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There'll never be a shortage of people who think they can beat the market. Market beating is just such a compelling illusion. Also passive funds are not quite 1

There'll never be a shortage of people who think they can beat the market. Market beating is just such a compelling illusion. Also passive funds are not quite 100% passive. What does everyone do when they're broke? Stop investing. How about when times are good? Pile more into investments. There's also many different types of passive funds with slightly different biases. There's world passive funds (which have maybe 40% not in the S&P). There's passive funds that track other specific countries. There's ESG passive funds that avoid oil companies and such. There's passive that skips China. There's investor biases in there and prices being discovered all over.

Invictus0 4y ago
Yes, Berkshire Hathaway and Renaissance are just figments of the imagination.
- lotsofpulp 4y ago
  Has BRK outperformed SP500 since 2009?
- IMSAI8080 4y ago
  Now throw in all the other active funds and average them out. Also Berkshire would not have been the better investment over the last decade. Can you guarantee me Berkshire will pull ahead before I retire?
  - Invictus0 4y ago
    What a silly thing to stay. Let me just ignore that and explain why Berkshire works. It's possible to beat the market because it's possible to buy $1 for $0.95. That's the whole trick. It takes a lot of work, a lot of smart people, and you have to make big enough deals to cover the cost of paying the managers, but yes, these opportunities exist and they are abundant. The real mistake is thinking that the market is a bunch of random number generators with no rhyme or reason to it. But no, there are no guarantees--the SPY doesn't come with a guarantee either.
    - IMSAI8080 4y ago
      That makes no sense at all. What you're saying is it's possible to hire people who can see the future. Index tracking works because the market as a whole generally trends upwards if you wait long enough. This would be expected as the world generally gets richer and technology generally improves. The problem is you can't predict which exact company is going to do the improving. So just buy a very wide spread of companies and take the average. 80% of active managers fail to beat the market because they cannot see the future. The other 20% are lucky (today). If you want a lesson in the dangers of active management, look up Neil Woodford.
      - svnt 4y ago
        You only need to hire people who can see the future from the perspective of the market. It is entirely possible, and it is the reason why insider trading is heavily regulated.
  - blitzar 4y ago
    Berkshire is up 280% vs S&P up 180% for the last decade. That said Berkshire is a pretty poor example as it has a pretty diverse range of holdings, its basically a passive index of its own.
    - lotsofpulp 4y ago
      https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/ This site says SP500 with dividend reinvested is 270%. I also feel like SP500 has a lot less risk because politicians are very incentivized to provide a backstop to SP500 price, but not as much to BRK. Also, BRK is squeaking out 280% vs SPY 270% by being 25%+ invested in a single company, Apple. That is a lot of extra risk for not a lot of extra return.
    - IMSAI8080 4y ago
      That's incorrect, you forgot the dividends. I went with an analysis from last year where Berkshire was behind and was doing worse than the S&P. Now they're about evens. Berkshire is now an S&P500 tracker.
- cko 4y ago
  Ben Felix cited in a video that Berkshire's excess returns can be explained by their value tilt, and after accounting for that, this apparent excess return is statistically insignificant. http://docs.lhpedersen.com/BuffettsAlpha.pdf http://docs.lhpedersen.com/BuffettsAlpha.pdf
legulere 4y ago
If passive funds are not passive like for instance synthetic ETFs and you cannot beat the market then how are they making money?
- IMSAI8080 4y ago
  They charge fees. They also lend stocks to shorters (and charge a fee for that). And cheap brokers sell order flow.

Invictus0 4y ago

Yes, Berkshire Hathaway and Renaissance are just figments of the imagination.

lotsofpulp 4y ago
Has BRK outperformed SP500 since 2009?
IMSAI8080 4y ago
Now throw in all the other active funds and average them out. Also Berkshire would not have been the better investment over the last decade. Can you guarantee me Berkshire will pull ahead before I retire?
- Invictus0 4y ago
  What a silly thing to stay. Let me just ignore that and explain why Berkshire works. It's possible to beat the market because it's possible to buy $1 for $0.95. That's the whole trick. It takes a lot of work, a lot of smart people, and you have to make big enough deals to cover the cost of paying the managers, but yes, these opportunities exist and they are abundant. The real mistake is thinking that the market is a bunch of random number generators with no rhyme or reason to it. But no, there are no guarantees--the SPY doesn't come with a guarantee either.
  - IMSAI8080 4y ago
    That makes no sense at all. What you're saying is it's possible to hire people who can see the future. Index tracking works because the market as a whole generally trends upwards if you wait long enough. This would be expected as the world generally gets richer and technology generally improves. The problem is you can't predict which exact company is going to do the improving. So just buy a very wide spread of companies and take the average. 80% of active managers fail to beat the market because they cannot see the future. The other 20% are lucky (today). If you want a lesson in the dangers of active management, look up Neil Woodford.
    - svnt 4y ago
      You only need to hire people who can see the future from the perspective of the market. It is entirely possible, and it is the reason why insider trading is heavily regulated.
- blitzar 4y ago
  Berkshire is up 280% vs S&P up 180% for the last decade. That said Berkshire is a pretty poor example as it has a pretty diverse range of holdings, its basically a passive index of its own.
  - lotsofpulp 4y ago
    https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/ This site says SP500 with dividend reinvested is 270%. I also feel like SP500 has a lot less risk because politicians are very incentivized to provide a backstop to SP500 price, but not as much to BRK. Also, BRK is squeaking out 280% vs SPY 270% by being 25%+ invested in a single company, Apple. That is a lot of extra risk for not a lot of extra return.
  - IMSAI8080 4y ago
    That's incorrect, you forgot the dividends. I went with an analysis from last year where Berkshire was behind and was doing worse than the S&P. Now they're about evens. Berkshire is now an S&P500 tracker.
cko 4y ago
Ben Felix cited in a video that Berkshire's excess returns can be explained by their value tilt, and after accounting for that, this apparent excess return is statistically insignificant. http://docs.lhpedersen.com/BuffettsAlpha.pdf http://docs.lhpedersen.com/BuffettsAlpha.pdf

legulere 4y ago

If passive funds are not passive like for instance synthetic ETFs and you cannot beat the market then how are they making money?

IMSAI8080 4y ago
They charge fees. They also lend stocks to shorters (and charge a fee for that). And cheap brokers sell order flow.