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This is one of the truest things I've read in this thread. Many people would feel differently if it were easy to visualise and see how much money is siphoned of
by samhw 5y ago
This is one of the truest things I've read in this thread. Many people would feel differently if it were easy to visualise and see how much money is siphoned off from Main St to Wall St. Dumb money flows up to smart money. I've seen it from all angles while working in fintech.
I can count the number of people I've met who genuinely beat the smart money, with no formal training, on the fingers of one foot. (The one guy who would maybe fit into that category was a physicist who was formerly a professor at Harvard, so still hardly the kind of person you were talking about.)
- throwdecro 5y agoThe only "smart money" is "other people's money". The problem is that ordinary people are replicating the strategies that professional traders use, without realizing professional traders bet other people's money, keep the profits, let their customers eat the losses, and reboot at-will with fresh "other people's money" when they go bust.
- samhw 5y agoI don't quite follow. Are you claiming the norm for money managers like investment banks and hedge funds is to lose their customers' money? And those customers don't care?
- deleted 5y ago[deleted]
- deleted 5y ago[deleted]
- a_square_peg 5y agoI believe what it's referring to is that traders are paid regardless of how well the funds do. Actively managed funds have fees of say 3~7% of the portfolio that are paid regardless of how well it performs and this is the bet that Warren Buffet made and won (index funds performing better than hedge funds in the long run when fees are accounted for).
- samhw 5y agoI would definitely agree with that claim, then. It seemed to me like he was making a far stronger claim, but it's very possible I'm wrong.
- throwdecro 5y agoI was making a stronger claim. With bounded personal risk (i.e. the money lost is their clients, not their own), and unbounded potential for profit (i.e. a percentage of any profits), money managers have an incentive to make riskier bets. The "norm" (average) for money managers can be achieved by having half the money managers lose money to the other half. This works well for them, because when they win they win, and when they lose someone else pays. Money managers can go big or go home, and keep trying, because in the long run they're not eating the losses. But people betting their own money on the same strategies actually lose their own money when they lose.