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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

#261

Post by dsacco »

gibberfish wrote: post #256
_Tev wrote: post #236

Earlier quoted context omitted.

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

Not so unlikely if you consider survivorship bias.

Actually yes, it's still quite unlikely. If you formalize your thesis here and actually do the calculation, you'll see that the chance of a fund achieving a consistently annual average 70%+ return over 20+ years is overwhelmingly unlikely to emerge with the number of funds that existed in the same time period.

"Survivorship bias" is a meme that is commonly thrown out, but to date no one I've challenged on it has empirically demonstrated that this accounts for the emergence of ultra-successful funds. Model this out a bit - what is your single unit of trading to judge and what is your time interval? How many other participants are there in the same interval, and how is each unit judged? You can't just judge on an annual basis - no firm has an actual 50% chance of beating the market each year. Funds like Renaissance make hundreds to thousands of trades each day. Moreover, different firms have different chances of beating the market each year.

Basically, I want you to rigorously formalize how a firm like Renaissance maps to monkeys throwing darts at the wall, because as much as people like to use these analogies (coin flipping, etc), they're never empirical. How do you account for a firm that beats the market by an overwhelming margin for 2 - 3 decades and never having a return poorer than the market (and in fact only rarely being down per quarter or month).

EDIT: Elsewhere: https://news.ycombinator.com/item?id=13797635

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

#262

Post by dsacco »

Retric wrote: post #247
_Tev wrote: post #236

Earlier quoted context omitted.

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…

This doesn't reflect how the industry actually works among funds that have alpha.

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

#263

Post by dsacco »

dredmorbius wrote: post #232
valuearb wrote: post #214

Earlier quoted context omitted.

It's a highly profitable market maker more than a long term investment fund.

I'd really like to see deets. I've looked, somewhat, and what I've found (including Jim Simon's very few talks) have been ... pretty uninformative.

You're not going to see details. No one who works there (or at similar firms) has any incentive to give away that information. If you come across people who work at one of these firms, you'll find they are extremely cautious about saying much of anything about their work.

The comments you see on forums like this one are just best guesses - educated guesses, but generally underinformed and relatively out of date. I personally consider it a fluke that RenTec is as famous as it is - other comparable firms like TGS have far less notoriety (and are probably better off for it).

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

#264

Post by dsacco »

poooogles wrote: post #257
smt88 wrote: post #218

Earlier quoted context omitted.

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 associate…

The SEC has established two precedents in this arena to satisfy the "personal benefit" or quid pro quo requirement:

1. Bribery, or a monetary reward,

2. Friendship and good relations.

In both cases there must be an unbroken chain of confidentiality compromise. If you legitimately come to know non-public material information about a company and you didn't acquire this information through your own or someone else's confidentiality agreement, you're fine to use it.

Information asymmetry couldn't be functionally and profitably exploited if it was literally illegal full stop. You just have to acquire it without breaking a confidentiality duty to your own company and without aiding and abetting someone else in breaking such a duty (e.g. they tell you and you trade).

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

#265

Post by dsacco »

valuearb wrote: post #221
hyperpape wrote: post #33

Earlier quoted context omitted.

I can't vouch for this source, but here's a claim that alpha is real: https://blogs.cfainstitute.org/investor/2016/07/26/is-active... .

Buffett alone is proof enough that Alpha is real. The real problem is, how can you or I pick the next Buffett instead of the next Ted Seides? The answer, we can't.

And even if you luckily (or maybe skillfully) could, you'd most likely have a relatively small window of access before they no longer needed your capital unless you were a very large investor (on the order of a few years).

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

#266

Post by Retric »

dsacco wrote: post #262
Retric wrote: post #247

Earlier quoted context omitted.

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…

This doesn't reflect how the industry actually works among funds that have alpha.

Clearly funds try and avoid going broke. However, many funds also have losses much greater than the market including the one we are talking about.

The truth is risk is hard to measure accurately and most Alpha is simply risk hidden from their investors.

Which is why a statistically significant Alpha takes more than a single funds past performance. And how someone just lost a 1 Million dollar bet on this crap.

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

#267

Post by Retric »

dsacco wrote: post #261
gibberfish wrote: post #256

Earlier quoted context omitted.

Not so unlikely if you consider survivorship bias.

Actually yes, it's still quite unlikely. If you formalize your thesis here and actually do the calculation, you'll see that the chance of a fund achieving a consistently annual average 70%+ return over 20+ years is overwhelmingly unlikely to emerge with the number of funds that existed in the same time period. "Survivorship bias" is a meme that is commonly thrown out, but to date no one I've challenged on it has empi…

They don't consistently average 70% returns.

Feel free to list the years they had over 70% returns vs less than 70% returns.

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

#268

Post by dsacco »

Retric wrote: post #267
dsacco wrote: post #261

Earlier quoted context omitted.

Actually yes, it's still quite unlikely. If you formalize your thesis here and actually do the calculation, you'll see that the chance of a fund achieving a consistently annual average 70%+ return over 20+ years is overwhelmingly unlikely to emerge with the number of funds that existed in the same time period. "Survivorship bias" is a meme that is commonly thrown out, but to date no one I've challenged on it has empi…

They don't consistently average 70% returns. Feel free to list the years they had over 70% returns vs less than 70% returns.

That was a misnomer, you're right. But that doesn't meaningfully impact my point. An average annual 70% return, some years greater (notably, 2008) and some years lesser, but only a very small number of down quarters or months in the same time frame.

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

#269

Post by Retric »

dsacco wrote: post #268
Retric wrote: post #267

Earlier quoted context omitted.

They don't consistently average 70% returns. Feel free to list the years they had over 70% returns vs less than 70% returns.

That was a misnomer, you're right. But that doesn't meaningfully impact my point. An average annual 70% return, some years greater (notably, 2008) and some years lesser, but only a very small number of down quarters or months in the same time frame.

Don't forget to include the preceding 30% drop which reduces both the total returns directly and rate of return as the fund operated over a longer period.

Further, they stopped publishing returns suggesting an even lower long term average.

So, you are looking at a biased subset of a funds returns not total returns which greatly shifts the probability's.

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

#270

Post by KingMob »

0xJRS wrote: post #258
timb07 wrote: post #213

Earlier quoted context omitted.

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

What if you want to bet they find a cure for death?
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