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I feel like there's some cognitive dissonance surrounding hedge funds in popular culture -- on the one hand you have people saying that any outsized short-term

by mojoe 9y ago

I feel like there's some cognitive dissonance surrounding hedge funds in popular culture -- on the one hand you have people saying that any outsized short-term gains seen by hedge funds are the result of some selection/survivorship bias, and on the other hand you have people saying that any outsized returns are the result of illegal privileged information (see the TV show 'Billions'). I realize that there are enough hedge funds out there that both things can be happening. It's too bad that there's so little visibility into the industry, it would be fascinating to see some kind of hedge fund taxonomy.

jerf 9y ago
There's a whole lot of "X is bad, therefore any argument that supports the claim that X is bad is true and valid" when it comes to these matters. It's technically "affirming the consequent", but I think that fallacy gets another very tempting facet to it when it's enters the moral or ideological dimensions.
alexasmyths 9y ago
It doesn't have to be illegal. Hedge Funds have access to CEO's, they'll go in and interview them. Ostensibly, the CEO cannot say anything that is not 'public information' - but if you think about it, then why would the Fund even talk to the CEO if 'all info is public'? Because a lot of nuance can be gained from in person interviews. Little tidbits of information gleaned can make a difference. I'm not hugely knowledgeable of that industry, so I can't speak of the 'for sure' bad things happening, but I know at least one manager who does this. Funny: he totally does not believe that they really gain an edge over the public. Then I ask him why he bothers with the interviews and he doesn't have a very good answer. It's almost funny. I suspect his fund partners have a better clue. So that's one thing. Another - is that simply by having fewer regulator requirements, hedge's can do all sorts of things that bigger funds cannot. As far as 'hedge funds not doing as well as the S&P' - well - the S&P changes, and it's made of pretty good companies. Also - a lot of funds come and go - it may not just be 'survivor bias' - some may very well just be dam better than others. Almost all of the gains in VC go to top funds, and there's tons of churn in the bottom 50%, but that is a different dynamic.
- Waterluvian 9y ago
  I think the rationale that you can gain nuance from in-person interviews about public information is where science and mathematics turns into wizardry and human bias nonsense. If the evidence suggests access to CEOs like this works, there's probably something else going on. Maybe a bit more winking and "I didn't say this but..."

by mojoe 9y ago

jerf 9y ago

There's a whole lot of "X is bad, therefore any argument that supports the claim that X is bad is true and valid" when it comes to these matters. It's technically "affirming the consequent", but I think that fallacy gets another very tempting facet to it when it's enters the moral or ideological dimensions.

alexasmyths 9y ago

It doesn't have to be illegal. Hedge Funds have access to CEO's, they'll go in and interview them. Ostensibly, the CEO cannot say anything that is not 'public information' - but if you think about it, then why would the Fund even talk to the CEO if 'all info is public'? Because a lot of nuance can be gained from in person interviews. Little tidbits of information gleaned can make a difference. I'm not hugely knowledgeable of that industry, so I can't speak of the 'for sure' bad things happening, but I know at least one manager who does this. Funny: he totally does not believe that they really gain an edge over the public. Then I ask him why he bothers with the interviews and he doesn't have a very good answer. It's almost funny. I suspect his fund partners have a better clue. So that's one thing. Another - is that simply by having fewer regulator requirements, hedge's can do all sorts of things that bigger funds cannot. As far as 'hedge funds not doing as well as the S&P' - well - the S&P changes, and it's made of pretty good companies. Also - a lot of funds come and go - it may not just be 'survivor bias' - some may very well just be dam better than others. Almost all of the gains in VC go to top funds, and there's tons of churn in the bottom 50%, but that is a different dynamic.

Waterluvian 9y ago
I think the rationale that you can gain nuance from in-person interviews about public information is where science and mathematics turns into wizardry and human bias nonsense. If the evidence suggests access to CEOs like this works, there's probably something else going on. Maybe a bit more winking and "I didn't say this but..."