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

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

#31

Post by [deleted] » Sun, Sep 17, 2017, 5:27 PM UTC

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…

[deleted]

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

#32

Post by baron816 » Sun, Sep 17, 2017, 5:29 PM UTC

So clearly, for the individual, the optimal strategy is to simply invest in index funds and just wait.

But a new question that is being raised is: "what happens if everyone only invests in index funds?"

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

#33

Post by hyperpape » Sun, Sep 17, 2017, 5:31 PM UTC

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.

I can't vouch for this source, but here's a claim that alpha is real: https://blogs.cfainstitute.org/investor/2016/07/26/is-active....

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

#34

Post by Marazan » Sun, Sep 17, 2017, 5:33 PM UTC

drharby wrote: post #16

Eye catching headline, but the set of hedgefunds is diverse with a large range of performance. I imagine the upper tails do pretty well

And how do you, ahead of time, select the upper tail.

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

#35

Post by minsight » Sun, Sep 17, 2017, 5:34 PM UTC

baron816 wrote: post #32

So clearly, for the individual, the optimal strategy is to simply invest in index funds and just wait. But a new question that is being raised is: "what happens if everyone only invests in index funds?"

That never happens. There will always be people who want to be different from the herd. Any inefficiencies will take care of themselves.

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

#36

Post by mrep » Sun, Sep 17, 2017, 5:37 PM UTC

baron816 wrote: post #32

So clearly, for the individual, the optimal strategy is to simply invest in index funds and just wait. But a new question that is being raised is: "what happens if everyone only invests in index funds?"

This has been answered a thousand times. Everyone will never invest in index funds. What will happen is more and more people will invest in index funds until there are so little people actively investing in the stock market that the ones that do are able to beat it. However, them beating it will only net (after their fees) the same returns as index funds thus striking a balance where index funds match the performance of active investors.

If either index funds or active investors (after fees) make more money, capital will move to the one that pays more until they balance again. We have had way too many active investors for a long time which is why index funds have constantly outperformed active investors but eventually they will balance as more and more people move their money to index funds.

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

#37

Post by ojbyrne » Sun, Sep 17, 2017, 5:38 PM UTC

drdeadringer wrote: post #28

matthewmcg wrote: post #14

Earlier quoted context omitted.

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.

.

That typically means the right lane is turning into an exit lane.

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

#38

Post by droopyEyelids » Sun, Sep 17, 2017, 5:40 PM UTC

minsight wrote: post #35

baron816 wrote: post #32

So clearly, for the individual, the optimal strategy is to simply invest in index funds and just wait. But a new question that is being raised is: "what happens if everyone only invests in index funds?"

That never happens. There will always be people who want to be different from the herd. Any inefficiencies will take care of themselves.

>Any inefficiencies will take care of themselves.

Thats a ridiculous thing to say when the inefficiency here would represent your investments getting wiped out

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

#39

Post by mstanown » Sun, Sep 17, 2017, 5:41 PM UTC

differentView wrote: post #7

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…

Unless you only noticed that one car that was terrible at getting ahead. Better drivers might have passed you only once and you didn't notice them because you never saw them again.

As it happens when one doesn't acknowledge Survivorship Bias.

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

#40

Post by nitrogen » Sun, Sep 17, 2017, 5:43 PM UTC

matthewmcg wrote: post #14

perl4ever wrote: post #11

Earlier quoted context omitted.

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.

This is such a problem in Utah that last time I was there, the traffic status billboards over the freeways just said, "Camp in the mountains, not the left lane"... and the left two lanes were full with the right lanes empty. If I hadn't been driving I would have taken a picture to savor the irony.