Am I reading that right? S&P500 nets you on average a 10% annual return of investment? Does that mean you can "just" invest ten times your yearly living expenses and practically live off idle income? How does that not completely destroy the economy and why isn't everyone doing it?
Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
251–260 of 323 posts
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#252Earlier quoted context omitted.
Unfortunately not, I'm afraid. I would guess they have much of their execution infrastructure in the same data centre as the exchanges they execute on.
There's a considerable early period (1980s, 1990s) when Renaissance was turning up amazing profits when electronic trading largely didn't exist. That would suggest other methods.
Perhaps they were just market making back then as well? See this link: https://www.wallstreetoasis.com/forums/is-renaissance-techno...
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#253Even 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?
Fundamental analysis, arbitrage plays and, starting out, investing other people's money with hugely favorable commission structure for himself.
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#254Am I reading that right? S&P500 nets you on average a 10% annual return of investment? Does that mean you can "just" invest ten times your yearly living expenses and practically live off idle income? How does that not completely destroy the economy and why isn't everyone doing it?
Pension funds are large investors, so part of peoples savings are there. In general people don't save that much. Not even enough to retire comfortably. Many people prefer own houses instead.
Total market cap of SP500 is ~$20 trillion. Divided between US adults that is something like $80 thousand per adult.
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#255Am I reading that right? S&P500 nets you on average a 10% annual return of investment? Does that mean you can "just" invest ten times your yearly living expenses and practically live off idle income? How does that not completely destroy the economy and why isn't everyone doing it?
> S&P500 nets you on average a 10% annual return of investment?
In the last 10 years, yes. Historically, it's been closer to 7% in real terms (adjusting for inflation). There are no guarantees that this will be the case for the future.
> Does that mean you can "just" invest ten times your yearly living expenses and practically live off idle income?
You'll need more than that because there are multi-year periods where the s&p 500 declines. The number that has been bandied around for a 'safe' withdrawal rate is 4% [1], so you'll need closer to 25 times your yearly living expenses.
> How does that not completely destroy the economy and
Because not everybody is doing it. If they were you wouldn't be getting those returns, obviously.
> why isn't everyone doing it?
Most Americans have less than $1000 in savings, let alone 10x their yearly living expenses.
[1] http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need...
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#256Earlier 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.
Not so unlikely if you consider survivorship bias.
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#257Earlier quoted context omitted.
He worked at Starbucks and would overhear traders bragging about their crimes in queue.
My understanding is that trading on non-public info isn't a crime unless both parties benefit. The behavior I'm referring to was sharing tips with the expectation of getting tips in return at a later date. As far as I know, it's not possible to prove that's illegal. Also, it's not like actual illegal behavior is uncommon when it's hard to prove, and it's not like a lot of people aren't proud of it. Watch Jim Cramer's…
>My understanding is that trading on non-public info isn't a crime unless both parties benefit.
Trading on non public information for a gain is going to land you in hot water with the SEC.
These two lines on the SEC site [1] define this.
>Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments;
>Friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#258And 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…
If longbets.org was really serious about long-term bets, it wouldn't be restricting years to only 5 digits. Haven't they heard of the Y100K problem?
What is the Y100K problem.
More importantly, who would they pay out at that point when both parties are dead
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#259Earlier quoted context omitted.
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.
While what you're saying is true, in fairness there are two caveats:
1. Virtually all profitable strategies run by hedge funds are inaccessible to small time investors nearly by definition, because they have more capital and lower capacity constraints,
2. The partnership you're talking about with Deutsche Bank doesn't account for most of their returns, and was only in effect in the last decade, not decades before.
Re: Buffett wins $1M decade-old bet that the S&P500 would outperform hedgefunds
#260It's interesting that while the S&P did beat these hedge funds, Buffet's own Berkshire Hathaway (BRK.B) seems to have beat the S&P handily[0], with an increase of ~130% from $77.93 in 2007 to $179.89 today. I know Berkshire isn't actually a hedge fund, but is very analogous to a giant mutual fund, albeit one that takes a very active ownership role in the companies whose shares it owns. 0: http://quotes.morningstar.co…
Yup this is the optimal strategy. I figure that one out a couple decades ago.