41 ms·

Nevada’s public employee pension fund invests passively and beats peers (2016)

348 points by cpncrunch 2y ago

cpncrunch 2y ago
https://archive.is/hmkdj#selection-4317.0-4320.0 https://archive.is/hmkdj#selection-4317.0-4320.0
jonahbenton 2y ago
(2016)
- cpncrunch 2y ago
  Updated title.
decasia 2y ago
I'm curious if this is demonstrably an optimal strategy for individual investment too... I haven't had much success getting any clear data about whether active management demonstrably produces better results.
- asdasdsddd 2y ago
  The catch 22 for active management is that if they are actually good then they would just use their strategies to manage their own money.
  - deleted 2y ago
    [deleted]
  - throwaway3306a 2y ago
    The catch 22 for this assumption is that they want to be richer than their own money would allow
  - samus 2y ago
    They probably do. They just make it their day job by selling their services to others as well.
  - OJFord 2y ago
    They do. But if you offer the service to other people, you get a lot more money to play with (meaning you can do more or different things than you could with less) and get to charge performance fees etc. in addition to your own capital gains. Really, you could say it about absolutely any job, it's just a bit more direct with managing money. 'If you were any good at writing software you would just sell your own SaaS', etc.
    - asdasdsddd 2y ago
      That's the common claim, but if you actually look at the successful funds that beat market year after year, their public fund is always the low yield, experimental strategies while the internal funds demolish the market. The reality is that most lucrative strategies have a yield cap and people who find them quickly surpass the cap so they just keep the strategies to themselves.
      - OJFord 2y ago
        That doesn't really invalidate my point though: the extra capital gives the option, and the fees.
- windwindow 2y ago
  There's strong data supporting passive investment. I've found the stats in Andrew Hallam's book, "Balance: How to Invest and Spend for Happiness, Health, and Wealth" (https://www.amazon.ca/Balance-Invest-Happiness-Health-Wealth/dp/1774580756 https://www.amazon.ca/Balance-Invest-Happiness-Health-Wealth...) quite eye-opening.
- cornstalks 2y ago
  There’s the famous bet Warren Buffett won against an actively managed fund: https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe...
- elil17 2y ago
  Short answer re: investing in active managers (based on my many years listening to rationalreminder.ca) is that, if you eliminate some of the worst active managers, the average returns net of fees are the same. However, eliminating the worst managers is challenging (but not impossible) to do ex-ante. Even then, you’re only getting the same average returns as indexing, not better. Plus, you will experience a higher dispersion with active managers (greater chance of extreme negative or positive outcome), which is not desirable. Because of these two issues, It’s definitely better to pick an index fund. Re: picking stocks yourself, the answer is also pretty cut and dry. There’s strong evidence no individual trader can expect to beat the market. Active managers can only beat the market gross of fees because they employ large teams of people to do a lot of work to gain a small edge (stuff like predicting retail sales numbers from satellite images of store parking lots). This is my attempt at summarizing a whole field of research in a few sentences. There are many more nuisances. I highly recommend listening to the Rational Reminder podcast if you’re curious about this sort of thing. They interview a lot of academics.
  - chii 2y ago
    > a higher dispersion with active managers (greater chance of extreme negative or positive outcome), which is not desirable. some people prefer the chance to win the lottery rather than get a steady income stream.
    - throwaway2037 2y ago
      Except this is a myth. You will not win the lottery without taking crazy amounts of risk. The active managers who do beat a major index for a long, long time almost do not exist in retail space, and they beat the market by a tiny amount (~1%). In my era Legg Mason was the most famous, but even they fell too.
      - selestify 2y ago
        How does that explain Warren Buffet’s spectacular success?
- throwaway2037 2y ago
  But why stress about beating the market? Just be the market with an ETF that tracks the S&P 500 index. Literally, setup auto invest from your paycheck. Go to sleep (Rip van Winkel style). Wake up 40 years later and retire comfortably. Look at total returns over the last 40 years on the most popular indices in the world. S&P 500 crushes them all. I see a lot of "Internet advice" recommending various MSCI world indices. They are all much worse than the S&P 500.
  - theK 2y ago
    Sometimes I wonder whether ETFs that track top valuation will lead to some weird stickyness and overvaluation in say, S&P500.
    - rblatz 2y ago
      I have the same thoughts. Eventually there will be a lot of money to be made breaking the s&p 500.
      - throwaway2037 2y ago
        Can you explain the "breaking" trade? And why haven't we seen more written about it?
        cess11 2y ago
        Not sure what they mean specifically but you've probably seen a lot written about it, in terms of BRICS, the petrodollar, ARM in China, subsidies on electric cars, and so on. Personally I try to avoid investing in the US for political reasons, besides the wishful expectation that the empire could fall within my lifetime and hence be a not so good investment.
        rblatz 2y ago
        Think of when George Soros broke The Bank of England for an example of the type of trade. There is a lot of demand for S&P 500 index , but that demand isn’t exactly tied to the fundamentals of the index, and the price isn’t tied to value of the underlying companies, it’s tied to demand of people looking to save money for retirement or a place to store a nest egg. This is an opportunity for price discovery to get things wrong and eventually the market should correct that. https://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp https://www.investopedia.com/ask/answers/08/george-soros-ban...
- wenc 2y ago
  The common refrain is that "time in the market always beats timing the market". The implicit assumption in that refrain is that, despite periodic dips, the U.S. stock market always goes up over time. This has been true since the Great Depression (see graph of S&P 500 since 1929) https://www.officialdata.org/us/stocks/s-p-500/1929 https://www.officialdata.org/us/stocks/s-p-500/1929 The implicit assumption behind that is that the American economy always invents a way to grow. Buffet famously said, "never bet against America". For as long as these assumptions match reality, it's likely that passive management will continue to succeed.
  - gizajob 2y ago
    It’s also just capitalism and fiat currency - in a world where the money supply has to inflate, the prices in the market have to go along with it.
  - 317070 2y ago
    That is too strong of a condition. The economy doesn't need to grow for passive investing to work. Even when the economy is flat, passive management works. As long as companies are economically productive, capitalism will hand over a chunk of the profits to the owners of the capital. Of course, growth increases the size of that chunk year over year, but capitalism doesn't stop when growth stops. Active investing is when you are looking to exceed this passive margin by timing your trades well. Active investing requires changes in productivity (such as growth).
    - kjksf 2y ago
      Returns from stock investing come from increasing stock prices. Stock prices increase when earnings of the company grow. In other words: when the economy grows. You can argue that Amazon and Apple and Google and Facebook etc. will grow earnings even if the overall economy is flat or shrinks but I don't see how that would apply to passive investing i.e. investing in S&P 500 i.e. investing in 500 largest US companies. S&P 500 is U.S. economy and they all are sensitive to overall economic situation. If people have less money, they buy less stuff. Amazon makes less money, their stock goes down. Apple sells less iPhones, their stock goes down. All other companies make less money, they spend less on advertising, Google and Facebook make less money. I don't see a scenario where overall U.S. (or world) economy declines and S&P 500 doesn't decline. In fact, declining economy is an argument for active investing. Even when overall economy declines, among 6000 companies listed on stock market there will be some that will be growing and if you invest in them, you'll make money.
- acchow 2y ago
  The general wisdom is that it’s basically impossible for most people to tell the good fund managers from the bad/mediocre ones. Except Warren buffet. A lot of people went with Berkshire Hathaway and did very well.
  - throw0101d 2y ago
