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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

#111

Post by ufmace »

compiler-guy wrote: post #92
ringaroundthetx wrote: post #84

Okay so any leveraged real estate fund would have outperformed the S&P500, without the possibility of a sudden margin call Any leveraged bond fund should have been able to as well, a carry trade from 2012 in European government bonds should have made many hundreds of percent A futures fund should have been able to A commodity options should have made monumental gains over the 85% that the S&P500 gave in 10 years, hon…

The problem for the every-person is finding the one that succeeds rather than fails. Given that in the aggregate these investments so severely underperformed, we can conclude that on an weighted average basis, you were more likely to lose money than gain money. No one disputes that some funds will over perform. The question is, which one? If you can predict that reliably, you will be rich. Most people can't.

Not just predict which ones, but get them to take your money too. AFAIK, many of the ones that are performing really well don't want to expand their AUM that much and so don't advertise and won't take just anyone's money.

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

#112

Post by tanderson92 »

11thEarlOfMar wrote: post #96
ringaroundthetx wrote: post #84

Okay so any leveraged real estate fund would have outperformed the S&P500, without the possibility of a sudden margin call Any leveraged bond fund should have been able to as well, a carry trade from 2012 in European government bonds should have made many hundreds of percent A futures fund should have been able to A commodity options should have made monumental gains over the 85% that the S&P500 gave in 10 years, hon…

Quibble... Buffet doesnt buy bad companies. He buys solid companies that have excellent management and for some reason are inexpensive at the time of purchase.

> We show that Buffett’s performance can be largely explained by exposures to value, low-risk, and quality factors.

That is, they used a factor analysis to decompose his performance by its correlation with academic "factors" which explain cross-sectional stock market returns.

In "Buffett's Alpha" by Frazzini, Kabiller, and Pedersen: http://www.econ.yale.edu/~af227/pdf/Buffett's%20Alpha%20-%20...

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

#113

Post by rwmj »

Question for financial types: For a few years I've owned a small selection of shares in FTSE companies (15 of them at the moment). I don't really do this scientifically, I just look for large, well-established companies where their shares look cheaper than long run, and buy those. (Partly I do this so I can see everyday companies that I own a tiny bit of). Is this practically equivalent to owning index-linked funds? Am I missing out? I plan to hold them for many years, and it's mostly "play money".

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

#114

Post by tanderson92 »

charlesdm wrote: post #100
brianliou91 wrote: post #98

Although there is still tons of money going to actively managed funds it seems to be more and more common knowledge that index fund investing is ultimately the smartest thing to do for personal finance. Does anyone know what the risk factors are (if any) to this type of passive investing if EVERYONE begins to do the same thing?

I had an interesting conversation with a very smart investor last year, and basically his idea was that while active managers will sell certain specific stocks (less volatile stocks) to fulfill redemptions in the event of a decline and/or crash, ETFs will generally just hit an (automated) sell on everything across the board. So proportionally they will sell off significantly more volatile small and midcaps vs large c…

This is incorrect, especially with ETFs. With an ETF, the seller/buyer (the individual, not the fund) pays all of the transaction costs. So buying and holding an ETF doesn't expose you to the problems which the behavior of panicking investors^. The same is not always true for mutual funds.

caveat: Vanguard index funds may be special and this doesn't apply to the same extent because the ETFs are a dual share class of the larger mutual fund.

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

#115

Post by jk2323 »

bincyber wrote: post #108

Index funds will almost always outperform actively managed funds. They are the best choice for the layman investor. An excellent book on this topic is The Little Book of Common Sense Investing by John Bogle. https://www.amazon.com/Little-Book-Common-Sense-Investing/dp...

"Rest Estate always goes up!"

"Index funds will almost always outperform actively managed funds."

Convenient investment vehicles should not stop you thinking. Index ETF were a great idea. But now everybody is pouring tons of money into them. Not sure this is a good idea, at least not on the scale how it is currently done. A stock is priced by supply and demand. There are stocks where there is basically very little real trading. Only ETF and some HFT funds. Yet, the stock is rising with the index. What happens in a downturn? What happens if this stock drops significantly more? Every ETF has to re-balance to reflect this fact, easily leading to a feed-back effect.

Some people betting on it: http://www.zerohedge.com/news/2017-04-09/horseman-global-unv...

