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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

#61

Post by misnamed »

_fizz_buzz_ wrote: post #44
lordnacho wrote: post #43

Hedge fund guy here. - You have to consider risk. Perhaps use volatility as a proxy. Were the funds more or less volatile than the S&P? There are funds that are more and funds that are less. The bet ought to be adjusted for that, ie some form of risk adjusted return. - It's a rigged bet. A fund of 5 funds of funds is going to be the market, minus fees. Yes there are funds that aren't just long the market but quite a…

> Plenty of individual funds did beat the S&P (I'll toot my own horn here), but to beat the average someone's gotta be under average, typically other hedge funds. I think one of the fundamental problems is, that it is even more difficult to pick a winning fund than a winning index. So, what's my advantage as an amateur investor here.

According to research, only 1 in 20 investors can pick 3 active funds that beat index funds over a 20-year period. The answer, as far as I'm concerned is: don't try.

https://portfoliosolutions.com/latest-learnings/blog/1-20-fu...

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

#62

Post by misnamed »

the_cat_kittles wrote: post #46
lordnacho wrote: post #43

Hedge fund guy here. - You have to consider risk. Perhaps use volatility as a proxy. Were the funds more or less volatile than the S&P? There are funds that are more and funds that are less. The bet ought to be adjusted for that, ie some form of risk adjusted return. - It's a rigged bet. A fund of 5 funds of funds is going to be the market, minus fees. Yes there are funds that aren't just long the market but quite a…

"You have to wonder how the bet would have fared had we not experienced the unprecedented reaction of central banks to the crisis. I don't know if Buffett had considered that, he's a smart guy, but it didn't seem like that was what the bet was about. If the market had been allowed to take a "more natural" course perhaps the funds would have looked better." maybe you mean that over most 10 year periods you think he wo…

It's not like we don't have various periods to look at either - from the chart I saw it looked to me like the hedge funds lost 9 out of the 10 years. So sure, you can say 'some unusual stuff happened in there' but ... 9 out of 10 years speaks for itself.

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

#63

Post by the_cat_kittles »

pishpash wrote: post #48
the_cat_kittles wrote: post #46

Earlier quoted context omitted.

"You have to wonder how the bet would have fared had we not experienced the unprecedented reaction of central banks to the crisis. I don't know if Buffett had considered that, he's a smart guy, but it didn't seem like that was what the bet was about. If the market had been allowed to take a "more natural" course perhaps the funds would have looked better." maybe you mean that over most 10 year periods you think he wo…

That's a cop out response. The possibility of Central Bank intervention has always been part of the unknown future. Knowing that alone about the future (not the past), how does it affect your choice?

i dont know what you are saying. im saying that you cant point to "unpredicatable things" as an excuse for losing at gambling, since the entire skill of gambling is weighing risk. do you mean my response is a cop out or the original point

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

#64

Post by the_cat_kittles »

misnamed wrote: post #62
the_cat_kittles wrote: post #46

Earlier quoted context omitted.

"You have to wonder how the bet would have fared had we not experienced the unprecedented reaction of central banks to the crisis. I don't know if Buffett had considered that, he's a smart guy, but it didn't seem like that was what the bet was about. If the market had been allowed to take a "more natural" course perhaps the funds would have looked better." maybe you mean that over most 10 year periods you think he wo…

It's not like we don't have various periods to look at either - from the chart I saw it looked to me like the hedge funds lost 9 out of the 10 years. So sure, you can say 'some unusual stuff happened in there' but ... 9 out of 10 years speaks for itself.

lol i didnt even look, but yea. guess there is really no defending it. guess most of them suck at gambling. but that seems to be how these things work, a large large majority of people end up loosing when they do fantasy sports, or poker, or political futures markets, or stock picking, and the gains go to a small minority. like, even if you are better than 90% of people at one of those things, youll probably lose money.