    > Except Warren buffet. A lot of people went with Berkshire Hathaway and did very well. Buffett has been underperforming the S&P 500 for about twenty years now: * https://www.linkedin.com/pulse/warren-buffett-has-underperformed-sp-500-last-20-years-jain-cfa https://www.linkedin.com/pulse/warren-buffett-has-underperfo... * https://news.ycombinator.com/item?id=37827101 https://news.ycombinator.com/item?id=37827101
- danielmarkbruce 2y ago
  It's sort of self evident - if you are freakishly capable of spotting mispriced securities in a market full of smart hard working people who are paying attention, you can do better than average. If you aren't freakishly capable... you cant. It's sort of like "does playing pro golf make sense?".
  - bumby 2y ago
    There’s an interesting corollary to this. There’s some evidence that low-volatility strategies can outperform, at least when not using leverage. My working theory is that it is due to an overconfidence bias. People who actively trade assume they can pick better stocks, or else they wouldn’t trade. This manifested in more volume in high-beta stocks, leaving low beta stocks undervalued.
  - gizajob 2y ago
    They’re only mispriced until they’re not though, or they’re priced well until they’re suddenly mispriced. That is the say the market is an evolving system varying on the time axis - that things are mispriced assumes that time isn’t rolling along and new events don’t happen and new information doesn’t arrive. Everything’s price today is just a guesstimate until tomorrow’s guesstimate following some new data. Granted it’s not like the past where whole companies were sitting there underappreciated because of a lack of analytics, but at the same time coming out of covid companies like Rolls Royce (makes aircraft engines) had their prices crash completely, then were demonstrably “mispriced” for ages and are still recovering now air travel is back to 2019 levels. But the price wasn’t mispriced when the planes weren’t flying, just cheap to those who believed covid would get sorted eventually and the debt RR took on to survive would get repaid.
    - danielmarkbruce 2y ago
      The fact they are mispriced then not mispriced at a later time is almost the entirety of the reason one has the potential to make better than average returns.
- llelouch 2y ago
  Active does better much better. If you know how the price moves you can easily beat the market.
  - abbadadda 2y ago
    Source?
- taraparo 2y ago
  It is the opposite. Market timing does not work reliably. Active management produces worse results on the long run. no individual trader or active manager can consistently beat the market. however active fonds may have periods (even several years) where they out perform. for private investors buy-and-hold of highly distributed ETFs is the best way to do it. The easiest way to get started is a one ETF portfolio like e. g. Vanguard FTSE All World or SPDR MSCI ACWI IMI. They perform internal rebalancing automatically and you virtually have nothing to do. buy them and don't look at them for the next 20 years.
  - TrainedMonkey 2y ago
    Noting that it is possible to beat market, with strategies / algorithms that are generally non-public. For example medallion fund, see https://posts.voronoiapp.com/markets/Jim-Simons-Medallion-Fund-vs-SP-500-Returns-1558 https://posts.voronoiapp.com/markets/Jim-Simons-Medallion-Fu... . Note that these crazy performance stats are after the steep fixed + performance fees.
    - amanaplanacanal 2y ago
      Strangely, the other funds operated by the same company and actually open to outside investors, have not performed as well. It is unexplained exactly why.
      - benrapscallion 2y ago
        Acquired.fm has a great episode on RenTec medallion fund vs their institutional funds. ‘David: The way that some folks we talked to described the difference between the institutional funds and Medallion to us is that Medallion’s average hold time for their trades and positions is (call it) a day, maybe a day-and-a-half. Whereas the average hold time for the institutional funds positions is a couple of months.’
      - mikeyouse 2y ago
        From some of their legal settlements it seems a not insignificant part of their advantage is dreaming up obscure illegal tax dodges on short term capital gains that are later revealed as such to keep more funds invested. https://www.moomoo.com/news/post/5891516/the-biggest-tax-evasion-scandal-in-history-renaissance-fund-may?level=1&data_ticket=1720964443732464 https://www.moomoo.com/news/post/5891516/the-biggest-tax-eva...
- pizzalife 2y ago
  Yes, read "The little book of common sense investing" by Bogle.
- graemep 2y ago
  On average yes. An index tracker will get the average market return ignoring fees, so its returns will be those of an average active fund. However, the active find will charge higher fees.
- aantix 2y ago
  Take a look at the automated systems that have resided on Collective2 for more than 2 years. https://collective2.com/grid https://collective2.com/grid There are only a couple that has a large history of trades, fairly even equity curves, older than two years, and small(ish) drawdowns (< 30%). In other words, it's difficult but possible.
hindsightbias 2y ago
Fund was up to $55B in 2022, but they made him take a roomie https://thenevadaindependent.com/article/lawmakers-approve-doubling-size-of-state-pension-plans-investment-team-to-two https://thenevadaindependent.com/article/lawmakers-approve-d...
- nxobject 2y ago
  Oh, that's funny... apparently to reduce the risk of there just being one person.
  - Cthulhu_ 2y ago
    Which is fair, see https://en.wikipedia.org/wiki/Bus_factor https://en.wikipedia.org/wiki/Bus_factor
djkivi 2y ago
Fidelity: Successful investors forget they have an account: https://www.bogleheads.org/forum/viewtopic.php?t=146347 https://www.bogleheads.org/forum/viewtopic.php?t=146347
- BurningFrog 2y ago
  That's pretty much how I did it. I didn't actually forget, of course, but I didn't get around to looking at the numbers every year. And when I did, I hardly ever changed anything. Of course, buying Apple in 1997 was also an important factor.
  - heresie-dabord 2y ago
    > Of course, buying Apple in 1997 was also an important factor. Had the fare, boarded the right train at the right time.
- geodel 2y ago
  Funny. Just today I receive main from Fidelity to review my account. The only thing I wish to but can't afford to change is retirement age to an earlier date.
- pants2 2y ago
  In crypto, successful investors get their funds stolen and then later recovered (MtGox, Gemini Earn)
  - cm2187 2y ago
    Or go to jail and only get to sell on their release
  - Auracle 2y ago
    Mine were just stolen by the government and not given back. Btc-e. I’m not bitter or anything.
  - kalium-xyz 2y ago
    Heh i had this with bittrex
AlbertCory 2y ago
> “Doing nothing is harder than it looks” He means that when people are screaming at you to do something because the market's tanking, you earn your salary by yawning and saying, "No, I think we're good."
- dclowd9901 2y ago
  Reminds me of that scene in The Long Short where Michael Burry is hemorrhaging money on the bet against CDSes and basically everyone has completely turned on him.
  - jbs789 2y ago
    *The Big Short, for anyone curious.
    - dclowd9901 2y ago
      Thanks for the correction — I have no idea why I wrote it like that, it’s one of my favorite movies.
    - eppsilon 2y ago
      "The Long Short" is the story of the invention of capri pants.
sameerds 2y ago
Completely off-topic. The article is paywalled, and for once I decided to go down the subscription rabbit hole. I am viewing this in Firefox on Windows. But every "subscribe" button on the WSJ page points to an Apple store page for the "app". WTF?!
- rty32 2y ago
  Unfortunately Firefox is often treated as a forgotten child. I say this as a mostly Firefox user on every platform. When the Firefox experience sucks too much, I switch to Chrome or Samsung Internet. (Well, Firefox itself has a number of open bugs that haven't been fixed for a long time)
thevillagechief 2y ago
It was Richard Thaler's Misbehaving: The Making of Behavioral Economics book that finally broke through my thick, anxiety ridden skull and convinced me to stop reading economic news everyday and just forget the the retirement accounts existed. If I'd read that book earlier, I'd be up 3X on my positions.
- ChrisMarshallNY 2y ago
  I haven't touched my 401(K) in over 30 years. It's done 9-20% per year. It's not super aggressive, but will take a hit, on really bad markets (the only year it actually lost money, was 2020 -and it has completely made up for that. It even made some money in 2008). I ignore the Fidelity calls. Every time a new broker rotates in, they try to get me to move my money around.
  - benrapscallion 2y ago
    Is it invested in an index fund?
    - ChrisMarshallNY 2y ago
      Yes. I contributed 50% to a bond fund, as well, but that is like, 10% of the total, nowadays.
      - deleted 2y ago
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      - lkdfjlkdfjlg 2y ago