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

#116

Post by igravious »

wpietri wrote: post #67

And I'm just going to self-promote a bit and say that the bet was registered via a project I worked on, the Long Now Foundation's project Long Bets: http://longbets.org/ We've been going since 2002: https://www.wired.com/2002/05/longbets/ We are happy to host bets of long-term significance, and the minimum bet is only $200/side. I am glad to personally help shepherd people who are serious about bets to make sure you…

Cool. Put your money where your mouth is.

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

#117

Post by lpolovets »

For anyone interested in this bet, Ted Seides (the losing party) did a good podcast on the topic: http://capitalallocatorspodcast.com/BetwithBuffett/

My layman's understanding of hedge funds is they are better at hedging losses than increasing gains. So in good years they might underperform the broader market (e.g. gain 9% instead of 12%), but in bad years they should lose much less (e.g. lose 5% instead of 15%).

I think this bet was largely a bet on the broader market dropping after a long run-up (which would theoretically favor hedge funds), but instead the market kept rising more and more.

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

#118

Post by mikestew »

d4l3k wrote: post #55
RandomInteger4 wrote: post #54

Earlier quoted context omitted.

I don't drive, but as a passenger, it is my understanding that the left lane is the fast lane and the right lane is to remain empty or mostly empty so cars can enter and exit the highway? Please correct me if I'm wrong. Regardless, if I ever get my license, I'm pretty much always going to avoid the highway as my anxiety cannot handle those speeds.

It's the law to keep to the right in most states. For instance, Washington state: http://app.leg.wa.gov/rcw/default.aspx?cite=46.61.100

It might be the law, but WA state is the poster child for left-lane bandits. Easily, with no doubt in my mind, the worst of the 50 states for a general contempt and ignorance of left lane (or lane discipline in general) protocol and law. IOW, it is not uncommon to see a line of cars in the left lane doing the speed limit or under, and a total two cars in the other lanes. Oregon is a close second.

The state police had a campaign a few years ago, stating that they were going to crack down on this. Not only did I not see any cops enforcing it, not a damned thing has changed regardless.

The mystery to me is how a geographical demographic of drivers somehow all got together and said, “fuck it, I’ll drive in whatever lane I want!” I know that’s not how it happens, but how does it happen? Taking the example of the worst drivers? Urban legend (“oh, no, it’s against the law to...”)? Some misguided attempt to stick it to The Man?

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

#119

Post by charlesdm »

tanderson92 wrote: post #114
charlesdm wrote: post #100

Earlier quoted context omitted.

I had an interesting conversation with a very smart investor last year, and basically his idea was that while active managers will sell certain specific stocks (less volatile stocks) to fulfill redemptions in the event of a decline and/or crash, ETFs will generally just hit an (automated) sell on everything across the board. So proportionally they will sell off significantly more volatile small and midcaps vs large c…

This is incorrect, especially with ETFs. With an ETF, the seller/buyer (the individual, not the fund) pays all of the transaction costs. So buying and holding an ETF doesn't expose you to the problems which the behavior of panicking investors^ . The same is not always true for mutual funds. caveat: Vanguard index funds may be special and this doesn't apply to the same extent because the ETFs are a dual share class of…

But you are still exposed to the market, which can decline significantly. People will withdraw money from their passively managed funds when the market starts tanking. We have no idea what will happen in the next 'fear trade' when everyone starts dumping shares.

Stocks can go crazy and this could create a death spiral on the ETFs, because an ever more frequent decline can lead to significantly more volatility in small and midcaps, and more people withdrawing funds from their ETFs, which in turn will cause more liquidations.

All reasoning (to some extent) is lost as to which assets to liquidate. Actively managed funds will generally liquidate assets that don't cause too much swings in share prices in a downturn. Liquidating $50MM worth of Google won't make a big difference, but liquidating $50MM worth of SmallCap generally will put significant pressure on the share price. On the flipside: imo it does create a significant buying opportunity when it comes to small cap stocks.

Tl;dr: in my view, the more money that ends up being managed passively, the easier it will become to beat the market as an active investor.

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

#120

Post by compiler-guy »

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

The argument isn't that "No hedge fund will ever beat the market." The argument is that, "You can't tell in advance which hedge fund will beat the market."

The long tail exists, just not for you.

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