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

#65

Post by mikeash »

perl4ever wrote: post #11
ModernMech wrote: post #3

Reminds me a little of traffic. Yesterday I was cruising down the highway in the leftmost lane, going about 80 with a line of other cars. The other two lanes were actually more clear, but cars were going much slower. I notice this one car, weaving in and out of traffic in these two lanes, trying desperately to get ahead, constantly cutting people off. They did this for 40 miles, weaving in and out, sometimes getting…

Some people think you should not be in the left lane unless you are passing at that moment. In some places, there are even signs saying "keep right except to pass". Perhaps this person was driving aggressively because they were enraged at the line of traffic on the left. Which is to say, they may not have been doing it for a quantitative benefit as you assume. This might strengthen rather than weaken the analogy to t…

That doesn't really apply when the road is so busy that all of the lanes are full of cars.

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

#66

Post by misnamed »

TuringNYC wrote: post #17
dsr_ wrote: post #12

Has anyone done the analysis to see if the stock-picking by those managers was worth anything at all? Obviously it wasn't worth the fees they charged. But if all those fees had been flattened down to the same expense as the Vanguard fund, would their advice have been worth anything over the index? To a first approximation, it looks like the answer is no.

Investments can have a dual mandate - high returns BUT also low volatility. Many hedge funds will admit their returns may not beat the S&P500, but will counter that their returns have lower volatility -- achieving more consistent gains over time. To answer your question, sounds like the answer is still no, but it is worth noting that this whole conversation is ignoring the volatility side of the conversation.

I would like to see them compare themselves to a stock and bond portfolio of similar volatility. Ordinary investors can reduce volatility with bonds for a lot less in fees.

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

#67

Post by wpietri »

And I'm just going to self-promote a bit and say that the bet was registered via a project I worked on, the Long Now Foundation's project Long Bets:

http://longbets.org/

We've been going since 2002: https://www.wired.com/2002/05/longbets/

We are happy to host bets of long-term significance, and the minimum bet is only $200/side. I am glad to personally help shepherd people who are serious about bets to make sure you get through the process.

I would especially like to see HNers making bets about the things we argue a lot about. Bitcoin! VR! Uber! If you're tired of people posting waffle on some topic where you have a strong opinion, then challenge them to put money down.

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

#68

Post by mikeash »

perl4ever wrote: post #23
TekMol wrote: post #13

Earlier quoted context omitted.

A weak attempt at damage control. He keeps reiterating his parole that experts who actively select assets know more then the average Joe. Even though the average Joe just completely blew them out of the water over a whole decade :)

I agree that said experts probably don't know enough to justify their cost. But if the conclusion one draws is that the US large cap stock market is the place to put your money for the next 100 years just because it was great the last 100 years, I think that's the wrong lesson. Of all the markets in all the countries in the world, and all the asset classes, the US stock market has been an outlier for a long time, and…

Isn't that last sentence the whole point, though? I thought that index funds didn't generally do better than actively managed funds in terms of raw returns, they just didn't do much worse, and the vastly lower fees mean that you come out ahead overall. The point of an index fund isn't to attain some sort of stock picking nirvana where nobody's really picking anything, it's just to get a fee of 0.04% instead of 2%, or whatever.

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

#69

Post by jonahx »

ThrustVectoring wrote: post #52
jonahx wrote: post #22

Earlier quoted context omitted.

> Yeah, anyone who outperforms is on the other side of trades that underperform, so you're going to run into issues. True, but it's not like the bet is already decided because of this mathematical fact. In theory the good pickers can predict the outperformers. It's a surprising claim that this is, essentially, not possible -- or at least only marginally possible to a degree that's cancelled out by fees.

If you average together a lot of stock pickers, you wind up with roughly a market-cap weighted index. If you average together everyone who holds stock, you wind up with exactly the market-cap weighted index.

Right. But it's still surprising that "experts" can't make a biased selection that is better than the exact average.

On average, basketball teams in the NBA score X points per game. You now get to pick 5 teams and average just their scores. I'd imagine in that situation it's pretty easy to beat the league average. Again, it's a surprising and non-trivial fact that this isn't the case in the stock market, roughly speaking.

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

#70

Post by mikeash »

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

I'm sure that's true, but it's also true of dice. Unless the same funds remain in the upper tails over long periods of time, it's pointless.
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