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Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

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Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#11

Post by perl4ever »

ModernMech wrote: post #3

Reminds me a little of traffic. Yesterday I was cruising down the highway in the leftmost lane, going about 80 with a line of other cars. The other two lanes were actually more clear, but cars were going much slower. I notice this one car, weaving in and out of traffic in these two lanes, trying desperately to get ahead, constantly cutting people off. They did this for 40 miles, weaving in and out, sometimes getting…

Some people think you should not be in the left lane unless you are passing at that moment. In some places, there are even signs saying "keep right except to pass". Perhaps this person was driving aggressively because they were enraged at the line of traffic on the left. Which is to say, they may not have been doing it for a quantitative benefit as you assume. This might strengthen rather than weaken the analogy to the stock market though...since it could be that people invest in hedge funds not to increase their average return but to reduce the regret of not owning "winners" and having something to talk about.

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#12

Post by dsr_ »

Has anyone done the analysis to see if the stock-picking by those managers was worth anything at all?

Obviously it wasn't worth the fees they charged. But if all those fees had been flattened down to the same expense as the Vanguard fund, would their advice have been worth anything over the index? To a first approximation, it looks like the answer is no.

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#13

Post by TekMol »

islayfan wrote: post #4

For context the losers argument is that Buffet picked a good team in a good period and he would have a good chance in a second cycle. https://www.bloomberg.com/view/articles/2017-05-03/why-i-los... .

A weak attempt at damage control.

He keeps reiterating his parole that experts who actively select assets know more then the average Joe.

Even though the average Joe just completely blew them out of the water over a whole decade :)

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#14

Post by matthewmcg »

perl4ever wrote: post #11
ModernMech wrote: post #3

Reminds me a little of traffic. Yesterday I was cruising down the highway in the leftmost lane, going about 80 with a line of other cars. The other two lanes were actually more clear, but cars were going much slower. I notice this one car, weaving in and out of traffic in these two lanes, trying desperately to get ahead, constantly cutting people off. They did this for 40 miles, weaving in and out, sometimes getting…

Some people think you should not be in the left lane unless you are passing at that moment. In some places, there are even signs saying "keep right except to pass". Perhaps this person was driving aggressively because they were enraged at the line of traffic on the left. Which is to say, they may not have been doing it for a quantitative benefit as you assume. This might strengthen rather than weaken the analogy to t…

It's not just some people. It is actually the law in most states (albeit a seldom-enforced one).

Don't cruise in the left lane.

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#15

Post by jerf »

mojoe wrote: post #6

I feel like there's some cognitive dissonance surrounding hedge funds in popular culture -- on the one hand you have people saying that any outsized short-term gains seen by hedge funds are the result of some selection/survivorship bias, and on the other hand you have people saying that any outsized returns are the result of illegal privileged information (see the TV show 'Billions'). I realize that there are enough…

There's a whole lot of "X is bad, therefore any argument that supports the claim that X is bad is true and valid" when it comes to these matters. It's technically "affirming the consequent", but I think that fallacy gets another very tempting facet to it when it's enters the moral or ideological dimensions.

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#17

Post by TuringNYC »

dsr_ wrote: post #12

Has anyone done the analysis to see if the stock-picking by those managers was worth anything at all? Obviously it wasn't worth the fees they charged. But if all those fees had been flattened down to the same expense as the Vanguard fund, would their advice have been worth anything over the index? To a first approximation, it looks like the answer is no.

Investments can have a dual mandate - high returns BUT also low volatility. Many hedge funds will admit their returns may not beat the S&P500, but will counter that their returns have lower volatility -- achieving more consistent gains over time.

To answer your question, sounds like the answer is still no, but it is worth noting that this whole conversation is ignoring the volatility side of the conversation.

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#18

Post by ThrustVectoring »

dsr_ wrote: post #12

Has anyone done the analysis to see if the stock-picking by those managers was worth anything at all? Obviously it wasn't worth the fees they charged. But if all those fees had been flattened down to the same expense as the Vanguard fund, would their advice have been worth anything over the index? To a first approximation, it looks like the answer is no.

If it's just stock-picking as opposed to getting access to a wider variety of investments, then it's very difficult for active stock picking to be worth anything. If stocks are owned just by stock-pickers and passive indexers, then they own the same stocks in the same proportion.

The only thing active funds can do is invest in things that passive indexes don't, or better take advantage of the "dumb money". Things like high-frequency trading definitely count here.

Pure stock-picking though? Yeah, anyone who outperforms is on the other side of trades that underperform, so you're going to run into issues.

Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds

#19

Post by watsocd »

TuringNYC wrote: post #17
dsr_ wrote: post #12

Has anyone done the analysis to see if the stock-picking by those managers was worth anything at all? Obviously it wasn't worth the fees they charged. But if all those fees had been flattened down to the same expense as the Vanguard fund, would their advice have been worth anything over the index? To a first approximation, it looks like the answer is no.

Investments can have a dual mandate - high returns BUT also low volatility. Many hedge funds will admit their returns may not beat the S&P500, but will counter that their returns have lower volatility -- achieving more consistent gains over time. To answer your question, sounds like the answer is still no, but it is worth noting that this whole conversation is ignoring the volatility side of the conversation.

You are correct except that doing this over 10 years somewhat removes the 'ignoring the volatility' argument.
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