8 ms·

The difference between $60k and $60M, for a fund nearly a trillion dollars large, is worth it if that person worth $60M can eek out even a few extra basis point

• jellicle 10y ago
  > there are those out there who have an eye for value, and _can_ pick stocks. There's simply no evidence that is true at all. Every study of this issue says the exact opposite: there's no one out there who can pick stocks.
  • lemiant 10y ago
    In general I've always agreed with this view. But I can't help but wonder how studies like this explain Berkshire Berkshire Hathaway.
    • xyzzy123 10y ago
      Which is funny because BH have literally the opposite bet: http://longbets.org/362/ http://longbets.org/362/ It seems a bit contradictory, but BH is a holding company versus a hedge fund.
      • cheriot 10y ago
        It's not that contradictory. As long as the market for stock pickers overcharges, people can be good at it and a bad deal at the same time.
        • xyzzy123 10y ago
          Right but if you follow the theory if you had alpha greater than fees then you could essentially control all funds available for management (up to the scale where your atrategies stop working). Which is sort of its own reductio ab absurdum.
    • shardinator 10y ago
      Not sure if this is what you're asking, but if fund returns are random but different, then someone is going to have the best performing fund. Let's say the best performing fund is (fictional) Xanadu Investments we'd ask, how do we explain Xanadu's performance.
    • jellicle 10y ago
      Berkshire seems to be good at buying and managing companies in order to make money. But not so good at just buying stock: http://fortune.com/2016/04/29/berkshire-hathaway-stock-warren-buffett/ http://fortune.com/2016/04/29/berkshire-hathaway-stock-warre...
    • ktRolster 10y ago
      Berkshire Hathaway did well to begin with, but Warren Buffet is able to get really good deals buying companies because he has a reputation as a good manager. Since he is easy to work with, founders sell cheaper.
      • forgetsusername 10y ago
        >Since he is easy to work with, founders sell cheaper. This requires a source. Many of the companies he purchases are public companies. If they are selling "cheaper" because they like Mr. Buffet, there's a problem.
        • zrail 10y ago
          The important Berkshire acquisitions are entire companies, most of the time private. Sometimes they were public at one point but were taken private before BRK bought them. (ex: Duracell). Sometimes they were public at the point Berkshire bought them (ex: BNSF) but this seems to be the exception.[1] The public stock acquisitions that they talk about on the 13-F are really a minority of Berkshire's activity, but sometimes he really does get a better price because he's willing and able to negotiate weird deals like the Bank of America warrants.
  • gmunu 10y ago
    Actually, I think the studies generally show that active mutual funds do beat the market, but before fees. Their alpha, while real, is tiny and more than eaten by their fees. Yet remember that active mutual funds manager fees are close to 1%. If you pay $60M on $900B, we're talking about paying less than 1 bp! So if you have an average active mutual fund manager running your $900B fund for $60M, you might hope to beat the market by a few basis points.
    • cmdkeen 10y ago
      What you also have to appreciate is that the fee scales you mention are for you investing $10,000 with an active manager. If you're investing billions you won't be paying anything close to that. If you have the world's largest sovereign wealth fund you're operating at a scale even larger than that.
  • Iron_Maiden_666 10y ago
    There are people who beat the market all the time. If that is what you're referring to.
  • zrail 10y ago
    That's actually not true. A study came out in March of this year that describes a simple screen: low fees + high manager ownership of the fund. Active funds passing the screen beat the S&P 500 55% of the time and have a higher average return over a 20 year time period. That said, you have to hold for a long time to see that edge. If you don't the odds go negative again. http://www.investmentnews.com/article/20160318/FREE/160319927/american-funds-says-low-fees-manager-ownership-can-save-actively http://www.investmentnews.com/article/20160318/FREE/16031992...
• olalonde 10y ago
  > is worth it if that person worth $60M can eek out even a few extra basis points in returns [...] and no one else could/would have performed better for less than $60M.
  • tomp 10y ago
    That's not the point. The way compensation works, usually, is that you say, "if you do well, we'll pay you this much", where "this much" depends on how well the person does. You can't change your mind post-fact, "well, anyone could have done this well, so we won't actually pay you this much".
    • kristofferR 10y ago
      The funny thing is that in this case they actually somehow managed to pay him half of what he was entitled to according to their agreement.
    • olalonde 10y ago
      I don't doubt that they were contractually bound to pay the 60M$. The parent comment sort of implied that the fund couldn't possibly have overpaid, because 60M$ is such a small fraction of profits. All I'm saying is that they might have overpaid, at the time of signing the contract, if another equally skilled manager would have taken the job for a smaller compensation package.