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And yet: http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/ http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/

dsacco 9y ago
1. That doesn't meaningfully respond to my point about cross pollinating skillsets, because we aren't distinguishing between amateurs, novices who become professionaks after expertise in other fields, and core professionals in finance/economics. 2. That bet is paraded more than it should be. Buffett bet against a "fund of funds", which is the aggregate performance of the industry. We didn't need a decade long bet to tell us most hedge funds are a poor return of capital, just as we don't need a bet to realize that the greatest n participants in many fields are mediocre. I would have gladly taken that bet with Buffett and won if I could have chosen a single firm. But Buffett wouldn't have taken that bet, because (to his credit) he understands this point already as a savvy investor. The bet proves that the industry overall is mediocre, but it says nothing about the top firms that mostly don't even take outside capital anymore because they're so successful.
- computerex 9y ago
  I was being cheeky when I responded to you. I agree with you on the first point. But I think you are downplaying the significance of the bet. If it was an obvious wash like you are making it seem then why was the bet even placed? What top firms are you talking about?
  - dsacco 9y ago
    1. The bet was placed because Buffett's thesis is fundamentally true - you have much better odds of receiving a good return through passive index fund investing than you do through active management. However, this bet is often used (unempirically, though not necessarily strictly inaccurately) to justify the idea that active management cannot beat the market consistently. 2. Firms like Baupost or RenTec would have handily won that bet against Buffett. But like I said, Buffett wouldn't have made that bet, because Buffett is a smart better and already knows all of this. Buffett has never argued that the market is perfectly efficient and resistant to alpha harvesting; in fact, he has publicly taken the opposite position in letters to shareholders.

dsacco 9y ago

1. That doesn't meaningfully respond to my point about cross pollinating skillsets, because we aren't distinguishing between amateurs, novices who become professionaks after expertise in other fields, and core professionals in finance/economics. 2. That bet is paraded more than it should be. Buffett bet against a "fund of funds", which is the aggregate performance of the industry. We didn't need a decade long bet to tell us most hedge funds are a poor return of capital, just as we don't need a bet to realize that the greatest n participants in many fields are mediocre. I would have gladly taken that bet with Buffett and won if I could have chosen a single firm. But Buffett wouldn't have taken that bet, because (to his credit) he understands this point already as a savvy investor. The bet proves that the industry overall is mediocre, but it says nothing about the top firms that mostly don't even take outside capital anymore because they're so successful.

computerex 9y ago
I was being cheeky when I responded to you. I agree with you on the first point. But I think you are downplaying the significance of the bet. If it was an obvious wash like you are making it seem then why was the bet even placed? What top firms are you talking about?
- dsacco 9y ago
  1. The bet was placed because Buffett's thesis is fundamentally true - you have much better odds of receiving a good return through passive index fund investing than you do through active management. However, this bet is often used (unempirically, though not necessarily strictly inaccurately) to justify the idea that active management cannot beat the market consistently. 2. Firms like Baupost or RenTec would have handily won that bet against Buffett. But like I said, Buffett wouldn't have made that bet, because Buffett is a smart better and already knows all of this. Buffett has never argued that the market is perfectly efficient and resistant to alpha harvesting; in fact, he has publicly taken the opposite position in letters to shareholders.