To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
An important component of a bet like this: you should base the win/lose calculation on returns after accounting for fees. The index fund likely has fees that are two orders of magnitude lower than the active fund. Otherwise, a random fund may beat a broad index just by chance.
Warren Buffett's very similar bet was done this way.
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
You won't have any guarantee that they will be able to make good on their promise and won't just go bankrupt.
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
You’re probably aware that no fund manager would accept your offer. But it doesn’t prove that they don’t think they can beat the market (as misguided as that belief might be), it just means they’re not willing to take on an absurd amount of risk to prove it.
It is the opposite. Market timing does not work reliably. Active management produces worse results on the long run. no individual trader or active manager can consistently beat the market. however active fonds may have periods (even several years) where they out perform. for private investors buy-and-hold of highly distributed ETFs is the best way to do it. The easiest way to get started is a one ETF portfolio like e…
Noting that it is possible to beat market, with strategies / algorithms that are generally non-public. For example medallion fund, see https://posts.voronoiapp.com/markets/Jim-Simons-Medallion-Fu... . Note that these crazy performance stats are after the steep fixed + performance fees.
It’s possible only in the sense that it is possible to flip a coin heads 10 times in a row. One out of 1024 should do it. But you don’t know which one will until the experiment is over and you look back at the results.
Returns from stock investing come from increasing stock prices. Stock prices increase when earnings of the company grow. In other words: when the economy grows. You can argue that Amazon and Apple and Google and Facebook etc. will grow earnings even if the overall economy is flat or shrinks but I don't see how that would apply to passive investing i.e. investing in S&P 500 i.e. investing in 500 largest US companies.…
> Returns from stock investing come from increasing stock prices. There are other ways to make returns. Return from stock comes mainly from increasing stock prices and from dividends. But fundamentally, it comes from profits. > Stock prices increase when earnings of the company grow. There are many reasons stock prices increase. But whether it does or doesn't isn't really relevant. When a company makes a profit, eith…
This is all correct, but missing the higher order. Most investors will not take out the dividends, but reinvest them. A few might sell, because they are in retirement. But assuming that the retired people make up a small part of investors, profit is reinvested. Further, people invest a percentage of their income for retirement. All that means that work income and dividends make the stock prices go up and retirement makes the stock prices go down. You could say that retired people consume and help companies make profit, but it is actually worse for stock prices than investment, because the consumption requires companies to sell products and services that come with cost.
> - Don't compare investments based on annualized returns alone, it really doesn't make any sense. >- Don't compare investments one against an other, instead look at the addivity of one on top of another. I don’t think either of these matter to 90% of investors whose goal is to build up a nest egg for retirement which means not spending for decades in the future. Sharpe ratios and all those “risk” adjusted calculatio…
> Sharpe ratios and all those “risk” adjusted calculations all involve assumptions that may or may not be true. On the contrary, these risk adjusted measures assume nothing more than a normally distributed random variable. If you just look at annualized returns, then go ahead and invest in CDOs ETFs. More seriously, the S&P for instance has around 20% annualized vol, which IMHO is way above what you would want for a…
>assume nothing more than a normally distributed random variable
But look at something like systemic risk: it’s not necessarily normally distributed. The S&P returns skew left. I’m sure there are other risk metrics that break this assumption as well.
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
Why would anyone take the other side of this bet? It's an incredible financial instrument, that anyone on the buyside would buy in an instant (as formulated -- ignored fees/tcosts etc).
I've been harboring a suspicion for several years that I've forgotten an account or two. Maybe I'm one of the fidelity investors.
Subscription fatigue. I sometimes worry if I have a forgotten paid subscription on an e-mail of mine I don't check, that slowly drains a bank account I forgot I have. There's just Too Many Accounts, and Too Many Subscriptions.
That's the thing with subscriptions. The default is just to let them continue to leak. I've periodically discovered subscriptions that presumably resulted from me not explicitly not checking a box somewhere,
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
You’re probably aware that no fund manager would accept your offer. But it doesn’t prove that they don’t think they can beat the market (as misguided as that belief might be), it just means they’re not willing to take on an absurd amount of risk to prove it.
Exactly. No point being the one taking the risk - if the professionals don't dare take the risk then any non-professional (fund buyer) shouldn't either (under normal circumstances).
PS. Furthermore, an accurate comparison is not beating the index, it's beating it enough to cover the salary/compensation of the fund manager + some (with less risk! Risk = cost!)
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
You’re probably aware that no fund manager would accept your offer. But it doesn’t prove that they don’t think they can beat the market (as misguided as that belief might be), it just means they’re not willing to take on an absurd amount of risk to prove it.
I don't think the risk is "absurd". Or, at least it's no different than the risk they ask any investor to take by charging them 1% of their portfolio for it to be "actively managed".
Plus, they are being compensated. I'm offering 90% of the returns above the index :-)