bonds.

As a result, Buffett and Protégé agreed in 2012 to sell the bond positions and use the money to buy 11,200 shares of Berkshire Hathaway Class B stock for the remaining five years of the bet.

The equity investment increased in value to $2.2 million, which was presented to Girls Inc. of Omaha this year.

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