Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Forbes 400 Data Shows Paul Graham Is Wrong

news.ycombinator.com

Post reply on HN
Print view View original

21–30 of 147 posts

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#21

Post by leelin »

Can we explain this by saying many hedge funds are negatively correlated, along with survivor bias?

This is a huge simplification, but consider for every four hedge fund managers, one goes long the market, another short the market, another long volatility and another short volatility.

No matter what it's very likely one or two out of those four perform very well over one year. Start with enough hedge funds and throw on enough leverage and after a few years, there are bound to be some huge outlier-sized winners and many other blowups. It's like a big roulette table, but every possible outcome has someone betting big on it.

Contrast that with startups, where almost every startup has exposure to market beta (either in receiving funding or finding an acquirer). In addition, it's quite possible every music startup in the industry goes bust, or every PDA-maker startup, or every online poker startup, etc. The roulette wheel has an infinite number of bets, and can easily land so that no one wins.

Edit: I'm very convinced there are people with extraordinary skill in investing and/or in founding startups. I'm only suggesting how the Forbes 400 list could still exist if it was pure luck and no skill.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#22

Post by thunk »

apsec112 wrote: post #11
thunk wrote: post #9

> I think the record speaks for itself. There's something about the way you phrased this that makes me think you were gunning for pg. It would be nice if you included the complete breakdown, as well as your criteria for determining tech vs. finance. Since you had to manually go through the entire list, I can't imagine it would have been difficult to record your results.

"There's something about the way you phrased this that makes me think you were gunning for pg." I was responding to him specifically, yes. "Since you had to manually go through the entire list, I can't imagine it would have been difficult to record your results." Not actually difficult, just time-consuming (I did it by having the two different lists, sorted by name for easy comparability, in two adjacent browser wind…

I'm not saying you're wrong, just that it's a little disingenuous to publicly call someone out without providing your methods or your results.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#23

Post by patio11 »

leelin wrote: post #21

Can we explain this by saying many hedge funds are negatively correlated, along with survivor bias? This is a huge simplification, but consider for every four hedge fund managers, one goes long the market, another short the market, another long volatility and another short volatility. No matter what it's very likely one or two out of those four perform very well over one year. Start with enough hedge funds and throw…

The roulette wheel model of hedge funds is even slicker, since other folks provide most of the money you're gambling with and you get to keep 2% of the chips you wager win or lose, and 20% of their winnings when you win.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#25

Post by startingup »

I made that original comment. Thanks for doing the analysis I was too lazy to do! Your analysis jives with the broader point I was trying to make - in the past 15 years, finance has been the surest path to riches in America. It is not just at the level of the Forbes 400. During the real estate bubble, newly minted mortgage brokers (often coming from other fields such as car sales, they found selling debt far more lucrative) were taking home $0.5 million - and not just a few of them. I have had acquaintances in Goldman, at fairly low level in the org chart, who have been taking home similar sums in bonuses every year. I know Unix systems administrators in Wall Street who take home ~$300K/year - and these guys are generally very low in the Wall Street totem pole.

It has been the age of the financier for a while now. No, this is not capitalism at work; it is Federal Reserve policy. It allowed specially privileged entities to lever up (30x leverage in case of investment banks like Goldman or Morgan Stanley, 10x in case of hedge funds), allow them to speculate with easy money, and have them pay out huge bonuses in case of investment banks or huge carried profit in case of hedgies ... and finally bail them out when their leverage blew up on them, only to have them start speculating all over again.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#26

Post by tmsh »

startingup wrote: post #25

I made that original comment. Thanks for doing the analysis I was too lazy to do! Your analysis jives with the broader point I was trying to make - in the past 15 years, finance has been the surest path to riches in America. It is not just at the level of the Forbes 400. During the real estate bubble, newly minted mortgage brokers (often coming from other fields such as car sales, they found selling debt far more luc…

The thing is, however, that the times are different now. Look at a chart of the US 10 year note from the 60's to the present. It peaked in 1981.

I parse that history as -- the world was coming off of a golden era in productivity, wealth and economic stability. It would make sense for people from B school to make a lot of money if they started getting their chops on Wall Street, etc.

But now it's different. I think that the 10 year note has begun its steady rise again, finally (biggest acceleration since the late 60's and early 80's). But in this economic climate, nimbler business arrangements surely are more viable and better training for future business leaders.