        > I contributed 50% to a bond fund, as well, but that is like, 10% of the total, nowadays. That's one of the ridiculous aspects of fixed-percentage allocations: by constructions those allocations tell you that you should get rid of the things that are making you the most money, and put it into the things which are underperforming instead. (I get that you didn't do that, I'm just got reminded of it.)
rr808 2y ago
In general avoiding fees is definitely a good thing. Its one of those things that hindsight finds the best strategy and they were kinda lucky about the crazy bull market in the USA in this time. If you were a Pension fund in France, Australia, UK, Japan, China etc and put all your money in the local passive index tracker you'd maybe double your money in the last 20 years but way under perform S&P which is like 6x in that period.
- immibis 2y ago
  This is true. Of course, when you have many indices, with random returns, some of them will perform well, but past performance doesn't guarantee future results.
  - throwaway2037 2y ago
    Except the performance of S&P 500 isn't random. Over a long horizon, it is explained by economic policy and resulting economic conditions. There is a reason that most EU and LatAm nation indexes have done so much worse in the last 25 years: Worse economic policy. I still have high hopes for China equities.
    - jvanderbot 2y ago
      > Except the performance of S&P 500 isn't random Is this a controversial opinion? The most I could say without feeling like a total liar is: It is probably random around some signal, and that signal is indirectly affected by economic policy in ways that are itself not perfectly deterministic. Is it I who is out of touch?
emacdona 2y ago
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I get the return to the index).
- jppittma 2y ago
  I feel like some creative use of beta could make this a very lucrative deal for a patient, but unscrupulous fund manager.
- Findeton 2y ago
  Fundsmith for example has beaten the market for a long time (not this year though). I can also mention another Spanish fund that I know: Tercio Capital. https://markets.ft.com/data/funds/tearsheet/charts?s=GB00B4Q5X527:GBP https://markets.ft.com/data/funds/tearsheet/charts?s=GB00B4Q... https://www.finect.com/fondos-inversion/ES0174115057-Cinvest_tercio_capital_b_fi https://www.finect.com/fondos-inversion/ES0174115057-Cinvest...
  - cjblomqvist 2y ago
    There are some research (instead of cherry picking/anecdotes). I don't have any links right now but basically half of the funds lose compared to the index (by law of nature - averages and all that). Furthermore, taking fees into account, just a few percentages make anything more (over time) - which is probably within scope of randomness.
    - Findeton 2y ago
      In general hard working prudent value investors are able to beat the index. It's just that those are very few. I mean Buffet has done it for half a century, that's not a coincidence.
Beijinger 2y ago
All this is true, and there are many good comments in the thread here. But this "hey dude, stock picking is for idiots and all non idiots but index funds" should be treated with caution. Index funds are an extremely clever idea but were never meant to be used on such a scale. To give you some ideas: https://www.forbes.com/sites/chriscarosa/2024/04/02/index-funds-surge-in-popularity-but-pose-risks-for-the-market/ https://www.forbes.com/sites/chriscarosa/2024/04/02/index-fu...
- tossandthrow 2y ago
  There are a lot of unknown for the markets in the future. Also the 0 or negative interest rate environments we will probably enter (again). IMHO we need to rethink or tweak the financial system sooner rather than later.
- nerdponx 2y ago
  On the contrary, that article makes it seem perfectly fine to invest in index funds.
- jacobsimon 2y ago
  One of my big brain investing ideas is to pick the stocks at the top of the index instead of buying the whole index. If index funds continue to rise in popularity, the stocks that are at the top will benefit most from passive investment volume. Plus, index funds follow a kind of Pareto principle where the top stocks contribute disproportionately to the total return anyway. As I’ve gotten older though, one of my realizations is that the tax-free rebalancing of index ETFs is their most valuable property, rather than their actual choice of equities.
  - jackcosgrove 2y ago
    I had an active manager reach out to me with exactly this strategy. I didn't look at the fees or rebalancing schedule super closely, because I didn't want to invest with the guy, but IMO his market-beating claims were due to increased concentration during a bull market (risk) which could go sideways fast if he didn't rebalance at opportune times.
Spooky23 2y ago
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- deleted 2y ago
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TheRoque 2y ago
So in the end, what's the key takeaway regarding global economics ? If (some of) the most well-paid people cannot guess the market, then doesn't it mean that they are useless ? Then why are we paying their services ?
- weard_beard 2y ago
  Same reason we pay the TSA.
yieldcrv 2y ago
In private equity you are employing the managers to create opportunities And during bear markets I’ve seen some managers create the most onerous terms far beyond what I could think of, and that's paid excessive dividends for me I think that’s the real hedge that’s overlooked here The performance of private funds is also not a complete picture, individual limited partners have different profit and loss than whatever metric the whole fund is subject to, someone that joined as an LP after any trade doesn’t have their capital allocated to that prior or existing positions, only the subsequent ones. so its not really possible to judge performance of fund managers in comparison to indices the way that it is popularly compared. Unless LPs are showing their own performance in a scatterplot, nobody knows anything. and LPs are typically subject to NDAs. I just think it’s too reductive to say nobody can beat the index, then move the goal post to longer and longer time frames. You only need to be successful once, in any time frame but specifically shorter ones
Cthulhu_ 2y ago
Alright, how much of this is hard science and how much is just survivorship bias?
deepnotderp 2y ago
Whenever the topic of index funds come up, people should remember: 1. The benchmark for hedge funds is not the sp500, it’s the bond market 2. Because the sp500 is inherently a bet, that America’s top few companies will perform well. This is not a purely risk free, hands off bet. If you bought the Japanese Index fund, the Nikkei, even today it hasn’t returned to its 1980 peak You might say “I’ll just get a global index”- in which case congrats, you’ve underperformed hedge funds! 3. There are more factors than just investment returns- ie volatility (Sharpe), drawdowns, etc So despite what HN seems to think, the hedge fund industry is not in fact, full of idiots.
- santoshalper 2y ago
  I don't think most of us think the hedge fund industry is full of idiots. Speaking only for myself, I think it's mostly full of grifters.
- kgwgk 2y ago
  > 1. The benchmark for hedge funds is not the sp500, it’s the bond market There is not _a_ benchmark for "hedge funds" as they are not really _a_ thing. In some cases S&P 500 may be an appropriate benchmark. Unless Bill Ackman is not a true hedge fund manager, I guess. "In 2023, Pershing Square’s 20th year, Pershing Square Holdings generated strong NAV performance of 26.7% versus 26.3% for our principal benchmark, the S&P 500 index."
- deleted 2y ago
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dkekenflxlf 2y ago
So, for SURE it is possible to beat "the market", but: - strategy is limited up to max 1mio per account (well, maybe 2 pr 3) - you need a tailored software, tools like MT/et al wont help you - with a leverage of 5-10, its possible to achieve gigantic returns - system needs to be capable of going short as well - your individual application should abstract-away all dauly charting&news noise: what counts is statistics and propability only, do not check CNN et al EDIT: - this approach cant be done by ANY institutional corp due to regulations, so they are not doing it
- jbs789 2y ago
  Can you elaborate on the regulations preventing corp implementation here please?
  - dkekenflxlf 2y ago
    Sure, thanks for this question! In case of public funds: Depending on the jurisdiction, funds are allowed to invest only in certain securities, like stocks or bonds. In most countries, they are not allowed to use all available products; esp all products which offer high leverage (and highlosschances) are not allowed for institutionals. A private prop trading company may do it, though they are not managing billions (as the pension fund in the article); and those prop traders in reverse can not that easily attract "other people money"
    - DavidJowel 2y ago
      [dead]
enahs-sf 2y ago
