[HN Gopher] Warren Buffett's bet against hedge funds at the Long...
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Warren Buffett's bet against hedge funds at the Long Now Foundation
(2008-17)
Author : mooreds
Score : 55 points
Date : 2021-02-28 16:20 UTC (6 hours ago)
(HTM) web link (longbets.org)
(TXT) w3m dump (longbets.org)
| the_drunkard wrote:
| This bet is disengeneous as *most hedge funds operate under risk
| neutral long /short strategies that seek to generate returns
| irrespective of market conditions.
|
| Want to know what a good year for a PM at a major platform hedge
| fund (P72, BAM, Millenium, etc... ) looks like? Probably in the
| range of 8 -12% returns, which translates to 7-figure pay days.
|
| A more in depth explanation below from the article is linked
| below.
|
| > Having the flexibility to invest both long and short, hedge
| funds do not set out to beat the market. Rather, they seek to
| generate positive returns over time regardless of the market
| environment. They think very differently than do traditional
| "relative-return" investors, whose primary goal is to beat the
| market, even when that only means losing less than the market
| when it falls. For hedge funds, success can mean outperforming
| the market in lean times, while underperforming in the best of
| times. Through a cycle, nevertheless, top hedge fund managers
| have surpassed market returns net of all fees, while assuming
| less risk as well. We believe such results will continue.
| tinus_hn wrote:
| That hedge fund manager that took the bet surely mustn't know
| what he is talking about!
| the_drunkard wrote:
| Please read the article. It's explained clearly under Protege
| Partners, LLC's Argument.
|
| > Mr. Buffett is correct in his assertion that, on average,
| active management in a narrowly defined universe like the
| S&P; 500 is destined to underperform market indexes. That is
| a well-established fact in the context of traditional long-
| only investment management. But applying the same argument to
| hedge funds is a bit of an apples-to-oranges comparison.
|
| > Having the flexibility to invest both long and short, hedge
| funds do not set out to beat the market. Rather, they seek to
| generate positive returns over time regardless of the market
| environment. They think very differently than do traditional
| "relative-return" investors, whose primary goal is to beat
| the market, even when that only means losing less than the
| market when it falls. For hedge funds, success can mean
| outperforming the market in lean times, while underperforming
| in the best of times. Through a cycle, nevertheless, top
| hedge fund managers have surpassed market returns net of all
| fees, while assuming less risk as well. We believe such
| results will continue.
| kortilla wrote:
| So is your argument that we just haven't been through a cycle
| or else the hedge funds would have come out ahead? If they
| didn't come out ahead after all of the turmoil, they are (on
| average) worse than an index fund.
| the_drunkard wrote:
| > So is your argument that we just haven't been through a
| cycle or else the hedge funds would have come out ahead? If
| they didn't come out ahead after all of the turmoil, they are
| (on average) worse than an index fund.
|
| No. The proposition of most platform hedge funds is not to
| beat the market. It's to generate returns in any type of
| environment on a risk neutral basis.
|
| So if you invest in a hedge fund, do not expect market
| returns. Expect range-bound returns in any type of market
| environment.
|
| Hedge funds are risk management vehicles for institutional
| money.
| jameshart wrote:
| Every year there are hedge fund managers that outperform the
| market. The trick is knowing at the beginning of the year which
| manager that's going to be.
|
| Absent that crystal ball, a portfolio of hedge funds is a
| strictly more expensive way of investing than an index fund.
| internetslave wrote:
| This is false. If you work in the industry there are
| consistent winners.
| JKCalhoun wrote:
| And, as I understand from Bogle's (admittedly dated) book,
| when that happens everyone rushes into the fund and it
| begins to underperform due to its increased
| weight/influence (see Peter Lynch's Magellan Fund).
| CapriciousCptl wrote:
| The lesson Warren's making isn't that you can't beat the market.
| Of course, Warren himself is an example you can. It's also not a
| statement about any individual hedge fund, which may have
| "different goals only for sophisticated investors."* Instead,
| it's that on balance, _by far most managers_ don 't beat the S&P
| 500 on an after-fee basis.
|
| And if you include taxes in those fees and the benefit of
| deferred tax liabilities it's even harder to beat an index fund.
|
| * It's reasonable to be skeptical about any fund having a goal
| that's anything other then maximizing long-term returns.
