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In a large field of funds, some small sample will do better than others. That is just statistics. Is there any objective evidence that there are people who co

In a large field of funds, some small sample will do better than others. That is just statistics. Is there any objective evidence that there are people who consistently beat the market, over the long term? (And let's factor out those who use insider information)

Riod 11y ago
Buffett? Look up the Superinvestors of Graham and Doddsville; addresses your 'just statistics' issue. On the general investment management industry, in aggregate they are the market so why would they outperform it? There are funds that outperform; most people can't buy in though.
- wstrange 11y ago
  Buffet is not a good example. He is much more than an investor. He takes a large enough position in his investments so that he has control (or major influence) in how his companies are run.
  - Riod 11y ago
    What? He has historically given up his proxies over to management.
    - wstrange 11y ago
      True - but he also instills his management philosophy in his acquired companies. CxO pay is also not as lavish as other companies. From https://www.gsb.stanford.edu/insights/what-it-be-owned-warren-buffett https://www.gsb.stanford.edu/insights/what-it-be-owned-warre...: "The subsidiary chiefs also believe their companies’ performances are better under Berkshire (and even better than if they were stand-alone companies). Respondents point to Berkshire’s brand value and financial strength. Another reason? Berkshire lets CEOs focus on a longer performance horizon than they would expect under other ownership. Although each CEO varied on what that horizon would be, with estimates ranging from three years to 50, they all said Berkshire management encourages a long-term focus."
      - Riod 11y ago
        That's not a management philosophy? Berkshire Hathaway is notorious for being hands off. The corporate HQ has 20 people working in it. Buffett controls the money but the CEOs are free to run the business as they see fit.
        robryan 11y ago
        Even by just taking control though they might be removing control from someone who wants to pump up the next quarters results.
dsacco 11y ago
The one that immediately comes to mind is Renaissance Technologies, which averaged a nearly 72% annual return between 1994 and 2014.[1] This is a 20 year term, during which the S&P 500's average annual return was 7%. Seth Klarman's Baupost Group averaged a 20% return between its founding in 1982 and 2015.[2] This is a 33 year term, during which the S&P 500's average annual return was 8.8%. Average annual return is not the whole picture (i.e. it is theoretically possible to have a phenomenal single year and mediocre performance for 9 years and thus beat the S&P 500 over a 10 year period) and there are other examples, but these should suffice. [1]: http://www.bloomberg.com/news/articles/2015-06-16/how-an-exclusive-hedge-fund-turbocharged-retirement-plan http://www.bloomberg.com/news/articles/2015-06-16/how-an-exc... [2]: http://www.octafinance.com/hedge-funds/seth-klarman-baupost-group/ http://www.octafinance.com/hedge-funds/seth-klarman-baupost-...
- tosseraccount 11y ago
  Medallion Fund appears to be a front running quant fund. Their reported returns relied on being a millisecond ahead of large orders. They charge a hefty chunk of that "return". It would be very risky to assume that their advantage will continue in the next 20 years.
  - infinite8s 11y ago
    Being faster at responding to market events does not make you a frontrunner.
    - tosseraccount 11y ago
      Well.. What they do is often pejoratively called "front running". A carefully crated google can serve as witness : https://www.google.com/?gws_rd=ssl#q=medallion+front+running https://www.google.com/?gws_rd=ssl#q=medallion+front+running I certainly meant it in that sense. I'm not accusing the Medallion of illegal front running. I think people like Brad Katsuyama and fixing the "early information" problem are the answer to this kind of behavior. Katsuayama is working on a system to make the fight between high frequency traders and other investors more fair. Good write up is here : http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.html http://www.nytimes.com/2014/04/06/magazine/flash-boys-michae... ... "Coil the fiber. Instead of running straight fiber between the two places, why not coil 38 miles of fiber and stick it in a compartment the size of a shoe box to simulate the effects of the distance. And that’s what they did."
010a 11y ago
Over a shorter term, there's the famous example of Scion Capital, which handily beat the market during its eight-year existence. And not just by a little bit; the S&P saw 2% total return over those eight years whereas Scion saw around 490%, primarily but not entirely due to the fund manager's foresight of the 2008 subprime mortgage crisis.
- tomp 11y ago
  Scion is more of an example for the opposite point; the fund manager didn't consistently beat the market, he made one big bet that turned out to be correct; furthermore, even if this was skill, rather than luck, it still doesn't mean that this skill would apply to any other market situation.
  - crnt2 11y ago
    That's not quite true. Scion was up in 2001 and 2002 (when the market was down) and they beat the market in 2003 and 2004 - in each of those years, they were primarily a long-only equity fund. I'm not sure what the performance was in 2005. In 2006 they were down 16% (because of premiums on their CDS positions) which they then recouped in 2007 and early 2008.
marktangotango 11y ago
Bernie Maddoff
prostoalex 11y ago
> Is there any objective evidence that there are people who consistently beat the market, over the long term? This is narrowing the problem to growth investing. Most high-net worth individuals care about growth investments only tangentially, the agenda is usually income generation. With income generation one can consistently beat the market year over year over long term. Simplest examples would be a cash-flowing real estate investment at an attractive entry price. If you believe that public markets are efficient, then it also implies that by the time you're on the buying side, any inefficiency and pricing discrepancy has been squeezed.

