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One of the best kept secrets in the hedge fund/financial industry is that most people really dont have a clue what they are doing. Sure they make bold predictio

One of the best kept secrets in the hedge fund/financial industry is that most people really dont have a clue what they are doing. Sure they make bold predictions, appear on CNBC and use industry jargon. But at the end of the day, they arent much better than you or me at managing large amounts of money.

misiti3780 8y ago
to back this up, read the expose in the economist this week about family offices and how they all divesting from hedgefunds because the fees are ridiculous and they are doing no better than the S&P, usually worse when you take into account the onerous fees those mgrs are charging.
- ecshafer 8y ago
  This is literally what vanguard has been saying doe 40+ years and is their main business model.
- dragontamer 8y ago
  To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. $100 million isn't much different from $108 Million (8% gains over the year)... or even $500 Million. In both cases, its still more than enough money to live on for the rest of your life. The S&P 500 has dropped 50% in the past (ie: 2008), and it doesn't make sense to risk that much money on that. You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into? Answer: things that don't grow as quickly as an S&P500 fund. Things that are safer: municipal bonds, international (German, Japan) bonds to hedge the dollar, and US Bonds. Maybe some high-quality corporate debt, like Apple's debt, and maybe a real-estate project or two. All of which probably returns less than the stock market. But your $100 Million will still be there in the next crisis. That's not necessarily true for an S&P500 fund. ------------ Finally, the average volume of Vanguard Total Market ETF is only ~3-million (at a price of ~130 or so). Which means that Vanguard Total Market ETF only has ~$300 Million changed each day. If you pump $100 Million into an ETF with only $300 Million worth of daily average volume, what do you think will happen? You'll over-centralize the price and get a bad deal. Its not easy to move $100 Million, even into a major fund like Vanguard's Total Market ETF, without a manager. At $100 Million+ size portfolios, you need to start thinking of Dark Pools of Liquidity (ie: somewhat hiding the order book). So that when you execute the buy order, the wolves of Wall Street won't own you. $100 Million+ accounts don't work the same as a normal account. Pump that into the market in one day, and the price will rise dramatically. Sell that in one day, and the price will drop dramatically (losing a % of your value on both legs of the transaction). Having an expert guide you, so that you can minimize Bid/Ask issues, is essential.
  - wpietri 8y ago
    > To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. What's your evidence for that? Sure, they don't want to lose, but nobody does. And if anybody likes to get richer, it is pretty clearly rich people. Even the charity-focused ones want to keep increasing their resources, as that lets them have more impact.
    - dragontamer 8y ago
      > What's your evidence for that? The worldwide bond / debt market exceeds $100 Trillion. While the worldwide stock market is only $69 Trillion (sum of top 60 exchanges) https://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/ https://www.visualcapitalist.com/all-of-the-worlds-stock-exc... It is clear that Bonds are more popular than Stocks, by a factor of ~50% or so. The rich are buying up debt in far greater numbers than stocks. And EVERYONE knows that Bonds make less money. I know some of it is cultural. My Chinese friends tend to own real-estate. But it seems like around the world, all major investors favor the lower-risks of Bond investing compared to Stocks.
      - wpietri 8y ago
        Your evidence for what wealthy individuals do is... the total size of the global markets? What evidence do you have that their portfolio weighting matches that?
  - module0000 8y ago
    Other side of the coin here..you can take that 1 million USD and dump it in a single order into the ES - you won't move it more than 1, 2, or maybe 3 ticks. This assumes you are using full day margin rates - if you are using overnight rates, you won't move it a single tick. Securities and ETF's are amateur hour for real sums of money. You'll need hundreds of millions, or billions, to move markets with the depth of the ES, ZB, TN, and other commodity futures.
  - trevyn 8y ago
    >You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. Not that it’s a good idea, but there are other ways to insure cash than the FDIC. One example, apparently Massachusetts offers unlimited insurance for banks: https://en.m.wikipedia.org/wiki/Depositors_Insurance_Fund https://en.m.wikipedia.org/wiki/Depositors_Insurance_Fund (Also, 100M / 200k = 500, not 5000)
paulie_a 8y ago
It's always sad when I get my upwards of 10 percent by professionals. I personally get 500-1000 percent return year over year. I'm working with small amounts of money that if I lost entirely wouldn't be the end of the world. But some years they barely beat inflation.
- robk 8y ago
  How??
  - wpietri 8y ago
    You think he'll tell you for free? Nah. To learn the amazing secret to claiming to make a lot of money, you have to send him a lot of money. There are rules.
    - Topgamer7 8y ago
      Or buy this ebook for $9.99. Thousands of dollars in value, only $9.99. Get in on this limited offer!
  - module0000 8y ago
    He'e eluding(likely) to the commodities market. You can make double your money on a mediocre trade. You can also lose 100% of your money on a similar mediocre trade.
    - dgacmu 8y ago
      Alluding. :)
    - paulie_a 8y ago
      Nope just straight stock with my Scottrade account. In my younger years 77 dollars of stock ended up paying for a pretty decent copay for a surgery.
- mikkom 8y ago
  > I personally get 500-1000 percent return year over year. Numbers like this are always quite funny to me. What does year over year mean in this context? 5 years? 10? If you would start with $1000 then in 10 years you would be at approx. 976 million with only lower part of your profits (500%).
wpietri 8y ago
An opinion shared by Warren Buffett. He bet a hedge fund guy $1m that an index fund would beat a portfolio of hedge funds. Buffett won handily: http://longbets.org/362/ http://longbets.org/362/
- vec 8y ago
  I'm a complete layman whose only knowledge of the financial system is derived from podcasts and magazine articles, and hindsight is always 20/20, but wasn't this always an obvious sucker bet? As I understand it, a hedge fund is supposed to be, well, a hedge. It's not supposed to make more money than the market when the market's doing well. It's supposed to be uncorrelated from the rest of the market, with the hope that it can maintains or even gain value in the event that the rest of the market tanks. An asset class that could reasonably be expected to substantially outperform both a bull market and a bear market isn't a hedge against anything, it's just a strictly superior asset class and we're pretty good at arbitraging those out of existence in relatively short order. With that in mind, doesn't this basically devolve to a bet that at least a whole decade's worth of economic growth was going to be consumed entirely by a massive recession? That's not wholly unprecedented, admittedly, but it is a lot rarer than I'd be comfortable putting any money on at flat odds. What am I missing?
  - ianferrel 8y ago
    "hedge fund" is kind of a misnomer these days. They started out as actual hedges, but now refer to basically any fund that makes use of complicated securities and active management. But, yeah, it was likely a sucker's bet.
  - SatvikBeri 8y ago
    Yes, it was a sucker bet. The funds Protege picked were actually funds of funds that basically had a .6 correlation to the S&P 500. So Buffett was almost guaranteed to win if the markets went up over 10 years, and lose if they went down. And it's very rare for the market to be down over a 10-year period. Honestly I have no idea what Protege was thinking.
mv4 8y ago
I am beginning to wonder, seeing the increased rate of hedge fund liquidations this quarter.
user5994461 8y ago
I'd say the exact opposite. One of the best kept secrets in the industry is that people know exactly what they are doing. There are plenty of positions that are stable and low risk. Like running the exchange itself, all sort of middlemen and some form of arbitrage. A hedge fund is mostly about funneling as much of customer money as possible to the fund manager. It's a fairly straightforward and risk insensitive business.
- SatvikBeri 8y ago
  The strategies that tend to work are boring and low capacity, so they don't get much advertising, and people don't hear about them. There's a massive saliency bias in that the strategies people are most likely to hear about are ones with some excitement behind them – that gives people a massively distorted view of hedge funds.