| JKCalhoun wrote:
| Sounds like Warren Buffett is a boglehead? Or a cheerleader at
| least.
|
| I confess to having drunk the Kool-aid and can report that I no
| longer have investment anxiety.
| burlesona wrote:
| I think it's more like Buffet would say you should either
| choose the optimal passive investment strategy (index funds),
| or be a fully active investor yourself (picking your own
| investment strategy), rather than paying significant fees for
| someone else (hedge funds) to actively invest for you.
| bidirectional wrote:
| No, his bet is that these products which provide exposure to
| hedge funds for retail investors are not worth it. If he wanted
| to bet against hedge funds in general, then the bet would have
| been constructed like that (i.e. average performance of funds
| which aim to beat the market).
|
| > * It's reasonable to be skeptical about any fund having a
| goal that's anything other then maximizing long-term returns.
|
| I really don't think it is. If I'm a sophisticated investor, I
| may want to invest in funds which hedge against tail-risk, or
| provide broad exposure to some specific sector, etc. Neither of
| these things are about maximising returns relative to the
| S&P500. There are strategies with negative expected returns in
| the long-run, but when added to a portfolio can improve its
| returns. Portfolio construction can get very complex.
| CapriciousCptl wrote:
| Well, no. From Warren himself: "I made the bet... (2) to
| publicize my conviction that my pick - a virtually cost-free
| investment in an unmanaged S&P 500 index fund - would, over
| time, deliver better results than those achieved by most
| investment professionals, however well-regarded and
| incentivized those "helpers" may be." [1]
| https://www.berkshirehathaway.com/letters/2017ltr.pdf.
|
| And, regarding being skeptical of things like "hedging risks"
| and "complex portfolios," I don't know. I'm just not sure
| enough hedge funds really do a great job handling tail risks
| to not be skeptical of all of them as a group. And, surely
| sophisticated investors can target specific sectors and build
| arbitrarily complex portfolios (if they're into that sort of
| thing) with passive things like ETFs for much lower fees on
| their own.
| bidirectional wrote:
| That's clearly not a bet against hedge funds, but
| 'investment professionals', which in this case are these
| people offering pooled funds to the retail market. I agree
| with it and I'm sure many people in the hedge fund industry
| would agree with it.
|
| I'm not talking about all hedge funds managing tail risk
| for their own portfolios, but funds which are designed to
| do nothing but hedge against tail risk. They provide a
| valuable service, and a small allocation to such a fund in
| concert with a large holding in the S&P500 will often
| outperform the S&P500, even if the fund itself loses money.
| asdfasgasdgasdg wrote:
| > That's clearly not a bet against hedge funds,
|
| This isn't clear to me. To me it seems rather that this
| is a bet against hedge funds. I can see a way to your
| interpretation but it does not seem as likely to me.
| ckastner wrote:
| > _If he wanted to bet against hedge funds in general, then
| the bet would have been constructed like that (i.e. average
| performance of funds which aim to beat the market)._
|
| Quoting the shareholder's letter from 2016 [1], the actual
| bet was "that no investment pro could select a set of at
| least five hedge funds - wildly-popular and high-fee
| investing vehicles - that would over an extended period match
| the performance of an unmanaged S&P-500 index fund charging
| only token fees. [...] For Protege Partners' side of our ten-
| year bet, Ted picked five funds-of-funds whose results were
| to be averaged and compared against my Vanguard S&P index
| fund."
|
| [1] https://www.berkshirehathaway.com/letters/2016ltr.pdf
| cuspycode wrote:
| Am I missing something here? To me, Buffett's argument sounds
| like a reformulation of Sharpe's Theorem[0] from 1991, which
| states that active investors cannot in aggregate outperform
| passive investors. This is an easily proved theorem, so what's
| the catch here? Why would anyone bet against a theorem?
|
| [0] https://web.stanford.edu/~wfsharpe/art/active/active.htm
| scotty79 wrote:
| Because they think they can predict the future and their
| business model relies on their customers believing that.
| missedthecue wrote:
| Isn't Warren himself proof that you can? He beat the index over
| a very protract period of time.
| jessermeyer wrote:
| Under what time-horizon is the theorem valid for?