The macroeconomic read between the lines takeaway for me from this is, these pension funds are big time LPs in VC firms. If that well dries, it has substantial downstream effects for the startup ecosystem and raising capital.
- thoughtstheseus 2y ago
  Private equity has not, as an asset class, had excess returns since around 2006. Prior to that, private market companies were systematically undervalued relative to public. Post-2008, an accommodative equity market has supportive private equity as a volatility dampener for portfolios. Volatility is often used as a proxy for “risk”. There are still many private market firms generating excess returns. It’s a competitive market now and many players are getting eliminated.
akira2501 2y ago
The title was correct yesterday. Why is the title editorialized today? "What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing" This is the actual title of the article, the page, and the printed version. There was no reason to have edited this except for optics. If true, that's absurd, dang.
- nick7376182 2y ago
  Because on HN we like titles to have information and not be click-bait. The WSJ title is prime click-bait.
  - akira2501 2y ago
    So, clickbait is fine, as long as we just editorialize the title? That's an unusual standard.
    - Thorrez 2y ago
      Are you saying the new title is clickbait? How so?
    - pvg 2y ago
      Pretty much standard for HN, there are endless mod comments explaining it. Although they make more sense if you distinguish between 'changing' and 'editorializing'.
  - Dylan16807 2y ago
    It's an accurate summary with no glaring missing pieces. Your definition of "prime click-bait" is way off.
- Thorrez 2y ago
  He doesn't literally do nothing, does he? So I don't think it was exactly correct. And it was vague because it didn't explain what the article was actually about.
- ilamont 2y ago
sneak 2y ago
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Sparkyte 2y ago
Always better to invest and just let the market over time take care of it, the make quick cash never works.
- deleted 2y ago
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grepLeigh 2y ago
Disclaimer: I'm not a financial advisor. Whenever I'm tempted to buy individual high performing tickers (e.g. NVDA, TSLA, AMD), I restrict the purchase to no more than 2% of my portfolio and I only allow myself to bet on 2-3 "race horses" at a time. I think this fulfills the desire to gamble a little and see 100-200% YoY returns. NVDA cracked 300% cost basis when I finally sold, which is wild. The reason I can do this is because the rest of my portfolio is a boring mix of low-fee ETFs that track major US and international indices. As a retail investor, it's good to remind myself that if I actually had the skills to invest professionally, someone would probably be paying me to do it for them.
- khuey 2y ago
  Every share of an S&P 500 index fund you hold is already 6-7% NVDA, so a lot of investors already have substantial bets on some of these "race horses".
  - MobileVet 2y ago
    True but this misses the core point about agency. Some of us would like too think we know something more and ‘gamble’ on that knowledge. Having 5% to personally assign can scratch that itch without resulting in an overexposed or vulnerable position
    - ghaff 2y ago
      Yeah, if you have an itch to individually invest, set a budget and play without doing anything too stupid. I've actually done pretty well with that approach especially when I've avoided capital gain with a charitable trust with a few relative home runs I have hit.
  - ghaff 2y ago
    Whenever I kick myself a little about not owning any/enough of the "race horses" I content myself that there's probably a lot scattered around my portfolio. So you missed out a bit but your index funds actually benefited.
- 2y ago
twoodfin 2y ago
Or you can just make the right friends in high places and get bailed out from poor fund management: https://www.nbcnews.com/news/amp/ncna1261125 https://www.nbcnews.com/news/amp/ncna1261125
deleted 2y ago
[deleted]
noveltyaccount 2y ago
Are the actual holdings of the pension public? Seems like something is like to follow!
bell-cot 2y ago
Interesting analogy - - A casino's winning business model (at least behind the facade of marketing glitz and amenities) is to set odds that favor the house, make sure its rules are followed, then essentially do nothing as it gets rich on the long-term consequences of those odds. - It's the inevitible-net-loosers...er, customers, who are the think-they're-smarter and think-they're-luckier busybodies. And always trying new strategies, to build some sort of success out of their occasional sort-term wins. I suspect that local awareness of this dynamic is why Nevada's business leaders and government tolerate such a boring, passive pension investment strategy.
jl2718 2y ago
The original idea behind passive investing was to use the pooled intelligence of many traders guessing the value of cr I think we’re beyond that. Most traders are just trying to get a timing edge over the indices. This introduces the modern concept of passive investing as a positive feedback loop force-fed by monetary supply. The market seems to hate dividends and buybacks, preferring expansion or acquisition, but then what gives it value? It has to be its memetic ability to attract investment, and this can easily eclipse anything on the earnings statement. I’m not sure this can go on forever.
- TacticalCoder 2y ago
  Yeah. Some are saying passive investment is the biggest bubble of all times. The P/E of so many companies, not just tech ones, makes zero sense. Mandatory pension funds are a ponzi. And btw the EU is hard at work working on one atm: they re currently thinking hard as to how to capture the wealth of EU citizens and the latest iteration would be a mandatory fund to invest in... State sponsored companies. They ll oc course not be presenting it that way but that s what it is. Then they ll kick the can down the road for years or decades by forcing mandatory contribution from new taxpayers. Ponzi / pyramidal / state-mandated shenanigans never end well. FWIW that mandatory fund in the EU shall be used to finance the army, digital transition (supposedly to counter the US but actually to siphon taxpayers money into friends of politicians creating companies that ll never compete with SV) and... Ecology. I'm not thrilled that in a few months I ll be forced to invest in that.
  - Rinzler89 2y ago
    Which EU countries do that?
  - exclusiv 2y ago
    I agree and Michael Burry has warned about it. There's no real price discovery on these index funds. Money comes in - buy all in the fund regardless of any fundamental. And many of those stocks aren't that liquid so in an exit and a dump, they will get destroyed.
- humansareok1 2y ago
opjjf 2y ago
The value of the fund is now up to $63B. Here is the latest overview: https://www.nvpers.org/sites/default/files/2024-05/PERS-Investments-Mar2024.pdf https://www.nvpers.org/sites/default/files/2024-05/PERS-Inve...
sjducb 2y ago
This is incredible from a stakeholder management perspective. Normally non finance people in the organisation get hoodwinked by investment sales people. Then they pressure the finance guys into perusing a complex high fee strategy.
- ProllyInfamous 2y ago
  >Normally non finance people in the organisation get hoodwinked by investment sales people. Some benefits salesman came to my blue collar office and tried to hoodwink [great wordchoice] our boss into buying employee insurance policies (health, whole life)... but would not allow employees to read the contractual terms until after bossman signed-up. It was left to employee vote, and I was grateful when my peers listened to my concerns [slick sales guy was out-voted, left frustrated with me about his lack of commission]. Why not just let us see the terms & conditions.?. are you really offering that shitty of a product?! † †: insurance company's mascot was some waterfowl with a loud two-syllable mouth...
- peterldowns 2y ago
  See: calpers, where everyone in the organization is both non-finance and getting hoodwinked, often by their coworkers, often by their board! Notable for many things, including selling out of their hedge fund positions shortly before the pandemic, as well as becoming an extremely large owner of timber companies across the US for absolutely no good reason. https://www.nakedcapitalism.com/category/calpers https://www.nakedcapitalism.com/category/calpers edit: here's a more specific article that's very related to the OP https://www.nakedcapitalism.com/2023/11/should-calpers-fire-everyone-and-just-buy-some-etfs.html https://www.nakedcapitalism.com/2023/11/should-calpers-fire-...
SharonDavis 2y ago
[dead]
jonahbenton 2y ago
He is still in charge. I was expecting him to have been forced out. Very hard to fight shiny. https://www.pionline.com/pension-funds/nevada-public-employees-pension-fund-returns-91-fiscal-year https://www.pionline.com/pension-funds/nevada-public-employe...
Gullitthompson 2y ago
[dead]
chrisaiv 2y ago
Great tool for bypassing paywalled articles. https://routinehub.co/shortcut/19150/ https://routinehub.co/shortcut/19150/

