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> 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 m
by 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.