| cuspycode wrote:
| It's valid for any time period. The crucial point is that
| the theorem talks about the aggregate returns. It's like if
| you have 10 cars in a race, and 3 of them run at exactly
| the same speed which is the average of all ten (i.e. they
| follow the index), then the average speed of the remaining
| 7 (the actively managed) must also match that speed, even
| if their individual speeds can vary a lot.
| fractionalhare wrote:
| No, because Buffett is an individual. The theorem is a
| statement of aggregate performance.
|
| It's not surprising there exist individual people who are
| capable of beating the market, just like it's not surprising
| there exist people who can play sports at an elite level. You
| likewise wouldn't expect every human to be able to play at
| the elite level.
|
| Aggregate performance should cluster around a point of
| central tendency.
| d23 wrote:
| And as Buffet himself has said: as Berkshire grows in size
| they will have a harder time beating the market simply
| because they are becoming a bigger part of it.
| missedthecue wrote:
| I see
| riffraff wrote:
| what is being tested is not that the _average_ active investor
| won't beat the market, but that it's impossible (or very hard)
| to pick a set of active investors that would beat the market.
| nabla9 wrote:
| The fact that hedge fund managers live from the fees tells what
| they really think about their skills. Never gamble using your own
| money.
|
| Any truly successful fund closes itself from investors. If you
| really generate profits, there is no reason to give it away after
| AUM reaches certain level.
| the_drunkard wrote:
| > The fact that hedge fund managers live from the fees tells
| what they really think about their skills. Never gamble using
| your own money.
|
| Most hedge funds don't gamble, but some do have poor risk
| management (e.g. Melvin Capital).
|
| The proposition of a hedge fund is actually very compelling to
| institutional money: range-bound returns in any type of market
| environment. This proposition bodes very well for say major
| pension funds that want to avoid market risk while also
| modeling out return + pension liabilities at an assumed rate of
| return.
| nabla9 wrote:
| There should be another 10 year bet based this.
|
| Take some risk profile and then bet that low cost
| automatically balancing stock/bond Vanguard fund beats 90% of
| hedge funds over 10 years based on risk adjusted return.
| pfortuny wrote:
| But this risk-adjusted thing is just silly: either you have
| the money or you do not. I do not care about the risk.
| Galanwe wrote:
| > But this risk-adjusted thing is just silly: either you
| have the money or you do not
|
| Money is not a limiting factor, risk is. If you have a
| low risk strategy, you won't have problems borrowing
| money to invest in it.
|
| Its not silly, because the amount of reward depend on
| amount of risk.
|
| So, if you compare returns of different strategies/funds,
| you need to first rescale them to the same amount of risk
| fractionalhare wrote:
| Do you believe the following investments are equally
| attractive?
|
| 1. You invest $100,000 into a fund which has a 1% chance
| of returning 100% and 99% chance of returning -100% each
| year.
|
| 2. You invest $100,000 into a fund which has a 20% chance
| of returning 100% and a 80% chance of returning -100%
| each year.
|
| The possible payouts are the same. The expected values
| are not. Given the opportunity to invest in both with no
| difference in fees or other structure, would you leave
| your decision up to a coin flip?
| [deleted]
| the_drunkard wrote:
| > Take some risk profile and then bet that low cost
| automatically balancing stock/bond Vanguard fund beats 90%
| of hedge funds over 10 years based on risk adjusted return.
|
| That would be a closer "apples to apples" comparison vs.
| Buffett's bet.
| Galanwe wrote:
| > The fact that hedge fund managers live from the fees tells
| what they really think about their skills.
|
| Hedge funds have both management and performance fees.
| Management fees exist because whatever the result, there are
| employees that worked to deliver it. I don't see why you think
| that I appropriate.
| nabla9 wrote:
| From the investor point the work they do is not worth of it
| as this bet demonstrates.
|
| Performance fees are never structured so that incentives
| align. You will eventually get high-water mark (HWM)
| performance fees just because there is random fluctuation.
| bidirectional wrote:
| I feel as though both arguments presented only in passing mention
| that this is a bet on funds of hedge funds, rather than hedge
| funds themselves. These are products which allow unaccredited
| investors to invest in hedge funds indirectly, with the (massive)
| caveats that they are paying two layers of fees and have no
| ability to choose which funds they are interested in.
