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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

#191

Post by misnamed »

kpommerenke wrote: post #153

It is not really surprising that a large group of hedge funds underperformed the S&P500. In fact, William Sharpe made the argument a long time ago: in aggregate, active investors hold the passive portfolio and earn the same return as passive investors before fees, but lower returns after fees. In aggregate, this is always and necessarily true: https://web.stanford.edu/~wfsharpe/art/active/active.htm

It's so simple and obviously true yet a shocking number of people think it could be otherwise (e.g. if too many people index).

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

#193

Post by guard0g »

drharby wrote: post #16

Eye catching headline, but the set of hedgefunds is diverse with a large range of performance. I imagine the upper tails do pretty well

It's not about the tail, but that the mean (and median) is so much lower after HF fees and FoF fees (and the fact that there's just not that much talent out there).

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

#194

Post by kspaans »

ringaroundthetx wrote: post #188
smegel wrote: post #93

Earlier quoted context omitted.

So do you mind telling us which funds have a 100% certainty of >S&P500 performance over the next few decades please?

sure, pretty much any options selling fund, pretty much any carry trade fund, pretty much any leveraged bond fund you can sell options on the S&P index to amplify returns of passive S&P500 investing if you blow up, you didn't manage risk right. rinse and repeat. the returns should be higher, especially over a decade.

Easier said than done: http://canadiancouchpotato.com/2010/01/26/the-trouble-with-l...

You basically have to continuously time the bull-markets for the decade.

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

#195

Post by anonu »

jk2323 wrote: post #115
bincyber wrote: post #108

Index funds will almost always outperform actively managed funds. They are the best choice for the layman investor. An excellent book on this topic is The Little Book of Common Sense Investing by John Bogle. https://www.amazon.com/Little-Book-Common-Sense-Investing/dp...

"Rest Estate always goes up!" "Index funds will almost always outperform actively managed funds." Convenient investment vehicles should not stop you thinking. Index ETF were a great idea. But now everybody is pouring tons of money into them. Not sure this is a good idea, at least not on the scale how it is currently done. A stock is priced by supply and demand. There are stocks where there is basically very little re…

>> Every ETF has to re-balance to reflect this fact,

Only market-cap weighted ones. And we are quickly moving away from such things with non-standard weightings and soon to be released actively managed ETFs.

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

#196

Post by ThrustVectoring »

mrep wrote: post #179
ThrustVectoring wrote: post #56

Earlier quoted context omitted.

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?

Sorry. I'm asserting that active investors in aggregate own the exact same stocks in the same proportion as the fund that indexes the stocks they're picking from. So if one active investor outperforms the index, there has to be an active investor on the other side of their trades that has to underperform the index.

In other words, since the average active investor sets the average that passive indices track, how do they beat the average?

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

#197

Post by imcrs »

vowelless wrote: post #130
the_cat_kittles wrote: post #121

Earlier quoted context omitted.

this utterly rules. like, i want to fly to your current location to give you a fist bump. in my utopian dream world, every political pundit has to put their thoughts on here.

Even if they get funded by special interest groups to spew the group's narrative, at least this will be a quantization of how correct or incorrect the pundits are.

this would separate the wheat from the chaff with regards to special interest groups.

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

#198

Post by anonu »

charlesdm wrote: post #100
brianliou91 wrote: post #98

Although there is still tons of money going to actively managed funds it seems to be more and more common knowledge that index fund investing is ultimately the smartest thing to do for personal finance. Does anyone know what the risk factors are (if any) to this type of passive investing if EVERYONE begins to do the same thing?

I had an interesting conversation with a very smart investor last year, and basically his idea was that while active managers will sell certain specific stocks (less volatile stocks) to fulfill redemptions in the event of a decline and/or crash, ETFs will generally just hit an (automated) sell on everything across the board. So proportionally they will sell off significantly more volatile small and midcaps vs large c…

So Buffett's $1M bet wasn't enough to convince you that passive beats active?

Hedge fund are basically a compensation scheme masquerading as some sort of smart money management thing.

What's great is that the debate of passive vs active will go on forever - There will be periods where one outperforms the other - sure. But in the end, net of fees - active cannot win consistently, on average. Its human nature to believe we can beat the casino.

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

#199

Post by anonu »

rwmj wrote: post #113

Question for financial types: For a few years I've owned a small selection of shares in FTSE companies (15 of them at the moment). I don't really do this scientifically, I just look for large, well-established companies where their shares look cheaper than long run, and buy those. (Partly I do this so I can see everyday companies that I own a tiny bit of). Is this practically equivalent to owning index-linked funds?…

When you hold a fund (an ETF specifically) you are letting the fund manager do a lot of work for you for usually very low cost (10-20 basis points a year). That work is mainly maintaining exposure to the index. A large-cap broad-based ETF will probably hold more names than just the 15 you are holding. The benefits of that are more diversification (potentially lower vol), and regular rebalancing. So crummy names get dropped out and good ones get added in - usually with no tax consequences for you. If you manage your own portfolio of 15 names - you might argue that you could generate tax credits for yourself (tax loss harvesting) which could prove beneficial in certain situations.

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

#200

Post by anonu »

baron816 wrote: post #32

So clearly, for the individual, the optimal strategy is to simply invest in index funds and just wait. But a new question that is being raised is: "what happens if everyone only invests in index funds?"

This is the beauty of the capital markets. Shifting trends, money, assets from A to B will create new opportunities which will cause people to chase those - thus causing new trends and flows to emerge. So, I dont think we can ever get to a world where everyone moves all their chips into index funds.
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