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Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

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Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#191

Post by SamBam »

s1artibartfast wrote: post #168
SamBam wrote: post #155

Earlier quoted context omitted.

No, I got that, as I stated. The issue is that half your trades are losing money, so where is that money coming from.

As I understand the argument, the money is coming from investors in the looser fund, which usually still makes a modest profit, and has great branding from also managing the winner fund. If RenTec medallion fund is capped at 10B and their other funds are 100B, every 1% profit they transfer is 10% performance improvement in medallion. As long as the large fund is still profitable, it is basically a management fee. Alt…

> which usually still makes a modest profit

But for Winner to be beating the market, Sucker has to be underperforming the market, since hedge funds, on average, match or underperform the market (see Buffet's famous ten-year bet: hedge funds massively underperformed index funds).

If the managers of Sucker have figured out a way to outperform the market for 20 years, even while secretly giving away some of its earnings, then that would already be an incredibly impressive success story, even without the cheating.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#192

Post by MR4D »

DrAwdeOccarim wrote: post #177
thoughtstheseus wrote: post #174

Earlier quoted context omitted.

This is called asset location. Structure where your investments are located to maximize returns.

Right, I didn't think what he was describing was all that risque. What I'm trying to figure out is if there is a way to sell a cash-secured put on a way OTM option from the IRA then buy that put in the taxable account. Then let it expire worthless. Could that transfer money into the IRA and nab a tax loss deduction in the taxable account?

The problem is that you get into wash sale rules [0]. Most people are not aware of this, but wash sales can be impacted by securities owned in retirement accounts [1].

Worse, the aspect of options and "substantially similar" securities starts to get arcane fast. Meaning, you really want a tax lawyer involved on a complex transaction like that. Otherwise, you may find that you've apparently made a ton of money, and then a few years later the IRS knocks on your door and asks for all your profits in a nice check paid to US Treasury.

(I'm not saying you can or cannot do this, only that the tax law gets complicated fast.)

[0] - (page 56) - https://www.irs.gov/pub/irs-pdf/p550.pdf

[1] - https://www.irs.gov/pub/irs-drop/rr-08-05.pdf

=======

EDIT - meant to add that "sale or other disposition" includes the expiration of an option. So you don't actually have to sell to incur the wash sale situation.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#193

Post by s1artibartfast »

SamBam wrote: post #191
s1artibartfast wrote: post #168

Earlier quoted context omitted.

As I understand the argument, the money is coming from investors in the looser fund, which usually still makes a modest profit, and has great branding from also managing the winner fund. If RenTec medallion fund is capped at 10B and their other funds are 100B, every 1% profit they transfer is 10% performance improvement in medallion. As long as the large fund is still profitable, it is basically a management fee. Alt…

> which usually still makes a modest profit But for Winner to be beating the market, Sucker has to be underperforming the market, since hedge funds, on average, match or underperform the market (see Buffet's famous ten-year bet: hedge funds massively underperformed index funds). If the managers of Sucker have figured out a way to outperform the market for 20 years, even while secretly giving away some of its earnings…

I think performance relative to the market is irrelevant to the strategy.

making a profit /= beating the market. People invest in hedge funds all the time that under-perform the market. In this case, the sucker fund just sucks a little more than usual. while the sucker fund under-performs the market, the firm also looks like hot shit because the winner fund is the most profitable fund on earth.

Re: Medallion Fund “Stretches Explanation to the Limit,” Professor Claims

#195

Post by SamBam »

s1artibartfast wrote: post #193
SamBam wrote: post #191

Earlier quoted context omitted.

> which usually still makes a modest profit But for Winner to be beating the market, Sucker has to be underperforming the market, since hedge funds, on average, match or underperform the market (see Buffet's famous ten-year bet: hedge funds massively underperformed index funds). If the managers of Sucker have figured out a way to outperform the market for 20 years, even while secretly giving away some of its earnings…

I think performance relative to the market is irrelevant to the strategy. making a profit /= beating the market. People invest in hedge funds all the time that under-perform the market. In this case, the sucker fund just sucks a little more than usual. while the sucker fund under-performs the market, the firm also looks like hot shit because the winner fund is the most profitable fund on earth.

> People invest in hedge funds all the time that under-perform the market.

This is perfectly true. I guess it was aptly named the "Sucker" fund in our discussion.

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