|
| This is _very_ different to a bet against hedge funds or even an
| argument against them. Hedge funds are designed to serve
| sophisticated investors with complex needs.
| [deleted]
| yyy888sss wrote:
| The good news is fees are slowly coming down as it becomes clear
| most funds provide no value (in stability nor excess return) over
| an index. In Australia superannuation (retirement fund) fees were
| $30 billion last year, or 1.6% of GDP. Thats still a lot of money
| going to small number of people who are not providing much value
| over the funds charging 0.1%.
| wslack wrote:
| Buffett won and it wasn't close:
| https://www.investopedia.com/articles/investing/030916/buffe...
| bschne wrote:
| If I understand this correctly, A--E are not individual
| actively-managed funds, but actively managed portfolios of
| actively managed funds?
|
| It would be interesting to see the distribution of returns
| among the contained funds. I lean heavily passive personally,
| but at least if a not-insignificant fraction of funds
| outperformed the index and were dragged down by really bad
| returns in others, it would give some indication as to why
| people would even _try_ to actively pick where to put their
| money...
| dehrmann wrote:
| Not that it would have changed the outcome, but it was also a
| notoriously bad decade for hedge funds. They usually say it's
| because of a lack of volatility. It'll be interesting to see
| if it stays that way, and if the Robinhood crowd will change
| things.
| aidenn0 wrote:
| Except that as you reduce the sample size, you _expect_ to
| have some outperform and some underperform. If you 100x pick
| stocks at random, you will expect to see some fraction of
| those 100 picks way outperform.
|
| Any time you reduce the sample size, you increase the
| variance, which gives the impression that skill is involved.
| In fact from just looking at a single distribution of
| outcomes it's not possible to tell if skill or luck is the
| cause.
| fractionalhare wrote:
| There exist funds which have annualized a two-sigma return
| over SPY for over 20 years. If you model returns as
| approximating a normal distribution (e.g. just luck), and
| you model years achieving a return at least two standard
| deviations above the mean under a binomial distribution
| (i.e. number of years they've been exceptionally lucky),
| the likelihood of those track records existing are around 1
| x 10^-37.
|
| I would call that sufficient evidence to reject the null
| hypothesis that the returns are normally distributed, which
| is to say it's not luck. If you expand your sample size to
| all investment vehicles throughout history, there still
| haven't been anywhere nearly enough for such a track record
| to emerge by chance.
|
| Elementary statistics is well equipped to distinguish
| between a distribution signifying luck and a distribution
| signifying skill. It's structurally the same as assessing
| normality, noise, randomness, etc.
| riffraff wrote:
| > There exist funds which have annualized a two-sigma
| return over SPY for over 20 years
|
| the problem is that _many_ funds have positive returns
| until, suddenly, they don't. It's basically as hard to
| pick a fund or money manager for the long run as it is to
| pick a stock.
|
| Consider Neil Woodford[0], he beat the market for over
| twenty years and was considered the best investor in
| Britain. Then started a new set of funds, which went
| terribly. It'd have been reasonable to let him manage
| your money, but it would still not have worked out.
|
| [0] https://en.wikipedia.org/wiki/Neil_Woodford
| fractionalhare wrote:
| That doesn't refute the mathematics demonstrating that
| people can reliably do this with skill rather than luck.
| Eventually Brady's not going to be able to play football
| professionally either. But he still does, and when he
| can't do it anymore that won't indict his professional
| record.
| aphextron wrote:
| And now we see that the point of hedge funds has nothing to
| with long term investment growth, and everything to do with
| short term personal enrichment. When you're playing with
| other's money, you don't have to think about steady, decades
| long growth. You just have to nail one big return and make
| yourself rich on fees.
| fgimenez wrote:
| I chatted with an affiliate of the counterparty to the bet here -
| a couple years before the bet ended but clearly when they were
| gonna lose. They did say two interesting things I'll relay here
| without necessarily agreeing:
|
| 1. Their major thinking is that the growth of index funds is
| driven by volume of new investors, not necessarily market
| performance. At some point we hit the diminishing returns of new
| money into indexes. When that happens we'll see their
| "guaranteed" growth slow and you'll need to turn to hedge funds
| for alpha. He thought 10 years was enough for this to play out.
| Obviously wrong on timing, but not necessarily wrong on outcome.