It's just basic math -- in a 4% environment, things like SpaceX and other lighter economic models will be successful. In a 15% environment, financing itself is more useful, and, with synergy and everything, on average produces more massive individual personal wealth.

The constraints that faced those currently on the Fortune 400 list (which is really some sort of integral of the past 30 years -- as these are people at the peak of their careers) are different from those who will be on the Fortune 400 list in 2030.

(N.B. I made all this s* up having looked at an all-time 10 year note chart earlier tonight. But it's an idea.)

ETA: Although it's a bit of a project. I think it would be interesting to compile the 100 wealthiest people in the world over the past 100 years. I have a feeling that certain periods in time would've produced clusters of financiers (JP Morgans, etc.), whereas other times would produce clusters of startup founders. Would be interesting to compare them to different economic indices, etc. Then the thing would be to determine if our own present economic climate resembles others periods -- and what that means to the different types of fields you should, on average, go into to maximize personal wealth (if that's something that you're into). Or at least be aware of it.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#27

Post by madair »

JacobAldridge wrote: post #16

There's a fundamental difference between 'there are more financiers than start-up founders in the Fortune 400' and 'a greater percentage of financiers in America make the Fortune 400 than start-up founders in America'. Using extreme example to make my point, if 0.001% of all 'financiers' made the Fortune 400 and 5.000% of all start-up founders did, no-one would claim that 211 v 59 means much because of the asymmetric…

Which leads to another big point about financiers...too many preppies heading to college for a quick buck on Wall St.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#28

Post by nostrademons »

JacobAldridge wrote: post #16

There's a fundamental difference between 'there are more financiers than start-up founders in the Fortune 400' and 'a greater percentage of financiers in America make the Fortune 400 than start-up founders in America'. Using extreme example to make my point, if 0.001% of all 'financiers' made the Fortune 400 and 5.000% of all start-up founders did, no-one would claim that 211 v 59 means much because of the asymmetric…

That depends a lot what you consider a startup founder. If you consider a startup founder as anyone who quits their day job to start a business, I'd bet that there are many more startup founders than financiers. If you consider only people in the technology field, the numbers drop significantly. If you consider people in the technology field who start a project that may become a business, but don't restrict to those who quit their day jobs, the numbers balloon again.

I could look up these numbers, but they really don't tell you all that much. If you're a Xoogler with venture capital in Silicon Valley, your odds are much better than if you're a college dropout in Indiana who's playing around with Rails in his free time. It's silly to lump both "founders" into the same category.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#29

Post by ynniv »

pg wrote: post #12
apsec112 wrote: post #7

Earlier quoted context omitted.

Here are the industries I considered to be "finance": - Hedge funds and other money management - Private equity - Investment banking - Leveraged buyouts - Proprietary trading - Traditional (retail) banking and credit cards I did not consider heirs with investments to have gotten their money in finance, unless they increased their original sum ten-fold or more (in real dollars). I also did not consider real estate inv…

Sounds reasonable. But when you have time it would be useful to see the actual lists of the people you put in each category.

Since the ecosystem of non-bootstrapped startups combine founders and financiers, where do you draw the line? VC firms seem squarely in the financier camp, and founders who do not contribute capital are not, but angels and incubators are more difficult. An honest classification attempt would attribute some of their equity to capital and some to work contribution, but even when there is currently a stable valuation available to calculate the capital contribution to an equity grant, the numbers are often uncertain guesses.

Re: Forbes 400 Data Shows Paul Graham Is Wrong

#30

Post by nostrademons »

leelin wrote: post #21

Can we explain this by saying many hedge funds are negatively correlated, along with survivor bias? This is a huge simplification, but consider for every four hedge fund managers, one goes long the market, another short the market, another long volatility and another short volatility. No matter what it's very likely one or two out of those four perform very well over one year. Start with enough hedge funds and throw…

Startups have the same phenomenom: for every product that people are not buying, there's a substitute that they're buying instead. Either that or consumers are stuffing their money under the mattress, but we know (from the savings rate data) that this isn't happening.

In some ways, there ought to be more variation with startups, because consumers will tend to pile onto the market leader because they're seen as reliable, which starves other firms in the industry and shifts resources onto a few big winners. The information cascades among consumer businesses can be much bigger than the information cascades among financial firms.

Post reply on HN