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Warren bet that the S&P 500 would out perform a managed Hedge Fund.
by baldfat 8y ago
Warren bet that the S&P 500 would out perform a managed Hedge Fund.
- anoncoward111 8y agoAnd he would have been wrong 1998-2008, provided that the managed hedge fund literally just kept all their money in cash.
- icebraining 8y agoBut did hedge funds keep their money in cash? Warren's point is exactly that the funds' decisions are not worth the cost.
- oavdeev 8y agoYou're talking about a hypothetical fund with 20/20 hindsight.
- yoran 8y agoI doubt anyone would pay 2% management fee and a 20% share on profit to a fund who is just going to keep the money in cash. Might as well do it myself for free.
- anoncoward111 8y agoI agree with you, but that isn't the point. The point is, "Stick it in the SAP 500" would have been a losing proposition. You would have lost 20% of your money, and lost 10 years of opportunity cost to boot.
- yoran 8y agoI get your point. But my point is that I doubt a hedge fund would have been performing better than the 20% loss of the S&P. Maybe it would have incurred a 40% loss. I think that in the investment world, action bias is very strong and literally doing nothing is not seen as a good thing. We both agree that if you could have foreseen that decade, you would have sold all your stocks in 1998, put it on a savings account, and only have taken it out again in 2008.
- anoncoward111 8y agoI am glad we agree! I also 100% agree that the SAP500 may have performed better than plenty of funds 1998-2008. I'm sure we could even dig some up that did horribly. There were even funds 2008-2018 that liquidated during the Buffett bet :)
- basementcat 8y agoManaged hedged funds that put all their money in cash would likely lose money for the investor just from all the fees.
- aoeusnth1 8y agoHey, if you know a method to tell which years are better to keep money in cash than stocks (in advance), please, let us know!
- anoncoward111 8y agoYou are missing the point. I conceded your point in the thread below. Anyone who says "just stick it in the SAP500 and you'll make some money" is hiding the fact that even with a 10 year time-frame, that statement is not always true. 1998 - 2008 was a blood bath for many, despite the fact that you had 2 legitimate booms in there.
- throwawaymath 8y agoNo he didn't. He bet the S&P500 would outperform a fund of funds. That's a colossal difference in meaning.
- baldfat 8y agoI think you missed Buffet's message. It was that Manager of Hedge Funds are not worth the fees they charge. A Collection of Managed Hedge Funds UNDER performed the S&P 500. Point - Managed funds are worth what they charge.
- throwawaymath 8y agoI didn't miss Buffett's message, because the only message he delivered through the bet was that a fund of funds underperforms the S&P 500. We cannot logically extrapolate the bet's conclusion about the aggregate industry to a conclusion about any particular fund; each fund must be examined on its own weight. There are plenty of fund managers who are worth the fees they charge, and drawing conclusions about their individual performance based on the aggregate performance of the industry is silly. Buffett didn't make any claim about individual funds.