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> That isn't conventional wisdom. It's not someone's opinion. It's statistically proven reality. Whether you're an individual trader or a billionaire hedge fund

> That isn't conventional wisdom. It's not someone's opinion. It's statistically proven reality. Whether you're an individual trader or a billionaire hedge fund manager, active strategies lose out to passive ones in the long run. This claim is false. Some funds have overperformed year after year with high margins and (relatively) low risk, for decades. For example, Renaissance Technologies' Medallion Fund and Warren Buffett's Berkshire Hathaway. Please show me the "statistically proven reality" that explains these returns.

scarmig 6y ago
2020, Renaissance funds' performance: Closed to outsiders: Medallion, +76% Open to outsiders: RIEF, -23% RIDA, -34%
- jjoonathan 6y ago
  If I were investing someone else's money, I'd be happy to put a little in RIEF and RIDA in exchange for medallion shares.
- nceqs3 6y ago
  You forgot to mention that the external funds have performed exceedly well (20+%/year) over the past 15 years even after a 44% performance fee. Also the external funds are different strategies than Medallion.
- baobabKoodaa 6y ago
  > 2020, Renaissance funds' performance ... Since this is in reply to me, let me ask, what's the implication here? The tone of your post sounds like you disagree with me, but it's not clear what exactly you disagree with? Grandparent claimed that no-one can beat the market. I said that Renaissance Medallion Fund beats the market. Then you post a single-year performance of +76%, which is a really good performance for 2020. So... you agree with me?
  - scarmig 6y ago
    I don't disagree with you that individuals can outperform the market. I do think it's worth pointing out that that doesn't mean that the average retail investor will generally outperform the market, even if they're sophisticated enough to have even heard of Renaissance.
Spooky23 6y ago
Many folks see Boglehead-ism as some sort of science. It’s not bad advice for a disinterested investor in the US, but not exactly optimal advice either. I’d rather have my AAPL over the last 5 years than VTI+BND.
- maksimum 6y ago
  What would you rather have for the next 5 years? Why?
  - chronic2021 6y ago
    Citadel hedge fund. 19% annual return. After fees. For 30 years [1]. The most popular index funds (VTI, VGT) only have a 20-year track record, with a paltry 9% and 13% annual return, respectively. [1] https://www.clearbrookglobal.com/citadel-millennium-d-e-shaw-post-20-plus-returns-in-20/ https://www.clearbrookglobal.com/citadel-millennium-d-e-shaw...
    - dasil003 6y ago
      Huh? The first index fund was started 45 years ago, and indexes existed and are tracked far longer than that. Tell me what percentage of hedge funds beat the S&P over the last 50 years?
      - chronic2021 6y ago
        If you cherry pick the US S&P (over international, and over small cap), I’m allowed to cherry pick hedge funds. Many funds consistently outperform the S&P by 2-3X over 30-40 years. Minimum investment, $5-10M, of course. Buy and hold is the best option for those under USD $10 million net worth, but you must acknowledge there are semi-closed funds/prop trading firms that consistently beat the market.
        dasil003 6y ago
        Yes, just like there are individual stocks that beat the market. How do you pick them?
justicezyx 6y ago
You are using individual instances to disapprove statistical observation? Ate you seeing the contradiction here? ...
- deleted 6y ago
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- baobabKoodaa 6y ago
  That makes no sense. The claim I'm disputing is of form "X is true for everyone". A single counter-example is sufficient to disprove a claim of this form. Grandparent claimed that everyone would be better off investing passively than actively. So a single counter-example of a genius like Simons is sufficient to disprove that claim.
djoldman 6y ago
1. I think you'll find that funds that consistently beat the market for so many years are not taking investments. 2. Buffet himself says: "In my view, for most people, the best thing to do is to own the S&P 500 index fund"
- baobabKoodaa 6y ago
  > 1. I think you'll find that funds that consistently beat the market for so many years are not taking investments. Yep, I agree. > 2. Buffet himself says: "In my view, for most people, the best thing to do is to own the S&P 500 index fund" Again, we are in agreement. I'm not sure what exactly it is that you feel you disagree with me about? Grandparent claimed that _nobody_ can beat the market, and I provided references to evidence that some people can beat the market.
dasil003 6y ago
Passive or active is not binary. Berkshire Hathaway’s strategy is passive by the WSB generations standards.
- baobabKoodaa 6y ago
  Please stop trying to re-define words which already have an established definition. "Passive" and "active" investing are well defined concepts, and Berkshire Hathaway falls squarely in the "active" category.
  - dasil003 6y ago
    Fair criticism of my phrasing, but at the same time you can't put day traders, HFT, or most hedge fund strategies in the same bucket as Berkshire Hathaway. There is a distinct difference in time horizons behind the strategies.
    - kwere 6y ago
      active = alpha; passive = beta;
atombender 6y ago
Warren Buffett's investing performance can be explained by an intuitive understanding of known market factors (the French-Fama five-factor asset pricing model, etc.) [1]. The Medallion fund is a whole other kettle of fish. Medallion uses extremely sophisticated models which took Jim Simons and his team of math wizards more than a decade to figure out, using vast amounts of historical data and computation. The fact that nobody else is replicating their performance should tell you just how difficult it is. In 2019, 71% of actively managed funds lagged behind their benchmark according to the S&P. In 2020, it was "just" 57% [2]. Meanwhile, 70% of active funds have been liquidated the last 20 years. There are of course years where actively managed funds are the winners, but over time, actively managed funds tend toward the mean, either lagging or matching the S&P 500. [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197185 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197185 [2] https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-y...
- baobabKoodaa 6y ago
  > In 2019, 71% of actively managed funds lagged behind their benchmark according to the S&P. Yes, you have a market where participants trade against each other, and you discover that the average participant in the market does not "beat the market". That should be obvious. The question in dispute is whether _anyone_ can beat the market, and there's a mountain of evidence that certain people/funds beat the market year after year.
  - atombender 6y ago
    Yes, you can beat the market. But anyone cannot beat the market. This is a problem for retail investors. Studies such as this one [1] have shown that the past performance of an actively managed fund does not predict its future returns. In other words, while there are certainly actively managed funds that beat the market in some years, a retail investor picking a mutual fund based on past performance is likely to be disappointed. So how do you pick the fund that will give you high returns? Turns out this is exactly the same problem with individual stock picking, but instead of trying to pick winning stocks on the stock market, you are trying to pick winning managers in the mutual fund business. And your success in doing that ultimately comes down to chance. [1] https://insights.som.yale.edu/insights/does-mutual-fund-s-past-performance-predict-its-future https://insights.som.yale.edu/insights/does-mutual-fund-s-pa...
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scarmig 6y ago