348 points by cpncrunch 2y ago

cpncrunch 2y ago

https://archive.is/hmkdj#selection-4317.0-4320.0 https://archive.is/hmkdj#selection-4317.0-4320.0

jonahbenton 2y ago

(2016)

cpncrunch 2y ago
Updated title.

decasia 2y ago

I'm curious if this is demonstrably an optimal strategy for individual investment too... I haven't had much success getting any clear data about whether active management demonstrably produces better results.

asdasdsddd 2y ago
The catch 22 for active management is that if they are actually good then they would just use their strategies to manage their own money.
- deleted 2y ago
  [deleted]
- throwaway3306a 2y ago
  The catch 22 for this assumption is that they want to be richer than their own money would allow
- samus 2y ago
  They probably do. They just make it their day job by selling their services to others as well.
- OJFord 2y ago
  They do. But if you offer the service to other people, you get a lot more money to play with (meaning you can do more or different things than you could with less) and get to charge performance fees etc. in addition to your own capital gains. Really, you could say it about absolutely any job, it's just a bit more direct with managing money. 'If you were any good at writing software you would just sell your own SaaS', etc.
  - asdasdsddd 2y ago
    That's the common claim, but if you actually look at the successful funds that beat market year after year, their public fund is always the low yield, experimental strategies while the internal funds demolish the market. The reality is that most lucrative strategies have a yield cap and people who find them quickly surpass the cap so they just keep the strategies to themselves.
    - OJFord 2y ago
      That doesn't really invalidate my point though: the extra capital gives the option, and the fees.
windwindow 2y ago
There's strong data supporting passive investment. I've found the stats in Andrew Hallam's book, "Balance: How to Invest and Spend for Happiness, Health, and Wealth" (https://www.amazon.ca/Balance-Invest-Happiness-Health-Wealth/dp/1774580756 https://www.amazon.ca/Balance-Invest-Happiness-Health-Wealth...) quite eye-opening.
cornstalks 2y ago
There’s the famous bet Warren Buffett won against an actively managed fund: https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe...
elil17 2y ago
Short answer re: investing in active managers (based on my many years listening to rationalreminder.ca) is that, if you eliminate some of the worst active managers, the average returns net of fees are the same. However, eliminating the worst managers is challenging (but not impossible) to do ex-ante. Even then, you’re only getting the same average returns as indexing, not better. Plus, you will experience a higher dispersion with active managers (greater chance of extreme negative or positive outcome), which is not desirable. Because of these two issues, It’s definitely better to pick an index fund. Re: picking stocks yourself, the answer is also pretty cut and dry. There’s strong evidence no individual trader can expect to beat the market. Active managers can only beat the market gross of fees because they employ large teams of people to do a lot of work to gain a small edge (stuff like predicting retail sales numbers from satellite images of store parking lots). This is my attempt at summarizing a whole field of research in a few sentences. There are many more nuisances. I highly recommend listening to the Rational Reminder podcast if you’re curious about this sort of thing. They interview a lot of academics.
- chii 2y ago
  > a higher dispersion with active managers (greater chance of extreme negative or positive outcome), which is not desirable. some people prefer the chance to win the lottery rather than get a steady income stream.
  - throwaway2037 2y ago
    Except this is a myth. You will not win the lottery without taking crazy amounts of risk. The active managers who do beat a major index for a long, long time almost do not exist in retail space, and they beat the market by a tiny amount (~1%). In my era Legg Mason was the most famous, but even they fell too.
    - selestify 2y ago
      How does that explain Warren Buffet’s spectacular success?
throwaway2037 2y ago
But why stress about beating the market? Just be the market with an ETF that tracks the S&P 500 index. Literally, setup auto invest from your paycheck. Go to sleep (Rip van Winkel style). Wake up 40 years later and retire comfortably. Look at total returns over the last 40 years on the most popular indices in the world. S&P 500 crushes them all. I see a lot of "Internet advice" recommending various MSCI world indices. They are all much worse than the S&P 500.
- theK 2y ago
  Sometimes I wonder whether ETFs that track top valuation will lead to some weird stickyness and overvaluation in say, S&P500.
  - rblatz 2y ago
    I have the same thoughts. Eventually there will be a lot of money to be made breaking the s&p 500.
    - throwaway2037 2y ago
      Can you explain the "breaking" trade? And why haven't we seen more written about it?
      - cess11 2y ago
        Not sure what they mean specifically but you've probably seen a lot written about it, in terms of BRICS, the petrodollar, ARM in China, subsidies on electric cars, and so on. Personally I try to avoid investing in the US for political reasons, besides the wishful expectation that the empire could fall within my lifetime and hence be a not so good investment.
      - rblatz 2y ago
        Think of when George Soros broke The Bank of England for an example of the type of trade. There is a lot of demand for S&P 500 index , but that demand isn’t exactly tied to the fundamentals of the index, and the price isn’t tied to value of the underlying companies, it’s tied to demand of people looking to save money for retirement or a place to store a nest egg. This is an opportunity for price discovery to get things wrong and eventually the market should correct that. https://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp https://www.investopedia.com/ask/answers/08/george-soros-ban...
wenc 2y ago
The common refrain is that "time in the market always beats timing the market". The implicit assumption in that refrain is that, despite periodic dips, the U.S. stock market always goes up over time. This has been true since the Great Depression (see graph of S&P 500 since 1929) https://www.officialdata.org/us/stocks/s-p-500/1929 https://www.officialdata.org/us/stocks/s-p-500/1929 The implicit assumption behind that is that the American economy always invents a way to grow. Buffet famously said, "never bet against America". For as long as these assumptions match reality, it's likely that passive management will continue to succeed.
- gizajob 2y ago
  It’s also just capitalism and fiat currency - in a world where the money supply has to inflate, the prices in the market have to go along with it.
- 317070 2y ago
  That is too strong of a condition. The economy doesn't need to grow for passive investing to work. Even when the economy is flat, passive management works. As long as companies are economically productive, capitalism will hand over a chunk of the profits to the owners of the capital. Of course, growth increases the size of that chunk year over year, but capitalism doesn't stop when growth stops. Active investing is when you are looking to exceed this passive margin by timing your trades well. Active investing requires changes in productivity (such as growth).
  - kjksf 2y ago
    Returns from stock investing come from increasing stock prices. Stock prices increase when earnings of the company grow. In other words: when the economy grows. You can argue that Amazon and Apple and Google and Facebook etc. will grow earnings even if the overall economy is flat or shrinks but I don't see how that would apply to passive investing i.e. investing in S&P 500 i.e. investing in 500 largest US companies. S&P 500 is U.S. economy and they all are sensitive to overall economic situation. If people have less money, they buy less stuff. Amazon makes less money, their stock goes down. Apple sells less iPhones, their stock goes down. All other companies make less money, they spend less on advertising, Google and Facebook make less money. I don't see a scenario where overall U.S. (or world) economy declines and S&P 500 doesn't decline. In fact, declining economy is an argument for active investing. Even when overall economy declines, among 6000 companies listed on stock market there will be some that will be growing and if you invest in them, you'll make money.
acchow 2y ago
The general wisdom is that it’s basically impossible for most people to tell the good fund managers from the bad/mediocre ones. Except Warren buffet. A lot of people went with Berkshire Hathaway and did very well.
- throw0101d 2y ago
  > Except Warren buffet. A lot of people went with Berkshire Hathaway and did very well. Buffett has been underperforming the S&P 500 for about twenty years now: * https://www.linkedin.com/pulse/warren-buffett-has-underperformed-sp-500-last-20-years-jain-cfa https://www.linkedin.com/pulse/warren-buffett-has-underperfo... * https://news.ycombinator.com/item?id=37827101 https://news.ycombinator.com/item?id=37827101
danielmarkbruce 2y ago
It's sort of self evident - if you are freakishly capable of spotting mispriced securities in a market full of smart hard working people who are paying attention, you can do better than average. If you aren't freakishly capable... you cant. It's sort of like "does playing pro golf make sense?".
- bumby 2y ago
  There’s an interesting corollary to this. There’s some evidence that low-volatility strategies can outperform, at least when not using leverage. My working theory is that it is due to an overconfidence bias. People who actively trade assume they can pick better stocks, or else they wouldn’t trade. This manifested in more volume in high-beta stocks, leaving low beta stocks undervalued.
- gizajob 2y ago
  They’re only mispriced until they’re not though, or they’re priced well until they’re suddenly mispriced. That is the say the market is an evolving system varying on the time axis - that things are mispriced assumes that time isn’t rolling along and new events don’t happen and new information doesn’t arrive. Everything’s price today is just a guesstimate until tomorrow’s guesstimate following some new data. Granted it’s not like the past where whole companies were sitting there underappreciated because of a lack of analytics, but at the same time coming out of covid companies like Rolls Royce (makes aircraft engines) had their prices crash completely, then were demonstrably “mispriced” for ages and are still recovering now air travel is back to 2019 levels. But the price wasn’t mispriced when the planes weren’t flying, just cheap to those who believed covid would get sorted eventually and the debt RR took on to survive would get repaid.
  - danielmarkbruce 2y ago
    The fact they are mispriced then not mispriced at a later time is almost the entirety of the reason one has the potential to make better than average returns.
llelouch 2y ago
Active does better much better. If you know how the price moves you can easily beat the market.
- abbadadda 2y ago
  Source?
taraparo 2y ago
It is the opposite. Market timing does not work reliably. Active management produces worse results on the long run. no individual trader or active manager can consistently beat the market. however active fonds may have periods (even several years) where they out perform. for private investors buy-and-hold of highly distributed ETFs is the best way to do it. The easiest way to get started is a one ETF portfolio like e. g. Vanguard FTSE All World or SPDR MSCI ACWI IMI. They perform internal rebalancing automatically and you virtually have nothing to do. buy them and don't look at them for the next 20 years.
- TrainedMonkey 2y ago
  Noting that it is possible to beat market, with strategies / algorithms that are generally non-public. For example medallion fund, see https://posts.voronoiapp.com/markets/Jim-Simons-Medallion-Fund-vs-SP-500-Returns-1558 https://posts.voronoiapp.com/markets/Jim-Simons-Medallion-Fu... . Note that these crazy performance stats are after the steep fixed + performance fees.
  - amanaplanacanal 2y ago
    Strangely, the other funds operated by the same company and actually open to outside investors, have not performed as well. It is unexplained exactly why.
    - benrapscallion 2y ago
      Acquired.fm has a great episode on RenTec medallion fund vs their institutional funds. ‘David: The way that some folks we talked to described the difference between the institutional funds and Medallion to us is that Medallion’s average hold time for their trades and positions is (call it) a day, maybe a day-and-a-half. Whereas the average hold time for the institutional funds positions is a couple of months.’
    - mikeyouse 2y ago
      From some of their legal settlements it seems a not insignificant part of their advantage is dreaming up obscure illegal tax dodges on short term capital gains that are later revealed as such to keep more funds invested. https://www.moomoo.com/news/post/5891516/the-biggest-tax-evasion-scandal-in-history-renaissance-fund-may?level=1&data_ticket=1720964443732464 https://www.moomoo.com/news/post/5891516/the-biggest-tax-eva...
pizzalife 2y ago
Yes, read "The little book of common sense investing" by Bogle.
graemep 2y ago
On average yes. An index tracker will get the average market return ignoring fees, so its returns will be those of an average active fund. However, the active find will charge higher fees.
aantix 2y ago
Take a look at the automated systems that have resided on Collective2 for more than 2 years. https://collective2.com/grid https://collective2.com/grid There are only a couple that has a large history of trades, fairly even equity curves, older than two years, and small(ish) drawdowns (< 30%). In other words, it's difficult but possible.

