Buffett Easily Winning Bet that Hedge Funds underperform Indexes

All those Hedgies who take 2/20 fees. (2% flat fee, 20% of what you make) for their 'superior' skills have bombed again.
Pretty much what everyone knew about Mutual funds as well.
Hedge Fund Managers, who make monstrous profits in good year, and only 2% (of Billions) in a bad year.
Hedge Funders have also 'managed' to get a preferred Long Term Cap Gains/Carry Trade Income Tax Rate of 15%. (now at least + Obama raises)
In 2007 the AVERAGE of the top 25 Hedge Fund Managers made app $1 BILLION each... in One year.


Only a Market Crash Can Stop Warren Buffett From Winning This $1 Million Bet
It would take a massive stock-market crash for Buffett to lose the wager
By NICOLE FRIEDMAN - Feb. 23, 2017
https://www.wsj.com/articles/only-a...tt-from-winning-this-1-million-bet-1487851203

It was a $1 million bet: Could hedge funds outperform index funds over a decade?

Warren Buffett said No in 2007. Now it looks like the billionaire investor was right.

His chosen index fund, the Vanguard 500 Index Fund Admiral Shares, climbed 66% from the start of the bet through the end of 2015, compared with a gain of 22% for a basket of hedge funds selected by asset manager Protégé Partners, including fees.

The $1 million bet with Protégé Partners ends Dec. 31. At this point, it would take a massive stock-market drop for Mr. Buffett to lose.
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mbig said:

All those Hedgies who take 2/20 fees. (2% flat fee, 20% of what you make) for their 'superior' skills have bombed again.
Pretty much what everyone knew about Mutual funds as well.
Hedge Fund Managers, who make monstrous profits in good year, and only 2% (of Billions) in a bad year.
Hedge Funders have also 'managed' to get a preferred Long Term Cap Gains/Carry Trade Income Tax Rate of 15%. (now at least + Obama raises)
In 2007 the AVERAGE of the top 25 Hedge Fund Managers made app $1 BILLION each... in One year.


Only a Market Crash Can Stop Warren Buffett From Winning This $1 Million Bet
It would take a massive stock-market crash for Buffett to lose the wager
By NICOLE FRIEDMAN - Feb. 23, 2017
https://www.wsj.com/articles/only-a...tt-from-winning-this-1-million-bet-1487851203

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This is a great lesson to all us amateur investors out there. The greatest investor of our lifetime talks about watching out for frictional costs. Buying great companies at a fair price.

Mutual funds are great investments for people that don't know a lot about the stock market, but still want to own stocks.
they are diversified along a great many different companies.

they are also great for people that don't want to spend or have a lot of time to spend on monitoring trades.

mutual funds are not for quick in an out though. a good mutual fund will earn you 15% per year on average.
I had one mutual fund that earned me way more than that. I finally got out of it this year as it was tanking pretty hard.

I will buy back into it again later when it cools off.
right now I have most of my 401k tied up in a managed account.


I will redeploy once I see an opening.

as for individual stocks they are a lot more risk and you need a bigger investment to get started.
most trading platforms will only allow a minimum of about 1000 dollars I do believe maybe 500.

ludin said:

Mutual funds are great investments for people that don't know a lot about the stock market, but still want to own stocks.
they are diversified along a great many different companies.

they are also great for people that don't want to spend or have a lot of time to spend on monitoring trades.

mutual funds are not for quick in an out though. a good mutual fund will earn you 15% per year on average.
I had one mutual fund that earned me way more than that. I finally got out of it this year as it was tanking pretty hard.

I will buy back into it again later when it cools off.
right now I have most of my 401k tied up in a managed account.


I will redeploy once I see an opening.

as for individual stocks they are a lot more risk and you need a bigger investment to get started.
most trading platforms will only allow a minimum of about 1000 dollars I do believe maybe 500.

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At Scottrade anyone can buy just 1 share of a stock, I believe. Cost of trade is $7.00. But if you want to buy 20 shares, 25 shares, 1000 shares...whatever. Unless the stock itself has limitations.

Mutual funds have minimum investment amounts.

ETFs may be a good way to duplicate mutual funds, but have the ability to trade like a stock and get out fast. But they seem to be more volatile, for that reason.

washunut said:

This is a great lesson to all us amateur investors out there. The greatest investor of our lifetime talks about watching out for frictional costs. Buying great companies at a fair price.

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Beyond rop off Hedge funds..
Latest is that Index Funds/ETFs easily beat managed Mutual Funds, unless you've got a top tier management.

Indexes Beat Stock Pickers Even Over 15 Years
New data show that 82% of all U.S. funds trailed their respective benchmarks over 15 years
https://www.wsj.com/articles/indexes-beat-stock-pickers-even-over-15-years-1492039859
By Daisy Maxey and Chris Dieterich
April 13, 2017

Most actively managed U.S. stock funds were beaten by their market benchmarks over the past decade and a half, a record of underperformance that helps explain why stock pickers are losing billions of dollars in assets each month to low-cost passive investments that track indexes.

