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I can only but point you back to read the article. You may have misunderstood some facts: - He made a bet with the manager of Hedge funds that picked 5 funds o

I can only but point you back to read the article. You may have misunderstood some facts: - He made a bet with the manager of Hedge funds that picked 5 funds of funds. None of the picked fund of funds performed better than S&P. So it is 5 against 1. We can say that this manager picked the wrong one, but none other took the risk of the bet... - Look at the first chart just at the top of the article. Hedge funds performed on average less than the S&P. It is based on 1,916 funds, all coming from Barclays hedge fund index. https://www.barclayhedge.com/research/indices/ghs/Hedge_Fund_Index.html https://www.barclayhedge.com/research/indices/ghs/Hedge_Fund... - You mention that plenty of individual funds did beat the S&P. This is straight an apocryphal anecdotal fallacy. Because Bill Gates dropped school and is rich, would you advice everybody to drop school to become rich? I understand you are trying to defend your business. However, I was not convinced based on your arguments.

lordnacho 9y ago
No, you are the one who has misunderstood something. I'm saying it's rigged against the fund chooser. Read it again. > You mention that plenty of individual funds did beat the S&P. This is straight an apocryphal anecdotal fallacy. No it isn't. If the guy was smart about what was being bet on he'd have picked RenTech and he'd have won. > I understand you are trying to defend your business. Nope. Just providing some colour so they don't think it's as simple as it sounds.
- dsacco 9y ago
  > No it isn't. If the guy was smart about what was being bet on he'd have picked RenTech and he'd have won. Yeah, I don't really understand this. People give me flak for saying it, but I can think of five or so funds off the top of my head (Renaissance included) that I would have happily picked and handily beaten Buffett. I'd make the bet again, today. But like I also always say - Buffett wouldn't have taken that bet up with me, because Buffett doesn't believe in efficient market hypothesis either and is almost certainly aware that individually chosen hedge funds could beat an index fund. He lost the bet because he chose a fund of funds reflecting the aggregate hedge fund industry; anyone who is even casually familiar with hedge fund returns as an industry wouldn't be surprised at all by the outcome. His choice doesn't even reflect the decision that most rational investors have to make: given a diversified index fund tracking the market and an index composed of the (much smaller) hedge fund market, choosing the latter is silly. A more coherent (and successful) strategy would have been to choose a single fund, or a small basket of funds, known for beating the market for decades at a time. An index fund is a curated portfolio of companies with criteria that make them attractive investments by definition; the fund of hedge funds, in contrast, tracks an industry that mostly doesn't beat the market except for a few outliers. In other words, the bet didn't really prove anything other than that the hedge fund industry overall is less attractive than the broader market. But I really don't think that was ever up for serious debate among the informed, and now this bet has been modified as a talking point for something it doesn't prove whatsoever: that individual hedge funds are incapable of beating index funds (which is trivially and demonstrably false).
  - masonium 9y ago
    > In other words, the bet didn't really prove anything other than that the hedge fund industry overall is less attractive than the broader market. The context of the original challenge suggests that this was the intention. I actually think that it proved something a little stronger. If some moderately savvy investor were deciding whether to invest her $1m in index funds or hedge funds, she would actually have to choose which hedge fund to invest in. Presumably Ted Seides knows more than our example investor would about hedge funds (and has access to more of them she would). So Ted is an (optimistic) stand-in for how well she would actually have done, which is frankly the more relevant question. On a related note, Ted probably didn't invest in RenTec, or at least not the Medallion Fund, because he can't. Most funds. like Medallion, that can consistently beat the market will either stop taking additional investments or straight up return capital to investors and trade their own money. Buffett doesn't actually go so far as to claim that no one can beat the market (after all, he did); his claim is merely that our average investor can't really take advantage of it to beat the market themselves.
dsacco 9y ago
> You mention that plenty of individual funds did beat the S&P. This is straight an apocryphal anecdotal fallacy. No, no it isn't. Individual funds have beaten the market for 20 - 30 years at a time. You won't even hear about most of them unless you really go digging, for a combination of reasons: 1. Funds that actually, consistently beat the market quickly find themselves in possession of more money than they know what to do with. They don't need to advertise themselves to the market, because they can find plenty of capital at the terms they want within their own network. Why inflate your fund to the size and publicity of Bridgewater if you can avoid it? The salesmanship of a given fund is typically inversely proportional to the return it achieves. 2. Per #1, when I say they have more money than they know what to do with, I mean that literally - they hit capacity constraints on their trading strategies and eventually cannot use more capital profitably even if they wanted to. They can spin off satellite funds to test out various strategies, but by and large the secret sauce engine will have to grow at a much slower rate from then on. This further compounds reason #1 - not only do they not need to seek out investor capital, they'll eventually stop being "on the market" for new investors at all, further reducing their publicity. 3. Finally, having investors is a logistical burden. The only reason to actually have outside capital is to pool risk so you - once you have enough capital and you've hit a capacity such that you can no longer scale up, you might as well return the investors' money and close the fund to outside investment. Why share the risk when you're already wealthy and have been doing this for 20 years? Everyone has heard of Renaissance Technologies because they're legendary, but in my opinion we are lucky to even know about them to the extent that we do. Had James Simons not needed to pool risk and take outside investment in the initial days, we would likely not know about him beating the market with an average 70% return for three decades. There are many funds, like TGS Management, which are essentially comparable to RenTec but which far fewer people know about because they have no reason to be known. I concede that this is not helpful information for an investor trying to figure out where to park money for legitimately superior returns, but that's a different matter than the fact that these funds do exist and that this bet is basically irrelevant for them.
- maxxxxx 9y ago
  I like this post. I always wonder why a fund that has a good thing going would let other people in. If the fund managers have their own money in the fund they probably can make more money through the fund than they can make with fees. So most funds and investment advice that go to the regular investor are probably not very good.