2020, Renaissance funds' performance: Closed to outsiders: Medallion, +76% Open to outsiders: RIEF, -23% RIDA, -34%

jjoonathan 6y ago
If I were investing someone else's money, I'd be happy to put a little in RIEF and RIDA in exchange for medallion shares.
nceqs3 6y ago
You forgot to mention that the external funds have performed exceedly well (20+%/year) over the past 15 years even after a 44% performance fee. Also the external funds are different strategies than Medallion.
baobabKoodaa 6y ago
> 2020, Renaissance funds' performance ... Since this is in reply to me, let me ask, what's the implication here? The tone of your post sounds like you disagree with me, but it's not clear what exactly you disagree with? Grandparent claimed that no-one can beat the market. I said that Renaissance Medallion Fund beats the market. Then you post a single-year performance of +76%, which is a really good performance for 2020. So... you agree with me?
- scarmig 6y ago
  I don't disagree with you that individuals can outperform the market. I do think it's worth pointing out that that doesn't mean that the average retail investor will generally outperform the market, even if they're sophisticated enough to have even heard of Renaissance.

Spooky23 6y ago

Many folks see Boglehead-ism as some sort of science. It’s not bad advice for a disinterested investor in the US, but not exactly optimal advice either. I’d rather have my AAPL over the last 5 years than VTI+BND.