|
| 2. One of the conditions of the bet was that they have lunch once
| a year to discuss bet progress. Given that charity lunches with
| Warren are going for 4.5mm today, they essentially got 10 lunches
| for 100k each. That is...quite valuable for a hedge fund manager.
|
| Now, nobody can sell a loss better than a hedge fund, so I take
| with a grain of salt. But it is some food for thought.
| tybit wrote:
| On 1; Is there any data to suggest that inflows to index funds
| are pouring significantly more money into companies within an
| index than if people invested directly or with hedge funds?
| newintellectual wrote:
| It wasn't so much a bet against the concept of hedge fund as it
| was against particular people's abilities.
| jwally wrote:
| There should be a fund that guarantees a return in excess of an
| index (adjusted for fees).
|
| In exchange the fund managers would get fees and excess returns
| on their clients capital.
|
| This way instead of arguing over which approach is better, both
| groups can benefit from one another.
|
| An example could work like this:
|
| Someone (Goldman, why not) starts a fund called the AlphaPlus
| fund. Its a mutual fund. You pay a 10% up front commission to get
| into it, and can withdraw your money whenever you want. Goldman
| promises to return the exact same as the S&P 500 * _PLUS*_ 1%
| apr.
|
| Say I hold for 5 years and want to get out. The S&P goes up 10%
| per year during that time. Goldman owes me whatever an 11% rate
| of return on whatever I invested up front.
|
| Say I hold the fund for 5 years and want to get out. The S&P has
| a rate of return of -12% apr. Goldman owes me a -11% rate of
| return on my principal.
|
| Goldman does this because they get a fat 10% upfront fee from me,
| plus they can use their super-wizard skills to invest my money in
| something that returns like 30% apr. Thus, their profit is fees +
| however much they can beat the market by (and the 1% they owe
| me).
|
| (edited to give better example given access to keyboard)
| mettamage wrote:
| Could you give an example? I am rereading your sentences but I
| just don't understand what you're saying. I feel silly, but I
| really don't get it.
| nabla9 wrote:
| You don't get excess returns without risk. If you want
| guarantees, it will cost you extra. Nobody manages your money
| for the kindness of their hearts.
|
| Several funds have performance fees. It's typically the high-
| water mark (HWM) fee for profits above reference index returns.
| missedthecue wrote:
| Almost all hedge funds have a hurdle rate
| bidirectional wrote:
| This is called a hurdle and many funds use them. Buffet's bet
| was against funds of funds which are basically indices tracking
| certain hedge funds, not hedge funds themselves.
| CapriciousCptl wrote:
| Ironically Buffett started with exactly this over half a
| century ago-- setting a cumulative hurdle rate of 6%-- meaning
| he wouldn't take fees unless investors made at least 6%. He
| beat the Dow (S&P 500 wasn't really a thing during the Buffet
| Partnerships) every single year.
| dang wrote:
| Discussed in 2010:
|
| _The biggest bet on longbets.com: $1,000,000_ -
| https://news.ycombinator.com/item?id=1439613 - June 2010 (32
| comments)
| fractionalhare wrote:
| Buffett won. However, several caveats apply when using this bet
| to draw conclusions:
|
| 1. Buffett bet against aggregate performance of hedge funds as an
| investment vehicle. If he restricted his focus to the highest
| performing funds of the past 10 - 30 years, he would have lost
| handily.
|
| 2. Buffett used absolute returns as the performance metric, not
| risk-adjusted returns. A portfolio with lower absolute returns
| but a significantly better idiosyncratic risk profile (and
| correlation to market/beta) can be superior to a portfolio with
| higher absolute returns but also higher risk.
|
| Taken together, this means that Buffett's bet is a statement
| about the aggregate performance of the industry. It is not
| instructive for what performance is possible, or even for whether
| or not you should invest with the modal hedge fund (given the
| opportunity). It depends on investment goals and risk needs. It's
| also worth pointing out that "risk needs" is multi-dimensional,
| not just a sliding scale of how much e.g. leverage you're willing
| to accept. There is an entire sub-industry of hedge funds which
| explicitly expect to underperform on an absolute basis for long
| periods of time, but which service their clients with highly
| bespoke risk products. Clients are frequently well-informed and
| happy with this arrangement.