lordnacho 9y ago

No, you are the one who has misunderstood something. I'm saying it's rigged against the fund chooser. Read it again. > You mention that plenty of individual funds did beat the S&P. This is straight an apocryphal anecdotal fallacy. No it isn't. If the guy was smart about what was being bet on he'd have picked RenTech and he'd have won. > I understand you are trying to defend your business. Nope. Just providing some colour so they don't think it's as simple as it sounds.

dsacco 9y ago
> No it isn't. If the guy was smart about what was being bet on he'd have picked RenTech and he'd have won. Yeah, I don't really understand this. People give me flak for saying it, but I can think of five or so funds off the top of my head (Renaissance included) that I would have happily picked and handily beaten Buffett. I'd make the bet again, today. But like I also always say - Buffett wouldn't have taken that bet up with me, because Buffett doesn't believe in efficient market hypothesis either and is almost certainly aware that individually chosen hedge funds could beat an index fund. He lost the bet because he chose a fund of funds reflecting the aggregate hedge fund industry; anyone who is even casually familiar with hedge fund returns as an industry wouldn't be surprised at all by the outcome. His choice doesn't even reflect the decision that most rational investors have to make: given a diversified index fund tracking the market and an index composed of the (much smaller) hedge fund market, choosing the latter is silly. A more coherent (and successful) strategy would have been to choose a single fund, or a small basket of funds, known for beating the market for decades at a time. An index fund is a curated portfolio of companies with criteria that make them attractive investments by definition; the fund of hedge funds, in contrast, tracks an industry that mostly doesn't beat the market except for a few outliers. In other words, the bet didn't really prove anything other than that the hedge fund industry overall is less attractive than the broader market. But I really don't think that was ever up for serious debate among the informed, and now this bet has been modified as a talking point for something it doesn't prove whatsoever: that individual hedge funds are incapable of beating index funds (which is trivially and demonstrably false).
- masonium 9y ago
  > In other words, the bet didn't really prove anything other than that the hedge fund industry overall is less attractive than the broader market. The context of the original challenge suggests that this was the intention. I actually think that it proved something a little stronger. If some moderately savvy investor were deciding whether to invest her $1m in index funds or hedge funds, she would actually have to choose which hedge fund to invest in. Presumably Ted Seides knows more than our example investor would about hedge funds (and has access to more of them she would). So Ted is an (optimistic) stand-in for how well she would actually have done, which is frankly the more relevant question. On a related note, Ted probably didn't invest in RenTec, or at least not the Medallion Fund, because he can't. Most funds. like Medallion, that can consistently beat the market will either stop taking additional investments or straight up return capital to investors and trade their own money. Buffett doesn't actually go so far as to claim that no one can beat the market (after all, he did); his claim is merely that our average investor can't really take advantage of it to beat the market themselves.

dsacco 9y ago

> You mention that plenty of individual funds did beat the S&P. This is straight an apocryphal anecdotal fallacy. No, no it isn't. Individual funds have beaten the market for 20 - 30 years at a time. You won't even hear about most of them unless you really go digging, for a combination of reasons: 1. Funds that actually, consistently beat the market quickly find themselves in possession of more money than they know what to do with. They don't need to advertise themselves to the market, because they can find plenty of capital at the terms they want within their own network. Why inflate your fund to the size and publicity of Bridgewater if you can avoid it? The salesmanship of a given fund is typically inversely proportional to the return it achieves. 2. Per #1, when I say they have more money than they know what to do with, I mean that literally - they hit capacity constraints on their trading strategies and eventually cannot use more capital profitably even if they wanted to. They can spin off satellite funds to test out various strategies, but by and large the secret sauce engine will have to grow at a much slower rate from then on. This further compounds reason #1 - not only do they not need to seek out investor capital, they'll eventually stop being "on the market" for new investors at all, further reducing their publicity. 3. Finally, having investors is a logistical burden. The only reason to actually have outside capital is to pool risk so you - once you have enough capital and you've hit a capacity such that you can no longer scale up, you might as well return the investors' money and close the fund to outside investment. Why share the risk when you're already wealthy and have been doing this for 20 years? Everyone has heard of Renaissance Technologies because they're legendary, but in my opinion we are lucky to even know about them to the extent that we do. Had James Simons not needed to pool risk and take outside investment in the initial days, we would likely not know about him beating the market with an average 70% return for three decades. There are many funds, like TGS Management, which are essentially comparable to RenTec but which far fewer people know about because they have no reason to be known. I concede that this is not helpful information for an investor trying to figure out where to park money for legitimately superior returns, but that's a different matter than the fact that these funds do exist and that this bet is basically irrelevant for them.

maxxxxx 9y ago
I like this post. I always wonder why a fund that has a good thing going would let other people in. If the fund managers have their own money in the fund they probably can make more money through the fund than they can make with fees. So most funds and investment advice that go to the regular investor are probably not very good.