hindsightbias 2y ago

Fund was up to $55B in 2022, but they made him take a roomie https://thenevadaindependent.com/article/lawmakers-approve-doubling-size-of-state-pension-plans-investment-team-to-two https://thenevadaindependent.com/article/lawmakers-approve-d...

nxobject 2y ago
Oh, that's funny... apparently to reduce the risk of there just being one person.
- Cthulhu_ 2y ago
  Which is fair, see https://en.wikipedia.org/wiki/Bus_factor https://en.wikipedia.org/wiki/Bus_factor

djkivi 2y ago

Fidelity: Successful investors forget they have an account: https://www.bogleheads.org/forum/viewtopic.php?t=146347 https://www.bogleheads.org/forum/viewtopic.php?t=146347

BurningFrog 2y ago
That's pretty much how I did it. I didn't actually forget, of course, but I didn't get around to looking at the numbers every year. And when I did, I hardly ever changed anything. Of course, buying Apple in 1997 was also an important factor.
- heresie-dabord 2y ago
  > Of course, buying Apple in 1997 was also an important factor. Had the fare, boarded the right train at the right time.
geodel 2y ago
Funny. Just today I receive main from Fidelity to review my account. The only thing I wish to but can't afford to change is retirement age to an earlier date.
pants2 2y ago
In crypto, successful investors get their funds stolen and then later recovered (MtGox, Gemini Earn)
- cm2187 2y ago
  Or go to jail and only get to sell on their release
- Auracle 2y ago
  Mine were just stolen by the government and not given back. Btc-e. I’m not bitter or anything.
- kalium-xyz 2y ago
  Heh i had this with bittrex

AlbertCory 2y ago

> “Doing nothing is harder than it looks” He means that when people are screaming at you to do something because the market's tanking, you earn your salary by yawning and saying, "No, I think we're good."

dclowd9901 2y ago
Reminds me of that scene in The Long Short where Michael Burry is hemorrhaging money on the bet against CDSes and basically everyone has completely turned on him.
- jbs789 2y ago
  *The Big Short, for anyone curious.
  - dclowd9901 2y ago
    Thanks for the correction — I have no idea why I wrote it like that, it’s one of my favorite movies.
  - eppsilon 2y ago
    "The Long Short" is the story of the invention of capri pants.

sameerds 2y ago

Completely off-topic. The article is paywalled, and for once I decided to go down the subscription rabbit hole. I am viewing this in Firefox on Windows. But every "subscribe" button on the WSJ page points to an Apple store page for the "app". WTF?!

rty32 2y ago
Unfortunately Firefox is often treated as a forgotten child. I say this as a mostly Firefox user on every platform. When the Firefox experience sucks too much, I switch to Chrome or Samsung Internet. (Well, Firefox itself has a number of open bugs that haven't been fixed for a long time)

thevillagechief 2y ago

It was Richard Thaler's Misbehaving: The Making of Behavioral Economics book that finally broke through my thick, anxiety ridden skull and convinced me to stop reading economic news everyday and just forget the the retirement accounts existed. If I'd read that book earlier, I'd be up 3X on my positions.

