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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

#241

Post by Ntrails »

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…

> This does not surprise me.

It shouldn't. That anyone would take a basket of hedge funds and think it would win vs the market is madness. Active investment is negative sum due to fees - it's essentially implausible for hedge funds on average to generate alpha.

There are plenty which do. There are lots which actually simply provide alternative Betas, or smart betas, or whatever. Some of them have genuinely reasonable fee structures! Finding those funds and even getting access to give them your money is really problematic (and often results in another layer of fees to "access providers").

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

#242

Post by imtringued »

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.

If you can predict that reliably and no one else can, you will be rich.

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

#243

Post by rmc »

dsacco wrote: post #180
defen wrote: post #175

Earlier quoted context omitted.

> 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.

That's genius! But then you have to buy a lot of iPhones, right? I suppose you can sell them on, and if you're getting ~$10k per quarter, it's OK. Or did you use a different approach?

What changed BTW? Did the format of tracking numbers change?

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

#244

Post by lotsofpulp »

mulmen wrote: post #106
mikeash wrote: post #65

Earlier quoted context omitted.

That doesn't really apply when the road is so busy that all of the lanes are full of cars.

It applies before with the goal of not getting to the point that all the lanes are full of cars.

Roads have a carrying capacity, or bandwidth, which at after a certain speed say 80mph, doesn't increase. Traffic is unavoidable once enough cars come onto the road at the same time such that they exceed this limit, and so you get traffic where people are speeding up and slowing down and that cascades back.

At the end of the day, there is no amount of rules that will bypass the fact that there is a hard limit to how many cars can pass through any given point at a certain speed.

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

#245

Post by pedrocr »

opportune wrote: post #204
misnamed wrote: post #183

Earlier quoted context omitted.

Index funds have to outperform active funds and traders in aggregate by definition. It's not a claim or debate, it's simple math. After savings on taxes and expenses, indexes represent the average + a fair bit more than other options. There is no feedback effect, except that more people indexing will lead to more trading arbitrage opportunities, which people will take and which doesn't hurt indexers, who will continu…

This is true in aggregate, with the additional caveat of over an asymptotically long timeline . Part of the goal of hedge funds, or at least some, is to hedge investments so that you might not get hurt as hard during a recession as the market. There can still be active funds that perform better than the market, or the market as measured by an index ETF. Unfortunately with the way funds are marketed, funds can often j…

>This is true in aggregate, with the additional caveat of over an asymptotically long timeline.

This is true over any timespan. At any point in time the active part of the market holds the same stocks as the passive part of the market and thus has the exact same risk and returns. This is as true over a century as it is over a month.

>not only can active funds invest in assets outside of the index (other stocks, real estate, futures, options, etc.), but active funds can also have more profitable allocations

If your active fund is investing in different markets then it's not comparable to the index. If there's an advantage in investing in those assets the solution isn't to buy the active fund. The solution is to find the index funds that will also give you exposure to the same assets and buy those instead gaining the same advantage of the same returns with less fees.

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

#246

Post by falsedan »

rmc wrote: post #243
dsacco wrote: post #180

Earlier quoted context omitted.

Yes, yes, no.

That's genius! But then you have to buy a lot of iPhones, right? I suppose you can sell them on, and if you're getting ~$10k per quarter, it's OK. Or did you use a different approach? What changed BTW? Did the format of tracking numbers change?

> But then you have to buy a lot of iPhones, right?

Just two per carrier would do: one at the start of the quarter, and one at the end. Earnings dates happen weeks after the quarter ends, so you'd have heaps of time to peddle your analysis around.

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

#247

Post by Retric »

_Tev wrote: post #236
Retric wrote: post #185

Earlier quoted context omitted.

There are several options that have noting to do with competence that allow for such returns. The most obvious is feeding the fund using another fund. Luck is another as the best returns from the largest outlier taking high risks looks great especially if you ignore large initial losses.

Look at their past performance, luck is just too unlikely for their string of successes.

Supose they had a 10% chance the fund is worth nothing in a given year. Over 20 years there is only ~12% chance a given fund makes it but taking such risks significantly boosts returns. Further, assume many such funds and you are only looking at the lucky ones.

This is why you need to make predictions of performance ahead of time instead of analyzing past performance.

PS: A standard trick is to start 20 funds and the 'best' one has high returns. Create another 20 funds to have a new 'best' when the old one reverts to the mean. Thus you need to analyze total returns weighted by funds size of a company not just individual funds.

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

#248

Post by tpallarino »

diedyesterday wrote: post #224

Even though Efficient Market Hypothesis doesn't take into account some short-term subtleties and inconsistencies of human behavior, the insights it provides tend to dominate in the long term, which seems to be the case here with Mr Buffet's winning bet.

So then how did Buffet make his money?

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

#249

Post by duggan »

bfuller wrote: post #169
testvox wrote: post #143

Earlier quoted context omitted.

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.

I'd like to see where that's written into a statute book; doesn't sound correct.

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

#250

Post by icelancer »

rwmj wrote: post #233
icelancer wrote: post #162

Earlier quoted context omitted.

>>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 indust…

Actually the opposite. Being in IT, I never buy IT stocks. They're mostly everyday brands and industries.

>>Being in IT, I never buy IT stocks.

That, ah, is even worse. Your diversification... isn't. Just because you have a job in IT doesn't mean that's adequate exposure. There is a large difference between a paycheck and investments in the large cap IT sector.

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