The amazing thing about the Warren Buffett bet is that he's stuck with the S&P 500 as his index.

Don't get me wrong—there's nothing wrong with the S&P 500. But it captures just one sliver of the global investment universe, U.S. large-cap stocks. Imagine if he could—as you and I can—build a low-cost index portfolio that included international stocks, commodities and more.

I wonder if Protégé is forced to focus exclusively on large-cap U.S. stocks. There's no word on the methodology and specifics on the LongBets Web site. If they can diversify across multiple asset classes ... and Buffett still thinks he'll win ... that's all the more impressive. (I think he will win the bet, as the 2&20 hedge fund fee structure is simply absurd.)

It's worth clicking on the link above to read Buffett's argument for passive indexing. Here's a snippet:

"A lot of very smart people set out to do better than average in securities markets. Call them active investors.

Their opposites, passive investors, will by definition do about average. In aggregate their positions will more or less approximate those of an index fund. Therefore the balance of the universe - the active investors - must do about average as well. However, these investors will incur far greater costs. So, on balance, their aggregate results after these costs will be worse than those of the passive investors."

Music to my ears.