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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

#171

Post by dredmorbius »

blfr wrote: post #58
osrec wrote: post #30

This does not surprise me. My personal experience with hedge fund managers is that they are good salesmen that peddle their financial expertise to clients, convincing them of their financial rock-star status (usually gained through a lucky investment or two). Paulson is a classic example. Wealthy individuals buy into it, especially those that are less educated (e.g. those that have inherited money), and happily alloc…

Nothing works forever but there are funds like Renaissance Technologies' Medallion which may just be getting heads for a long time but rather seem to have some secret sauce that works for a long time. Usually though they're not very large and don't seek out investments.

Renaissance is an exception at levels that makes me wonder if it isn't a cover for other methods or operations.

Howw many sigmas divergent is it?

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

#172

Post by dredmorbius »

osrec wrote: post #135
blfr wrote: post #58

Earlier quoted context omitted.

Nothing works forever but there are funds like Renaissance Technologies' Medallion which may just be getting heads for a long time but rather seem to have some secret sauce that works for a long time. Usually though they're not very large and don't seek out investments.

Yes, Renaissance is an exception. I would argue that their nature of their strategies almost puts them into a pseudo market maker category (I've personally never worked with/for them, but I hear much of their strategy is statistical arbitrage, made possible by favourable transaction fee set ups and fast, colocated execution infrastructure).

Any info on the colo'd infrastructure?

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

#173

Post by sytelus »

bhouston wrote: post #124
osrec wrote: post #30

This does not surprise me. My personal experience with hedge fund managers is that they are good salesmen that peddle their financial expertise to clients, convincing them of their financial rock-star status (usually gained through a lucky investment or two). Paulson is a classic example. Wealthy individuals buy into it, especially those that are less educated (e.g. those that have inherited money), and happily alloc…

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

You cannot perform above average without an information asymmetry. This asymmetry may be either because you found "bug" in financial system or insider information or custom data collection. The test for "good" funds is essentially what information asymmetry they have. If their answer is "good fund managers", "years of experience", "past performance" etc then it's not concrete asymmetry and most likely won't work over longer term.

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

#174

Post by masonium »

dsacco wrote: post #129
lordnacho wrote: post #99

Earlier quoted context omitted.

No, you are the one who has misunderstood something. I'm saying it's rigged against the fund chooser. Read it again. > You mention that plenty of individual funds did beat the S&P. This is straight an apocryphal anecdotal fallacy. No it isn't. If the guy was smart about what was being bet on he'd have picked RenTech and he'd have won. > I understand you are trying to defend your business. Nope. Just providing some co…

> No it isn't. If the guy was smart about what was being bet on he'd have picked RenTech and he'd have won. Yeah, I don't really understand this. People give me flak for saying it, but I can think of five or so funds off the top of my head (Renaissance included) that I would have happily picked and handily beaten Buffett. I'd make the bet again, today. But like I also always say - Buffett wouldn't have taken that bet…

> In other words, the bet didn't really prove anything other than that the hedge fund industry overall is less attractive than the broader market.

The context of the original challenge suggests that this was the intention. I actually think that it proved something a little stronger.

If some moderately savvy investor were deciding whether to invest her $1m in index funds or hedge funds, she would actually have to choose which hedge fund to invest in. Presumably Ted Seides knows more than our example investor would about hedge funds (and has access to more of them she would). So Ted is an (optimistic) stand-in for how well she would actually have done, which is frankly the more relevant question.

On a related note, Ted probably didn't invest in RenTec, or at least not the Medallion Fund, because he can't. Most funds. like Medallion, that can consistently beat the market will either stop taking additional investments or straight up return capital to investors and trade their own money. Buffett doesn't actually go so far as to claim that no one can beat the market (after all, he did); his claim is merely that our average investor can't really take advantage of it to beat the market themselves.

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

#175

Post by defen »

dsacco wrote: post #156
hellogoodbyeeee wrote: post #145

Earlier quoted context omitted.