Riod 11y ago

Buffett? Look up the Superinvestors of Graham and Doddsville; addresses your 'just statistics' issue. On the general investment management industry, in aggregate they are the market so why would they outperform it? There are funds that outperform; most people can't buy in though.

wstrange 11y ago
Buffet is not a good example. He is much more than an investor. He takes a large enough position in his investments so that he has control (or major influence) in how his companies are run.
- Riod 11y ago
  What? He has historically given up his proxies over to management.
  - wstrange 11y ago
    True - but he also instills his management philosophy in his acquired companies. CxO pay is also not as lavish as other companies. From https://www.gsb.stanford.edu/insights/what-it-be-owned-warren-buffett https://www.gsb.stanford.edu/insights/what-it-be-owned-warre...: "The subsidiary chiefs also believe their companies’ performances are better under Berkshire (and even better than if they were stand-alone companies). Respondents point to Berkshire’s brand value and financial strength. Another reason? Berkshire lets CEOs focus on a longer performance horizon than they would expect under other ownership. Although each CEO varied on what that horizon would be, with estimates ranging from three years to 50, they all said Berkshire management encourages a long-term focus."
    - Riod 11y ago
      That's not a management philosophy? Berkshire Hathaway is notorious for being hands off. The corporate HQ has 20 people working in it. Buffett controls the money but the CEOs are free to run the business as they see fit.
      - robryan 11y ago
        Even by just taking control though they might be removing control from someone who wants to pump up the next quarters results.

dsacco 11y ago

The one that immediately comes to mind is Renaissance Technologies, which averaged a nearly 72% annual return between 1994 and 2014.[1] This is a 20 year term, during which the S&P 500's average annual return was 7%. Seth Klarman's Baupost Group averaged a 20% return between its founding in 1982 and 2015.[2] This is a 33 year term, during which the S&P 500's average annual return was 8.8%. Average annual return is not the whole picture (i.e. it is theoretically possible to have a phenomenal single year and mediocre performance for 9 years and thus beat the S&P 500 over a 10 year period) and there are other examples, but these should suffice. [1]: http://www.bloomberg.com/news/articles/2015-06-16/how-an-exclusive-hedge-fund-turbocharged-retirement-plan http://www.bloomberg.com/news/articles/2015-06-16/how-an-exc... [2]: http://www.octafinance.com/hedge-funds/seth-klarman-baupost-group/ http://www.octafinance.com/hedge-funds/seth-klarman-baupost-...

tosseraccount 11y ago
Medallion Fund appears to be a front running quant fund. Their reported returns relied on being a millisecond ahead of large orders. They charge a hefty chunk of that "return". It would be very risky to assume that their advantage will continue in the next 20 years.
- infinite8s 11y ago
  Being faster at responding to market events does not make you a frontrunner.
  - tosseraccount 11y ago
    Well.. What they do is often pejoratively called "front running". A carefully crated google can serve as witness : https://www.google.com/?gws_rd=ssl#q=medallion+front+running https://www.google.com/?gws_rd=ssl#q=medallion+front+running I certainly meant it in that sense. I'm not accusing the Medallion of illegal front running. I think people like Brad Katsuyama and fixing the "early information" problem are the answer to this kind of behavior. Katsuayama is working on a system to make the fight between high frequency traders and other investors more fair. Good write up is here : http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.html http://www.nytimes.com/2014/04/06/magazine/flash-boys-michae... ... "Coil the fiber. Instead of running straight fiber between the two places, why not coil 38 miles of fiber and stick it in a compartment the size of a shoe box to simulate the effects of the distance. And that’s what they did."

010a 11y ago

Over a shorter term, there's the famous example of Scion Capital, which handily beat the market during its eight-year existence. And not just by a little bit; the S&P saw 2% total return over those eight years whereas Scion saw around 490%, primarily but not entirely due to the fund manager's foresight of the 2008 subprime mortgage crisis.

tomp 11y ago
Scion is more of an example for the opposite point; the fund manager didn't consistently beat the market, he made one big bet that turned out to be correct; furthermore, even if this was skill, rather than luck, it still doesn't mean that this skill would apply to any other market situation.
- crnt2 11y ago
  That's not quite true. Scion was up in 2001 and 2002 (when the market was down) and they beat the market in 2003 and 2004 - in each of those years, they were primarily a long-only equity fund. I'm not sure what the performance was in 2005. In 2006 they were down 16% (because of premiums on their CDS positions) which they then recouped in 2007 and early 2008.

marktangotango 11y ago

Bernie Maddoff

prostoalex 11y ago

> Is there any objective evidence that there are people who consistently beat the market, over the long term? This is narrowing the problem to growth investing. Most high-net worth individuals care about growth investments only tangentially, the agenda is usually income generation. With income generation one can consistently beat the market year over year over long term. Simplest examples would be a cash-flowing real estate investment at an attractive entry price. If you believe that public markets are efficient, then it also implies that by the time you're on the buying side, any inefficiency and pricing discrepancy has been squeezed.