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> "Comparing hedge funds and the S&P 500 is a little bit like asking which team is better, the Chicago Bulls or the Chicago Bears. Like the Bulls and the Bears

• RobAtticus 9y ago
  He's saying that since the S&P is at a higher multiple, you'd expect returns to diminish since presumably its too high to keep growing quickly (and, potentially, turn into a bear/down market). So by performing at average, its actually out-performing what you'd expect given the conditions. (Of course that's the theory, clearly the market isn't solely governed by its multiple and risk level)
• trowawee 9y ago
  I mean, he's a hedge fund investor. This is as pure of an illustration of Sinclair's quote about the difficulty of getting someone to understand something when their salary depends on them not understanding it as you're likely to find. Ted Seides wouldn't make the crazy amounts of money he no doubt makes if most people didn't fall for the hedge fund scam.
• conistonwater 9y ago
  I agree with your first comment, but for the second: I think that means that high earnings multiples and elevated risk would normally result in returns lower than, rather than in line with, the average. So he expected what he thought would be the consequence of overvalued markets, but got averages instead. Outside the context of this bet, there's quite a lot out there on whether unusually high multiples (I think the really popular one for discussions is Shiller's CAPE) do or do not predict returns, or whether they predict anything at all. The opinions usually range from "the market says this is the right price for this risk, so it must be right" to "we're going to crash", but it's not all that clear who's right. (I think Shiller's right about overvaluation—I'm not sure what Buffett thinks.) But it's a pretty old topic, so that one is definitely not something he made up just as an excuse.
• snikeris 9y ago
  > Both ETFs and hedge fund are financial funds that a person considers putting their money in with the intention of maximizing their return. Retired investors are often more concerned with preservation of capital than they are with maximizing return. If you have a couple million in the bank and are withdrawing 4% a year to live on, you're probably more concerned about the SP500 dropping 50% than you are with making an additional 1% on your money.
  • zeteo 9y ago
    > If you have a couple million in the bank and are withdrawing 4% a year to live on, you're probably more concerned about the SP500 dropping 50% And then you have illustrious hedge funds that go out of business when the SP500 suffers a small blip [1]. In any case, paying 2-5% to a hedge fund doesn't seem very good business when you're withdrawing 4% a year to live on. [1] https://en.wikipedia.org/wiki/Long-Term_Capital_Management https://en.wikipedia.org/wiki/Long-Term_Capital_Management
    • zeusk 9y ago
      LTCM was a special bunch though, especially because of the astounding amount of leverage at play. There are certainly more modern examples like Pershing Square which bet big on Valeant, Chipotle and (short) Herbal-Life. If you notice, the common trend seems to be lack of risk mitigation.
      • vostok 9y ago
        To be fair,I would pretty pissed off if I invested with Bill Ackman and he followed standard risk mitigation and diversification strategies. The idea is to get concentrated exposure to stuff that's not just equivalent to being long the whole market. That's why nobody invests all if their money with Pershing Square. It's just not what the fund is designed to do.
        • zeusk 9y ago
          The idea of "hedge" fund is also to hedge their bets and preserve capital in-case of downside. Ackman doubled down on his biggest losing bet (Valeant), actually more than quadrupled down by taking up exposure to options that were almost worthless when he unwound the position.
• spinchange 9y ago
  >Both ETFs and hedge fund are financial funds that a person considers putting their money in with the intention of maximizing their return. To say that they "play different sports" is at best stretching the truth, at worst a lie. They're playing different strategies. If you're a defense-driven team you play to win primarily be keeping the other team (call them the black swans) from scoring. To bring it out of metaphor, it's about risk-adjusted maximum return. If you're an offense-driven team you're trying to put more points on the board. The S&P 500 is a decidedly long bet on 100%, large cap, primarily western corporate equities. >So the "unexpected strength" came from performing "in-line with historical averages"? Hedge fund guys are usually bears and as such they've successfully predicted 9 of the last 5 recessions. They're perpetually prepared for or waiting for history to be proven wrong. It is within that context that they are seeking a maximum return (and justification for high fees).
  • taeric 9y ago
    Just to be clear, you are agreeing with the post you responded to, right? That is, they are both playing the same game, but hedge funds use a different strategy. Which is the point here. Their strategy is evidently a losing strategy. (Or, rather, suboptimal.)
    • dkarl 9y ago
      * Their strategy is evidently a losing strategy. (Or, rather, suboptimal.)* It was not their strategy that competed and lost. It was the strategy of paying them to play the game for you. Their strategy of running a hedge fund instead of an S&P 500 index fund could be working out very well for them.
      • taeric 9y ago
        Touché.
  • SilasX 9y ago
    >They're playing different strategies. If you're a defense-driven team you play to win primarily be keeping the other team (call them the black swans) from scoring. To bring it out of metaphor, it's about risk-adjusted maximum return. Yes, but that still reduces to a metric applicable to both investments; it just means you can't compare on return alone. If hedge funds produce a slight higher return by but by taking significantly greater risk, that would be a legit strike against them.
• hinkley 9y ago
  They're two tools in the same toolbox. Yes, it might be weird to answer a question like, "Is it better to spend more money on a cordless drill or on a circular saw?", but people actually - and I think legitimately - ask questions like this all the time. I'm trying to balance a group of concerns against a limited set of resources. How do I make intelligent compromises to get most of what I want and hopefully all of what I need? All this answer tells me is that Ted is out of touch with the practical concerns of people of limited means.
• kbenson 9y ago
  They are playing different sports. Hedge funds aren't really about maximizing your return, they are about maximizing the profit of the firm that manages it. That could mean making customers happy by maximizing their revenue, but if they can just do a good enough job and convince their customers that they are doing an excellent job by taking advantage of imperfect market information (the market in this case being money managing), then they can extract the most amount of money sustainably from their clients. Alternatively they could just use an index fund, and their customers would be better off, but then they would have to convince those customers they were providing enough value to equal their fees, which would be hard, and would likely result in many lost customers.
  • deleted 9y ago
    [deleted]
• jackmott 9y ago
  modern reading of entrails.
• coldtea 9y ago
  >Both ETFs and hedge fund are financial funds that a person considers putting their money in with the intention of maximizing their return. To say that they "play different sports" is at best stretching the truth, at worst a lie. In that sense, airplanes and bicycles are all vehicles.
  • rbg246 9y ago
    I think in the context of the article, that hedge funds over ten years would outperform the index, it is more appropriate to say that hedge funds are bicycles that look like aeroplanes