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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

#161

Post by jzwinck »

smt88 wrote: post #144
bhouston wrote: post #124

Earlier quoted context omitted.

I understand a lot of the top performing hedge funds operate via insider information.

I used to work on Wall St, and nearly every hedge fund was a client of our company. This is absolutely true.

There is no single Wall Street vendor who has nearly every hedge fund as a client, unless perhaps you are talking about a major exchange like NYSE. Even that is probably not a valid because of the huge number of firms doing smaller volumes via third parties (and having no direct relationship with the exchange).

Or perhaps you worked at Reuters or similar, in which case you would not have much visibility into the funds.

So are your two sentences related in any way?

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

#162

Post by icelancer »

Lon7 wrote: post #139
rwmj wrote: post #113

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?…

There's two parts to this answer. First, the numbers thrown around are that once you own 15 diversified stocks you have reduced your portfolio risk by 70 percent. That's not bad. At this point your volatility may not be that different than a market index. Of course it's different for every set of stocks, but I think this is a safe-ish guideline. So in that sense you are not missing out a whole lot. Second, and more i…

>>This is because the vast majority of the returns of an index come from a very small number of outperforming stocks.

This is the only thing the parent commenter needs to read to understand why indexing is not equivalent to owning 15 stocks that theoretically reduce portfolio risk (my guess is that the stocks are highly correlated and have too high of weight towards IT and not enough towards boring fields like industrials).

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

#163

Post by icelancer »

goialoq wrote: post #155
mrep wrote: post #36

Earlier quoted context omitted.

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…

You are missing the point. Once almost everyone invests in index funds, what will determine the price of stocks?

>>what will determine the price of stocks?

Do you think active investors determine the price of stocks now?

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

#164

Post by icelancer »

_wk3u wrote: post #101
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?"

Matt Levine of Bloomberg has a newsletter called Money Stuff that talks about this concern a lot. There are certainly many serious people who take are worried that too much index based investing will / is leading to inefficiencies.

>> There are certainly many serious people who take are worried that too much index based investing will / is leading to inefficiencies.

It definitely is / will in the future, and they will be capitalized on. This isn't really a catastrophic event.

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

#165

Post by icelancer »

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…

>>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,

This is true and leading to very good insight.

>>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 caps.

This is absolute nonsense and something you hear from active investors pitching you an anti-index fund strategy. Index funds and ETFs tracking indexes will not have some absurd sell off that disrupts equilibrium, they will... just proportionally adjust to the index, since that is what they do.

Did your smart investor friend go into detail how this massive disruption could occur (what conditions would cause such a cyclical crash, because the only thing we have in our past that even comes close is the Great Depression, and had index funds existed then, it's not likely this activity would occur) or what the details are?

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

#166

Post by cma »

cheez wrote: post #159
cma wrote: post #154

Earlier quoted context omitted.

Plus apparently some dodgy "creative" tax code interpretations around short-term/long-term gains.

Is it dodgy? You buy a share in a fund, that fund buys and sells, should you pay capital gains on every sale that fund makes? I don't think that has any precedent. You pay tax when you sell your share.

The type of strategy they employed isn't something small time investors could. It was a complex option scheme essentially buying options on their own short term trading.

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

#167

Post by icelancer »

charlesdm wrote: post #119
tanderson92 wrote: post #114

Earlier quoted context omitted.

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 smal…

>>People will withdraw money from their passively managed funds when the market starts tanking.

Yes, some will. Many will also counter this by buying up the same assets as the price drops.

>>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.

This is absolutely true but also has nothing to do with your friend's legitimately unbelievable scenario.

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

#168

Post by icelancer »

charlesdm wrote: post #128
tanderson92 wrote: post #122

Earlier quoted context omitted.

There are two concerns: transaction costs (tracking error relative to index return) and index return. Those who believe in generally efficient markets want to capture the market return, however volatile, with as little tracking error as possible. Since the ETF holders don't actually sell any stocks when the prices decline, their returns are temporarily depressed. If and when prices recover so too will their value. Th…

To each their own investment style (and there are many), but markets (in my view, and in the view of many others) are not efficient. (More than) half of what determines the stock price is psychology and herd mentality. It's not just numbers, and more an art than it is a science. Larger cap stocks however are generally priced more correctly than small- or mid cap stocks. Second to that is that your returns will also d…

>>Investing through index funds and ETFs will correlate with a certain alpha

This sentence actually means nothing.

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

#169

Post by bfuller »

testvox wrote: post #143
aisofteng wrote: post #95

Earlier quoted context omitted.

No. It should be unoccupied if nobody is passing. If it is empty on a particular stretch, somebody will decide to pass.

But if everyone is driving the speed limit no one can pass.

you can exceed the speed limit by a certain amount while passing. at least here.

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

#170

Post by godzillabrennus »

wpietri wrote: post #146
yhoiseth wrote: post #140

Earlier quoted context omitted.

On https://longbets.org/register/ , it says that "Long Bets registration is temporarily disabled. Please check back soon." Why is registration temporarily disabled? Can I get an email notification when it's back up?

Good question! Somebody took over running the technical side of that some years back, so I haven't followed it closely. I'll ask. But if anybody has a bet they'd like to get registered, just email me and/or them.

What email should they use?
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