8 ms·
The only "smart money" is "other people's money". The problem is that ordinary people are replicating the strategies that professional traders use, without rea
by throwdecro 5y ago
The 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.