misiti3780 8y ago

to back this up, read the expose in the economist this week about family offices and how they all divesting from hedgefunds because the fees are ridiculous and they are doing no better than the S&P, usually worse when you take into account the onerous fees those mgrs are charging.

ecshafer 8y ago
This is literally what vanguard has been saying doe 40+ years and is their main business model.
dragontamer 8y ago
To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. $100 million isn't much different from $108 Million (8% gains over the year)... or even $500 Million. In both cases, its still more than enough money to live on for the rest of your life. The S&P 500 has dropped 50% in the past (ie: 2008), and it doesn't make sense to risk that much money on that. You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into? Answer: things that don't grow as quickly as an S&P500 fund. Things that are safer: municipal bonds, international (German, Japan) bonds to hedge the dollar, and US Bonds. Maybe some high-quality corporate debt, like Apple's debt, and maybe a real-estate project or two. All of which probably returns less than the stock market. But your $100 Million will still be there in the next crisis. That's not necessarily true for an S&P500 fund. ------------ Finally, the average volume of Vanguard Total Market ETF is only ~3-million (at a price of ~130 or so). Which means that Vanguard Total Market ETF only has ~$300 Million changed each day. If you pump $100 Million into an ETF with only $300 Million worth of daily average volume, what do you think will happen? You'll over-centralize the price and get a bad deal. Its not easy to move $100 Million, even into a major fund like Vanguard's Total Market ETF, without a manager. At $100 Million+ size portfolios, you need to start thinking of Dark Pools of Liquidity (ie: somewhat hiding the order book). So that when you execute the buy order, the wolves of Wall Street won't own you. $100 Million+ accounts don't work the same as a normal account. Pump that into the market in one day, and the price will rise dramatically. Sell that in one day, and the price will drop dramatically (losing a % of your value on both legs of the transaction). Having an expert guide you, so that you can minimize Bid/Ask issues, is essential.
- wpietri 8y ago
  > To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money. What's your evidence for that? Sure, they don't want to lose, but nobody does. And if anybody likes to get richer, it is pretty clearly rich people. Even the charity-focused ones want to keep increasing their resources, as that lets them have more impact.
  - dragontamer 8y ago
    > What's your evidence for that? The worldwide bond / debt market exceeds $100 Trillion. While the worldwide stock market is only $69 Trillion (sum of top 60 exchanges) https://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/ https://www.visualcapitalist.com/all-of-the-worlds-stock-exc... It is clear that Bonds are more popular than Stocks, by a factor of ~50% or so. The rich are buying up debt in far greater numbers than stocks. And EVERYONE knows that Bonds make less money. I know some of it is cultural. My Chinese friends tend to own real-estate. But it seems like around the world, all major investors favor the lower-risks of Bond investing compared to Stocks.
    - wpietri 8y ago
      Your evidence for what wealthy individuals do is... the total size of the global markets? What evidence do you have that their portfolio weighting matches that?
- module0000 8y ago
  Other side of the coin here..you can take that 1 million USD and dump it in a single order into the ES - you won't move it more than 1, 2, or maybe 3 ticks. This assumes you are using full day margin rates - if you are using overnight rates, you won't move it a single tick. Securities and ETF's are amateur hour for real sums of money. You'll need hundreds of millions, or billions, to move markets with the depth of the ES, ZB, TN, and other commodity futures.
- trevyn 8y ago
  >You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. Not that it’s a good idea, but there are other ways to insure cash than the FDIC. One example, apparently Massachusetts offers unlimited insurance for banks: https://en.m.wikipedia.org/wiki/Depositors_Insurance_Fund https://en.m.wikipedia.org/wiki/Depositors_Insurance_Fund (Also, 100M / 200k = 500, not 5000)