maksimum 6y ago
What would you rather have for the next 5 years? Why?
- chronic2021 6y ago
  Citadel hedge fund. 19% annual return. After fees. For 30 years [1]. The most popular index funds (VTI, VGT) only have a 20-year track record, with a paltry 9% and 13% annual return, respectively. [1] https://www.clearbrookglobal.com/citadel-millennium-d-e-shaw-post-20-plus-returns-in-20/ https://www.clearbrookglobal.com/citadel-millennium-d-e-shaw...
  - dasil003 6y ago
    Huh? The first index fund was started 45 years ago, and indexes existed and are tracked far longer than that. Tell me what percentage of hedge funds beat the S&P over the last 50 years?
    - chronic2021 6y ago
      If you cherry pick the US S&P (over international, and over small cap), I’m allowed to cherry pick hedge funds. Many funds consistently outperform the S&P by 2-3X over 30-40 years. Minimum investment, $5-10M, of course. Buy and hold is the best option for those under USD $10 million net worth, but you must acknowledge there are semi-closed funds/prop trading firms that consistently beat the market.
      - dasil003 6y ago
        Yes, just like there are individual stocks that beat the market. How do you pick them?

justicezyx 6y ago

You are using individual instances to disapprove statistical observation? Ate you seeing the contradiction here? ...

deleted 6y ago
[deleted]
baobabKoodaa 6y ago
That makes no sense. The claim I'm disputing is of form "X is true for everyone". A single counter-example is sufficient to disprove a claim of this form. Grandparent claimed that everyone would be better off investing passively than actively. So a single counter-example of a genius like Simons is sufficient to disprove that claim.

djoldman 6y ago

1. I think you'll find that funds that consistently beat the market for so many years are not taking investments. 2. Buffet himself says: "In my view, for most people, the best thing to do is to own the S&P 500 index fund"

baobabKoodaa 6y ago
> 1. I think you'll find that funds that consistently beat the market for so many years are not taking investments. Yep, I agree. > 2. Buffet himself says: "In my view, for most people, the best thing to do is to own the S&P 500 index fund" Again, we are in agreement. I'm not sure what exactly it is that you feel you disagree with me about? Grandparent claimed that _nobody_ can beat the market, and I provided references to evidence that some people can beat the market.

dasil003 6y ago

Passive or active is not binary. Berkshire Hathaway’s strategy is passive by the WSB generations standards.

baobabKoodaa 6y ago
Please stop trying to re-define words which already have an established definition. "Passive" and "active" investing are well defined concepts, and Berkshire Hathaway falls squarely in the "active" category.
- dasil003 6y ago
  Fair criticism of my phrasing, but at the same time you can't put day traders, HFT, or most hedge fund strategies in the same bucket as Berkshire Hathaway. There is a distinct difference in time horizons behind the strategies.
  - kwere 6y ago
    active = alpha; passive = beta;

atombender 6y ago

Warren Buffett's investing performance can be explained by an intuitive understanding of known market factors (the French-Fama five-factor asset pricing model, etc.) [1]. The Medallion fund is a whole other kettle of fish. Medallion uses extremely sophisticated models which took Jim Simons and his team of math wizards more than a decade to figure out, using vast amounts of historical data and computation. The fact that nobody else is replicating their performance should tell you just how difficult it is. In 2019, 71% of actively managed funds lagged behind their benchmark according to the S&P. In 2020, it was "just" 57% [2]. Meanwhile, 70% of active funds have been liquidated the last 20 years. There are of course years where actively managed funds are the winners, but over time, actively managed funds tend toward the mean, either lagging or matching the S&P 500. [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197185 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3197185 [2] https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2020.pdf https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-y...

baobabKoodaa 6y ago
> In 2019, 71% of actively managed funds lagged behind their benchmark according to the S&P. Yes, you have a market where participants trade against each other, and you discover that the average participant in the market does not "beat the market". That should be obvious. The question in dispute is whether _anyone_ can beat the market, and there's a mountain of evidence that certain people/funds beat the market year after year.
- atombender 6y ago
  Yes, you can beat the market. But anyone cannot beat the market. This is a problem for retail investors. Studies such as this one [1] have shown that the past performance of an actively managed fund does not predict its future returns. In other words, while there are certainly actively managed funds that beat the market in some years, a retail investor picking a mutual fund based on past performance is likely to be disappointed. So how do you pick the fund that will give you high returns? Turns out this is exactly the same problem with individual stock picking, but instead of trying to pick winning stocks on the stock market, you are trying to pick winning managers in the mutual fund business. And your success in doing that ultimately comes down to chance. [1] https://insights.som.yale.edu/insights/does-mutual-fund-s-past-performance-predict-its-future https://insights.som.yale.edu/insights/does-mutual-fund-s-pa...

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