ChrisMarshallNY 2y ago
I haven't touched my 401(K) in over 30 years. It's done 9-20% per year. It's not super aggressive, but will take a hit, on really bad markets (the only year it actually lost money, was 2020 -and it has completely made up for that. It even made some money in 2008). I ignore the Fidelity calls. Every time a new broker rotates in, they try to get me to move my money around.
- benrapscallion 2y ago
  Is it invested in an index fund?
  - ChrisMarshallNY 2y ago
    Yes. I contributed 50% to a bond fund, as well, but that is like, 10% of the total, nowadays.
    - deleted 2y ago
      [deleted]
    - lkdfjlkdfjlg 2y ago
      > I contributed 50% to a bond fund, as well, but that is like, 10% of the total, nowadays. That's one of the ridiculous aspects of fixed-percentage allocations: by constructions those allocations tell you that you should get rid of the things that are making you the most money, and put it into the things which are underperforming instead. (I get that you didn't do that, I'm just got reminded of it.)

rr808 2y ago

In general avoiding fees is definitely a good thing. Its one of those things that hindsight finds the best strategy and they were kinda lucky about the crazy bull market in the USA in this time. If you were a Pension fund in France, Australia, UK, Japan, China etc and put all your money in the local passive index tracker you'd maybe double your money in the last 20 years but way under perform S&P which is like 6x in that period.

immibis 2y ago
This is true. Of course, when you have many indices, with random returns, some of them will perform well, but past performance doesn't guarantee future results.
- throwaway2037 2y ago
  Except the performance of S&P 500 isn't random. Over a long horizon, it is explained by economic policy and resulting economic conditions. There is a reason that most EU and LatAm nation indexes have done so much worse in the last 25 years: Worse economic policy. I still have high hopes for China equities.
  - jvanderbot 2y ago
    > Except the performance of S&P 500 isn't random Is this a controversial opinion? The most I could say without feeling like a total liar is: It is probably random around some signal, and that signal is indirectly affected by economic policy in ways that are itself not perfectly deterministic. Is it I who is out of touch?

emacdona 2y ago

To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I get the return to the index).

jppittma 2y ago
I feel like some creative use of beta could make this a very lucrative deal for a patient, but unscrupulous fund manager.
Findeton 2y ago
Fundsmith for example has beaten the market for a long time (not this year though). I can also mention another Spanish fund that I know: Tercio Capital. https://markets.ft.com/data/funds/tearsheet/charts?s=GB00B4Q5X527:GBP https://markets.ft.com/data/funds/tearsheet/charts?s=GB00B4Q... https://www.finect.com/fondos-inversion/ES0174115057-Cinvest_tercio_capital_b_fi https://www.finect.com/fondos-inversion/ES0174115057-Cinvest...
- cjblomqvist 2y ago
  There are some research (instead of cherry picking/anecdotes). I don't have any links right now but basically half of the funds lose compared to the index (by law of nature - averages and all that). Furthermore, taking fees into account, just a few percentages make anything more (over time) - which is probably within scope of randomness.
  - Findeton 2y ago
    In general hard working prudent value investors are able to beat the index. It's just that those are very few. I mean Buffet has done it for half a century, that's not a coincidence.

Beijinger 2y ago

All this is true, and there are many good comments in the thread here. But this "hey dude, stock picking is for idiots and all non idiots but index funds" should be treated with caution. Index funds are an extremely clever idea but were never meant to be used on such a scale. To give you some ideas: https://www.forbes.com/sites/chriscarosa/2024/04/02/index-funds-surge-in-popularity-but-pose-risks-for-the-market/ https://www.forbes.com/sites/chriscarosa/2024/04/02/index-fu...

tossandthrow 2y ago
There are a lot of unknown for the markets in the future. Also the 0 or negative interest rate environments we will probably enter (again). IMHO we need to rethink or tweak the financial system sooner rather than later.
nerdponx 2y ago
On the contrary, that article makes it seem perfectly fine to invest in index funds.
jacobsimon 2y ago
One of my big brain investing ideas is to pick the stocks at the top of the index instead of buying the whole index. If index funds continue to rise in popularity, the stocks that are at the top will benefit most from passive investment volume. Plus, index funds follow a kind of Pareto principle where the top stocks contribute disproportionately to the total return anyway. As I’ve gotten older though, one of my realizations is that the tax-free rebalancing of index ETFs is their most valuable property, rather than their actual choice of equities.
- jackcosgrove 2y ago
  I had an active manager reach out to me with exactly this strategy. I didn't look at the fees or rebalancing schedule super closely, because I didn't want to invest with the guy, but IMO his market-beating claims were due to increased concentration during a bull market (risk) which could go sideways fast if he didn't rebalance at opportune times.

Spooky23 2y ago

[flagged]

deleted 2y ago
[deleted]

TheRoque 2y ago

So in the end, what's the key takeaway regarding global economics ? If (some of) the most well-paid people cannot guess the market, then doesn't it mean that they are useless ? Then why are we paying their services ?

weard_beard 2y ago
Same reason we pay the TSA.

yieldcrv 2y ago

In private equity you are employing the managers to create opportunities And during bear markets I’ve seen some managers create the most onerous terms far beyond what I could think of, and that's paid excessive dividends for me I think that’s the real hedge that’s overlooked here The performance of private funds is also not a complete picture, individual limited partners have different profit and loss than whatever metric the whole fund is subject to, someone that joined as an LP after any trade doesn’t have their capital allocated to that prior or existing positions, only the subsequent ones. so its not really possible to judge performance of fund managers in comparison to indices the way that it is popularly compared. Unless LPs are showing their own performance in a scatterplot, nobody knows anything. and LPs are typically subject to NDAs. I just think it’s too reductive to say nobody can beat the index, then move the goal post to longer and longer time frames. You only need to be successful once, in any time frame but specifically shorter ones

Cthulhu_ 2y ago

Alright, how much of this is hard science and how much is just survivorship bias?

deepnotderp 2y ago

Whenever the topic of index funds come up, people should remember: 1. The benchmark for hedge funds is not the sp500, it’s the bond market 2. Because the sp500 is inherently a bet, that America’s top few companies will perform well. This is not a purely risk free, hands off bet. If you bought the Japanese Index fund, the Nikkei, even today it hasn’t returned to its 1980 peak You might say “I’ll just get a global index”- in which case congrats, you’ve underperformed hedge funds! 3. There are more factors than just investment returns- ie volatility (Sharpe), drawdowns, etc So despite what HN seems to think, the hedge fund industry is not in fact, full of idiots.

santoshalper 2y ago
I don't think most of us think the hedge fund industry is full of idiots. Speaking only for myself, I think it's mostly full of grifters.
kgwgk 2y ago
> 1. The benchmark for hedge funds is not the sp500, it’s the bond market There is not _a_ benchmark for "hedge funds" as they are not really _a_ thing. In some cases S&P 500 may be an appropriate benchmark. Unless Bill Ackman is not a true hedge fund manager, I guess. "In 2023, Pershing Square’s 20th year, Pershing Square Holdings generated strong NAV performance of 26.7% versus 26.3% for our principal benchmark, the S&P 500 index."
deleted 2y ago
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dkekenflxlf 2y ago

So, for SURE it is possible to beat "the market", but: - strategy is limited up to max 1mio per account (well, maybe 2 pr 3) - you need a tailored software, tools like MT/et al wont help you - with a leverage of 5-10, its possible to achieve gigantic returns - system needs to be capable of going short as well - your individual application should abstract-away all dauly charting&news noise: what counts is statistics and propability only, do not check CNN et al EDIT: - this approach cant be done by ANY institutional corp due to regulations, so they are not doing it

jbs789 2y ago
Can you elaborate on the regulations preventing corp implementation here please?
- dkekenflxlf 2y ago
  Sure, thanks for this question! In case of public funds: Depending on the jurisdiction, funds are allowed to invest only in certain securities, like stocks or bonds. In most countries, they are not allowed to use all available products; esp all products which offer high leverage (and highlosschances) are not allowed for institutionals. A private prop trading company may do it, though they are not managing billions (as the pension fund in the article); and those prop traders in reverse can not that easily attract "other people money"
  - DavidJowel 2y ago
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enahs-sf 2y ago