Over the 15 years ended in December 2016, 82% of all U.S. funds trailed their respective benchmarks, according to the latest S&P Indices Versus Active funds scorecard. This was the first year that the analysis included 15 years of data, helping smooth out periods of volatility that can affect the performance of active managers. The results coincide with the rise of passive investing and a growing view among investors and financial advisers that active managers can’t pick stocks well enough to justify the fees they charge over extended periods
[.....]
Investors have spoken with their wallets, turning to index-tracking funds in droves. Some $1.2 trillion has been withdrawn from actively managed U.S. stock funds since the start of 2007 through March, according to Morningstar Inc. Nearly the same amount, $1.1 trillion, has moved into passive U.S. stock funds over the same period....

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washunut said:

This is a great lesson to all us amateur investors out there. The greatest investor of our lifetime talks about watching out for frictional costs. Buying great companies at a fair price.

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the great lesson is buy a broad array of stocks and pray a Republican economy grows 4% a year.

I always figured that if I ever had money to invest in the stock market, I would purchase $X (maybe $500 or $1000 per purchase) worth of shares of just one randomly selected company at a time, purchasing a different stock every time I had that much money to add to my portfolio.

If I made this type of purchase monthly, then in just a few years I would have a very diversified portfolio, and should be pretty close to matching whatever index those stocks are a part of. That way I avoid the costs and fees associated with any type of a managed fund. Long term, few managed funds (whether it is a mutual fund or a hedge fund or a plan put together by a money manager charging fees), beat the market.

The market is way to erratic for anyone, regardless of how smart they are, to beat the market. I don't believe in ESP or fortune telling or crystal balls. Without some sort of magical foresight, then the opportunities to beat the market are few.

Buffet can beat the market for a couple of reasons. First is that he inadvertantly manipulates the market because people follow his lead, so if he buys something, others will follow, and if he sells, others will follow. By the time that most of us realize what he has done, it's really to late because the price has already escalated or fallen. The second way is that he often is able to acquire a controlling interest, even if it's by proxie, then he will replace the board with his own folks, who are able to lead the company to improved profitability by hooking them up with other Berkshire companies. So if he buys a box making company, he can tell his other companies to start buying their boxes from his box company, pretty much automatically making it more profitable with no additional marketing expenses. And he can tell the box company to price the boxes at a few percent less than the companies were already paying, so all his other companies also become more profitable. The box company can afford to cut the prices for Berkshire companies because of various cost avoidances and increased economy of scale. It's a win-win-win - not because Buffet is so smart, but because he controls so much wealth.

Other than the Buffet scenario, trading on insider information, or intentionally manipulating the market, or outright fraud, are the other ways that someone can consistently beat the market, but those ways can eventually lead to jail - just ask Martha Steward or Bernie Madeoff
.

James972 said:

the great lesson is buy a broad array of stocks and pray a Republican economy grows 4% a year.

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"During the most recent 15 years during which Republicans have held the presidency, the value of the Dow has increased by 42%. During the Democratic presidencies, it has increased by 609%- 14.5 times faster. The average growth in the value of the Dow under Democrats during this period has been 14.75% and under Republicans it has been 5.11%. (In case you are wondering, the reason the ratio is higher for the total is compounding.)"



Stock Market Performance by Party- Dow

But I'm certainly looking forward to this 4% GDP growth you and Trump are promising, that would be great!

imagep said:

"During the most recent 15 years during which Republicans have held the presidency, the value of the Dow has increased by 42%. During the Democratic presidencies, it has increased by 609%- 14.5 times faster. The average growth in the value of the Dow under Democrats during this period has been 14.75% and under Republicans it has been 5.11%. (In case you are wondering, the reason the ratio is higher for the total is compounding.)"

Stock Market Performance by Party- Dow

But I'm certainly looking forward to this 4% GDP growth you and Trump are promising, that would be great!

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you've learned 106 times now that a president does not control the economy. There are other branches of govt plus the press and electorate. Shall we go for 107??

James972 said:

you've learned 106 times now that a president does not control the economy. There are other branches of govt plus the press and electorate. Shall we go for 107??

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When a correlation exists, and is repeated over and over again, you have to at least consider the possibility that there is causation behind that correlation.

Don't be blinded by your bias-tinted glasses.

mbig said:

All those Hedgies who take 2/20 fees. (2% flat fee, 20% of what you make) for their 'superior' skills have bombed again.
Pretty much what everyone knew about Mutual funds as well....

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Yeah, this is not news.

I for one have known for years that the best way to make a killing by trading is to play with other people's money, and take a cut of it.

A handful of hedge funds produce ridiculous returns for clients, although sometimes that's a result of illegal activities like insider trading. But yes, most don't do well over time.

The best investment strategy (afaik) for everyone who isn't a multi-billionaire is dollar-average investing into index funds. Pretty easy to do, too.

imagep said:

When a correlation exists, and is repeated over and over again, you have to at least consider the possibility that there is causation behind that correlation.

Don't be blinded by your bias-tinted glasses.

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lets see FDR Obama inherited a Depression/ recession Clinton inherited a boom from Bush. Isn't thinking fun?