> I have mined and sold data to hedge funds Are you able to tell more about what types of data this was? I'd be interested in hearing more. I love the story of hedge funds using satellite imagery of parking lots to predict retail store strength

> Are you able to tell more about what types of data this was? I mined data in the real estate, QSR, automotive and airline sectors (and a few peripherally related ones). We would identify a source of data that was a demonstrably strong proxy for a specific company's revenue (that is to say, if we broke out a naive timeseries of the data it would map nearly 1:1 to earnings results each quarter). Then we would collect…

> it used to be possible to pretty accurately forecast large tech retailers' product sales each quarter (like Apple) by reverse engineering FedEx and UPS tracking numbers.

That's great. Were tracking numbers vendor-specific in some way? So you could, let's say, order an iPhone once a week and get an idea for how many iPhones (or total Apple products) were sold in that time period, just by using the tracking numbers? Was it dependent on geography in some way?

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

#176

Post by mrep »

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?

The active investors who are left of course.

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

#177

Post by opportune »

dsacco wrote: post #156
hellogoodbyeeee wrote: post #145

Earlier quoted context omitted.

> I have mined and sold data to hedge funds Are you able to tell more about what types of data this was? I'd be interested in hearing more. I love the story of hedge funds using satellite imagery of parking lots to predict retail store strength

> Are you able to tell more about what types of data this was? I mined data in the real estate, QSR, automotive and airline sectors (and a few peripherally related ones). We would identify a source of data that was a demonstrably strong proxy for a specific company's revenue (that is to say, if we broke out a naive timeseries of the data it would map nearly 1:1 to earnings results each quarter). Then we would collect…

Would you be able to describe how your data was normally priced? I'm sure it is very context dependent, but I'm very interested. For example, let's say you have information that allows you to forecast the earnings of a publicly traded company to within 1% MoE; for how much could you sell this information (either one time, or periodically) to a financial company?

I once briefly chatted with a man who ran a company that used satellite imagery to predict crop yields. I found it amusing how rather than providing this information to farmers ("It looks like you're going to produce only 60% of what you did last year, time to cut some expenses!"), there was so much more money in providing this information to hedge funds and trading firms. Morality aside, the potential for technology like this is exciting.

It's kind of cool how the combination of big data, scraping, statistics, etc. allows this small niche of analytics to thrive. I have a decent background in most of these subjects, and this seems like a very freelance-able job, so I'd love to dabble in this area and learn how it works.

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

#178

Post by pliny »

jzwinck wrote: post #161
smt88 wrote: post #144

Earlier quoted context omitted.

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 fund…

He worked at Starbucks and would overhear traders bragging about their crimes in queue.

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

#179

Post by mrep »

ThrustVectoring wrote: post #56
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…

How does the active part of the market beat the rest of the active part of the market? Like, I could see the net fees of the active funds being equal to the underperformance of "dumb money" retail investors mis-picking stocks.

I'm not exactly sure what you are saying. Are you asking how active investors in aggregate can beat index funds despite their fees?

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

#180

Post by dsacco »

defen wrote: post #175
dsacco wrote: post #156

Earlier quoted context omitted.

> Are you able to tell more about what types of data this was? I mined data in the real estate, QSR, automotive and airline sectors (and a few peripherally related ones). We would identify a source of data that was a demonstrably strong proxy for a specific company's revenue (that is to say, if we broke out a naive timeseries of the data it would map nearly 1:1 to earnings results each quarter). Then we would collect…

> it used to be possible to pretty accurately forecast large tech retailers' product sales each quarter (like Apple) by reverse engineering FedEx and UPS tracking numbers. That's great. Were tracking numbers vendor-specific in some way? So you could, let's say, order an iPhone once a week and get an idea for how many iPhones (or total Apple products) were sold in that time period, just by using the tracking numbers?…

Yes, yes, no.
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