The macroeconomic read between the lines takeaway for me from this is, these pension funds are big time LPs in VC firms. If that well dries, it has substantial downstream effects for the startup ecosystem and raising capital.

thoughtstheseus 2y ago
Private equity has not, as an asset class, had excess returns since around 2006. Prior to that, private market companies were systematically undervalued relative to public. Post-2008, an accommodative equity market has supportive private equity as a volatility dampener for portfolios. Volatility is often used as a proxy for “risk”. There are still many private market firms generating excess returns. It’s a competitive market now and many players are getting eliminated.

akira2501 2y ago

The title was correct yesterday. Why is the title editorialized today? "What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing" This is the actual title of the article, the page, and the printed version. There was no reason to have edited this except for optics. If true, that's absurd, dang.

nick7376182 2y ago
Because on HN we like titles to have information and not be click-bait. The WSJ title is prime click-bait.
- akira2501 2y ago
  So, clickbait is fine, as long as we just editorialize the title? That's an unusual standard.
  - Thorrez 2y ago
    Are you saying the new title is clickbait? How so?
  - pvg 2y ago
    Pretty much standard for HN, there are endless mod comments explaining it. Although they make more sense if you distinguish between 'changing' and 'editorializing'.
- Dylan16807 2y ago
  It's an accurate summary with no glaring missing pieces. Your definition of "prime click-bait" is way off.
Thorrez 2y ago
He doesn't literally do nothing, does he? So I don't think it was exactly correct. And it was vague because it didn't explain what the article was actually about.
ilamont 2y ago

sneak 2y ago

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Sparkyte 2y ago

Always better to invest and just let the market over time take care of it, the make quick cash never works.

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grepLeigh 2y ago

Disclaimer: I'm not a financial advisor. Whenever I'm tempted to buy individual high performing tickers (e.g. NVDA, TSLA, AMD), I restrict the purchase to no more than 2% of my portfolio and I only allow myself to bet on 2-3 "race horses" at a time. I think this fulfills the desire to gamble a little and see 100-200% YoY returns. NVDA cracked 300% cost basis when I finally sold, which is wild. The reason I can do this is because the rest of my portfolio is a boring mix of low-fee ETFs that track major US and international indices. As a retail investor, it's good to remind myself that if I actually had the skills to invest professionally, someone would probably be paying me to do it for them.

khuey 2y ago
Every share of an S&P 500 index fund you hold is already 6-7% NVDA, so a lot of investors already have substantial bets on some of these "race horses".
- MobileVet 2y ago
  True but this misses the core point about agency. Some of us would like too think we know something more and ‘gamble’ on that knowledge. Having 5% to personally assign can scratch that itch without resulting in an overexposed or vulnerable position
  - ghaff 2y ago
    Yeah, if you have an itch to individually invest, set a budget and play without doing anything too stupid. I've actually done pretty well with that approach especially when I've avoided capital gain with a charitable trust with a few relative home runs I have hit.
- ghaff 2y ago
  Whenever I kick myself a little about not owning any/enough of the "race horses" I content myself that there's probably a lot scattered around my portfolio. So you missed out a bit but your index funds actually benefited.
2y ago

twoodfin 2y ago

Or you can just make the right friends in high places and get bailed out from poor fund management: https://www.nbcnews.com/news/amp/ncna1261125 https://www.nbcnews.com/news/amp/ncna1261125

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noveltyaccount 2y ago

Are the actual holdings of the pension public? Seems like something is like to follow!

bell-cot 2y ago

Interesting analogy - - A casino's winning business model (at least behind the facade of marketing glitz and amenities) is to set odds that favor the house, make sure its rules are followed, then essentially do nothing as it gets rich on the long-term consequences of those odds. - It's the inevitible-net-loosers...er, customers, who are the think-they're-smarter and think-they're-luckier busybodies. And always trying new strategies, to build some sort of success out of their occasional sort-term wins. I suspect that local awareness of this dynamic is why Nevada's business leaders and government tolerate such a boring, passive pension investment strategy.

jl2718 2y ago

The original idea behind passive investing was to use the pooled intelligence of many traders guessing the value of cr I think we’re beyond that. Most traders are just trying to get a timing edge over the indices. This introduces the modern concept of passive investing as a positive feedback loop force-fed by monetary supply. The market seems to hate dividends and buybacks, preferring expansion or acquisition, but then what gives it value? It has to be its memetic ability to attract investment, and this can easily eclipse anything on the earnings statement. I’m not sure this can go on forever.

TacticalCoder 2y ago
Yeah. Some are saying passive investment is the biggest bubble of all times. The P/E of so many companies, not just tech ones, makes zero sense. Mandatory pension funds are a ponzi. And btw the EU is hard at work working on one atm: they re currently thinking hard as to how to capture the wealth of EU citizens and the latest iteration would be a mandatory fund to invest in... State sponsored companies. They ll oc course not be presenting it that way but that s what it is. Then they ll kick the can down the road for years or decades by forcing mandatory contribution from new taxpayers. Ponzi / pyramidal / state-mandated shenanigans never end well. FWIW that mandatory fund in the EU shall be used to finance the army, digital transition (supposedly to counter the US but actually to siphon taxpayers money into friends of politicians creating companies that ll never compete with SV) and... Ecology. I'm not thrilled that in a few months I ll be forced to invest in that.
- Rinzler89 2y ago
  Which EU countries do that?
- exclusiv 2y ago
  I agree and Michael Burry has warned about it. There's no real price discovery on these index funds. Money comes in - buy all in the fund regardless of any fundamental. And many of those stocks aren't that liquid so in an exit and a dump, they will get destroyed.
humansareok1 2y ago

opjjf 2y ago

The value of the fund is now up to $63B. Here is the latest overview: https://www.nvpers.org/sites/default/files/2024-05/PERS-Investments-Mar2024.pdf https://www.nvpers.org/sites/default/files/2024-05/PERS-Inve...

sjducb 2y ago

This is incredible from a stakeholder management perspective. Normally non finance people in the organisation get hoodwinked by investment sales people. Then they pressure the finance guys into perusing a complex high fee strategy.

ProllyInfamous 2y ago
>Normally non finance people in the organisation get hoodwinked by investment sales people. Some benefits salesman came to my blue collar office and tried to hoodwink [great wordchoice] our boss into buying employee insurance policies (health, whole life)... but would not allow employees to read the contractual terms until after bossman signed-up. It was left to employee vote, and I was grateful when my peers listened to my concerns [slick sales guy was out-voted, left frustrated with me about his lack of commission]. Why not just let us see the terms & conditions.?. are you really offering that shitty of a product?! † †: insurance company's mascot was some waterfowl with a loud two-syllable mouth...
peterldowns 2y ago
See: calpers, where everyone in the organization is both non-finance and getting hoodwinked, often by their coworkers, often by their board! Notable for many things, including selling out of their hedge fund positions shortly before the pandemic, as well as becoming an extremely large owner of timber companies across the US for absolutely no good reason. https://www.nakedcapitalism.com/category/calpers https://www.nakedcapitalism.com/category/calpers edit: here's a more specific article that's very related to the OP https://www.nakedcapitalism.com/2023/11/should-calpers-fire-everyone-and-just-buy-some-etfs.html https://www.nakedcapitalism.com/2023/11/should-calpers-fire-...

SharonDavis 2y ago

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jonahbenton 2y ago

He is still in charge. I was expecting him to have been forced out. Very hard to fight shiny. https://www.pionline.com/pension-funds/nevada-public-employees-pension-fund-returns-91-fiscal-year https://www.pionline.com/pension-funds/nevada-public-employe...

Gullitthompson 2y ago

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chrisaiv 2y ago

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