paulie_a 8y ago

It's always sad when I get my upwards of 10 percent by professionals. I personally get 500-1000 percent return year over year. I'm working with small amounts of money that if I lost entirely wouldn't be the end of the world. But some years they barely beat inflation.

robk 8y ago
How??
- wpietri 8y ago
  You think he'll tell you for free? Nah. To learn the amazing secret to claiming to make a lot of money, you have to send him a lot of money. There are rules.
  - Topgamer7 8y ago
    Or buy this ebook for $9.99. Thousands of dollars in value, only $9.99. Get in on this limited offer!
- module0000 8y ago
  He'e eluding(likely) to the commodities market. You can make double your money on a mediocre trade. You can also lose 100% of your money on a similar mediocre trade.
  - dgacmu 8y ago
    Alluding. :)
  - paulie_a 8y ago
    Nope just straight stock with my Scottrade account. In my younger years 77 dollars of stock ended up paying for a pretty decent copay for a surgery.
mikkom 8y ago
> I personally get 500-1000 percent return year over year. Numbers like this are always quite funny to me. What does year over year mean in this context? 5 years? 10? If you would start with $1000 then in 10 years you would be at approx. 976 million with only lower part of your profits (500%).

wpietri 8y ago

An opinion shared by Warren Buffett. He bet a hedge fund guy $1m that an index fund would beat a portfolio of hedge funds. Buffett won handily: http://longbets.org/362/ http://longbets.org/362/

vec 8y ago
I'm a complete layman whose only knowledge of the financial system is derived from podcasts and magazine articles, and hindsight is always 20/20, but wasn't this always an obvious sucker bet? As I understand it, a hedge fund is supposed to be, well, a hedge. It's not supposed to make more money than the market when the market's doing well. It's supposed to be uncorrelated from the rest of the market, with the hope that it can maintains or even gain value in the event that the rest of the market tanks. An asset class that could reasonably be expected to substantially outperform both a bull market and a bear market isn't a hedge against anything, it's just a strictly superior asset class and we're pretty good at arbitraging those out of existence in relatively short order. With that in mind, doesn't this basically devolve to a bet that at least a whole decade's worth of economic growth was going to be consumed entirely by a massive recession? That's not wholly unprecedented, admittedly, but it is a lot rarer than I'd be comfortable putting any money on at flat odds. What am I missing?
- ianferrel 8y ago
  "hedge fund" is kind of a misnomer these days. They started out as actual hedges, but now refer to basically any fund that makes use of complicated securities and active management. But, yeah, it was likely a sucker's bet.
- SatvikBeri 8y ago
  Yes, it was a sucker bet. The funds Protege picked were actually funds of funds that basically had a .6 correlation to the S&P 500. So Buffett was almost guaranteed to win if the markets went up over 10 years, and lose if they went down. And it's very rare for the market to be down over a 10-year period. Honestly I have no idea what Protege was thinking.

mv4 8y ago

I am beginning to wonder, seeing the increased rate of hedge fund liquidations this quarter.

user5994461 8y ago

I'd say the exact opposite. One of the best kept secrets in the industry is that people know exactly what they are doing. There are plenty of positions that are stable and low risk. Like running the exchange itself, all sort of middlemen and some form of arbitrage. A hedge fund is mostly about funneling as much of customer money as possible to the fund manager. It's a fairly straightforward and risk insensitive business.

SatvikBeri 8y ago
The strategies that tend to work are boring and low capacity, so they don't get much advertising, and people don't hear about them. There's a massive saliency bias in that the strategies people are most likely to hear about are ones with some excitement behind them – that gives people a massively distorted view of hedge funds.