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No. Stop it with this mentality. When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Small hedge funds in NYC with le

No. Stop it with this mentality. When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Small hedge funds in NYC with less than 10 million under management regularly make 50-100% a year. It’s not a controversial opinion. It’s just that the financial industry has pushed this narrative as a way to sell index fund products. Completely diversifying your investments is a terrible way to make money. Warren buffet himself says this all the time. Source is I used to work in finance in NYC

alecst 5y ago
I'm intrigued. 1. How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? 2. Regarding Buffett's quote, do you mean "diversification is protection against ignorance?" I think his point is that if you have special knowledge you can take a concentrated position in a stock, but that for the regular guy, diversification is a hedge. Since most stocks underperform and most gains are from a small fraction of stocks, his quote seems to make sense.
- DeathArrow 5y ago
  >How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? Maybe by finding a well managed small fund and buying into it?
  - throw0101a 5y ago
    > Maybe by finding a well managed small fund and buying into it? Just because a fund manager is good now, does not mean they'll be good in the future. It's the same situation as with stocks: how do you know when to jump ship? Further, over longer periods of time, most fund managers don't beat the market average: * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... And just because a few funds do manage to beat the average, it's hard to tell that they are ahead of time. Over the last 40-50 years (in the US) there have been some that have had excellent results—for a while. Until they didn't ("Chasing Top Fund Managers"): * https://www.youtube.com/watch?v=p6HrepdLSu4 https://www.youtube.com/watch?v=p6HrepdLSu4 (18m34s) * https://rationalreminder.ca/podcast/136 https://rationalreminder.ca/podcast/136 (topic starts at ~15m) Plenty of peer-reviewed papers at the bottom of that second (podcast) link.
throw0101a 5y ago
> When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Most stocks suck: > We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 > Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 What are the odds that you manage to pick those few stocks that produce those returns? How much effort does a person have to put in to find these stocks? How much time to do that that is not spent (a) working a full-time job, (b) spending time with friends and family, (c) perhaps having a non-investing hobby? And do that over decades to build (e.g.) their retirement fund, and then another few decades (again) to protect their retirement nest egg. Perhaps someone can beat the market, but what is the trade-off versus accepting "only" market returns by investing in a total market fund?
- dninednjwryv 5y ago
  Dude I’m too busy to argue with you, I literally used to regularly interact with people making these returns. Yes it’s hard and it’s a full time job. But it happens all the time, academic research is worthless. Accepting index returns basically means keeping up with inflation, and “getting rich” at 70 years old. If that’s what your aim is in life then sure, go for it

alecst 5y ago

I'm intrigued. 1. How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? 2. Regarding Buffett's quote, do you mean "diversification is protection against ignorance?" I think his point is that if you have special knowledge you can take a concentrated position in a stock, but that for the regular guy, diversification is a hedge. Since most stocks underperform and most gains are from a small fraction of stocks, his quote seems to make sense.

DeathArrow 5y ago
>How is a regular guy going to achieve the same results as a hedge fund with a 10 million dollar portfolio? Maybe by finding a well managed small fund and buying into it?
- throw0101a 5y ago
  > Maybe by finding a well managed small fund and buying into it? Just because a fund manager is good now, does not mean they'll be good in the future. It's the same situation as with stocks: how do you know when to jump ship? Further, over longer periods of time, most fund managers don't beat the market average: * https://www.ifa.com/articles/despite_brief_reprieve_2018_spiva_report_reveals_active_funds_fail_dent_indexing_lead_-_works/ https://www.ifa.com/articles/despite_brief_reprieve_2018_spi... And just because a few funds do manage to beat the average, it's hard to tell that they are ahead of time. Over the last 40-50 years (in the US) there have been some that have had excellent results—for a while. Until they didn't ("Chasing Top Fund Managers"): * https://www.youtube.com/watch?v=p6HrepdLSu4 https://www.youtube.com/watch?v=p6HrepdLSu4 (18m34s) * https://rationalreminder.ca/podcast/136 https://rationalreminder.ca/podcast/136 (topic starts at ~15m) Plenty of peer-reviewed papers at the bottom of that second (podcast) link.

throw0101a 5y ago

> When managing a small portfolio, < 5 million dollars, you can be very agile in how you invest. Most stocks suck: > We study long-run shareholder outcomes for over 64,000 global common stocks during the January 1990 to December 2020 period. We document that the majority, 55.2% of U.S. stocks and 57.4% of non-U.S. stocks, underperform one-month U.S. Treasury bills in terms of compound returns over the full sample. Focusing on aggregate shareholder outcomes, we find that the top-performing 2.4% of firms account for all of the $US 75.7 trillion in net global stock market wealth creation from 1990 to December 2020. Outside the US, 1.41% of firms account for the $US 30.7 trillion in net wealth creation. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3710251 > Four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 What are the odds that you manage to pick those few stocks that produce those returns? How much effort does a person have to put in to find these stocks? How much time to do that that is not spent (a) working a full-time job, (b) spending time with friends and family, (c) perhaps having a non-investing hobby? And do that over decades to build (e.g.) their retirement fund, and then another few decades (again) to protect their retirement nest egg. Perhaps someone can beat the market, but what is the trade-off versus accepting "only" market returns by investing in a total market fund?

dninednjwryv 5y ago
Dude I’m too busy to argue with you, I literally used to regularly interact with people making these returns. Yes it’s hard and it’s a full time job. But it happens all the time, academic research is worthless. Accepting index returns basically means keeping up with inflation, and “getting rich” at 70 years old. If that’s what your aim is in life then sure, go for it