|
| I say this because there is a tendency for people outside the
| industry to come away thinking hedge funds are a scam.
| Which...well, many are, to put it bluntly. But it's a lot more
| complicated and this isn't really the smoking gun you'd think it
| is.
| Judgmentality wrote:
| > 1. Buffett bet against aggregate performance of hedge funds
| as an investment vehicle. If he restricted his focus to the
| highest performing funds of the past 10 - 30 years, he would
| have lost handily.
|
| I don't think this is a caveat. I think this is the point. You
| don't compare yourself to the literally one guy who won the
| lottery, you compare yourself to everybody that bought a
| lottery ticket.
|
| > I say this because there is a tendency for people outside the
| industry to come away thinking hedge funds are a scam.
| Which...well, many are, to put it bluntly.
|
| I don't think anybody is assuming every hedge fund on Earth is
| a scam from this any more than they think lottery tickets are a
| scam. As you mentioned yourself:
|
| > Taken together, this means that Buffett's bet is a statement
| about the aggregate performance of the industry.
|
| I apologize if I'm being presumptuous, but is this not so
| obvious that it can be assumed?
| fractionalhare wrote:
| I was probably a little unclear. Basically I'm saying _all_
| you can take away from this is a statement about aggregate
| performance. You 're not doing this in your comment, but I
| frequently see people on HN extrapolate this bet to support
| the idea that there's no such thing as a hedge fund which
| beats the market, or which is a worthwhile investment, etc.
|
| You can't derive a conclusion about individual hedge funds
| from this. That might seem obvious to you, but maybe you'd be
| surprised then :)
| Judgmentality wrote:
| > That might seem obvious to you, but maybe you'd be
| surprised then :)
|
| Fair. I've been surprised by the ignorance of people
| before, including myself!
| pfortuny wrote:
| The lesson I take from the bet is: you can only be very smart
| if you have a lot of money. Otherwise, do no try in the long
| run*. And I stick to that (because I just want to keep a living
| in the future, not to be rich).
|
| "Risk-adjustment" is just another metric which makes not much
| sense: either I have the money or I do not. Money now is worth
| more than possible money tomorrow.
|
| About "the highest performing funds of the past 10 - 30", which
| ones, the two first ones, the Medallion fund? those which
| cannot be used by ordinary people?
|
| I know Buffet is not exactly the paradigm of "ordinarity" but
| nevertheless, I think his intention with his stubborn support
| of "just the market" is to teach that "ordinary people can very
| seldom outperform the market".
| fractionalhare wrote:
| _> Risk-adjustment " is just another metric which makes not
| much sense: either I have the money or I do not. Money now is
| worth more than possible money tomorrow._
|
| If you think risk-adjustment doesn't make sense as an
| evaluation metric, you should just sell naked puts or calls
| on a stock which doesn't seem volatile. You're going to
| generate spectacular returns for a while. Then you're going
| to blow up.
|
| On the other hand a portfolio with relatively low
| idiosyncratic risk and low market correlation (beta) might be
| safely levered up to a higher absolute return than e.g. SPY
| with less overall risk and volatility.
|
| Like I said...it's complicated.
| betterunix2 wrote:
| "Money now is worth more than possible money tomorrow."
|
| That is antithetical to investing...
| dhosek wrote:
| But that assumes that one could predict in advance what those
| highest performing funds would be. Of _course_ the highest
| performing XXX will be above average. The point is that no one
| can consistently predict which ones will be the highest
| performing XXX. Worse still, regression to the mean indicates
| that if, in 2021 you invest in the highest performing XXX of
| the preceding X years, you 're more likely to get returns
| _below_ average.
|
| And let's suppose that there really is a fund staffed by a
| group of super-geniuses who can reliably pick the best
| performing stocks. There are two possibilities: They take on
| more and more investment capital until their returns end up
| getting closer to the mean or they don't accept new investments
| and the hypothetical new investor is left out in the cold.
| fractionalhare wrote:
| No I didn't assume that, I fully agree with you. Funds which
| are capable of consistently (and safely) beating the market
| on an absolute basis eventually cap their AUM and return
| outside capital.
| mooreds wrote:
| > Buffett bet against aggregate performance of hedge funds as
| an investment vehicle.
|
| He let an expert pick the funds of funds. AFAIK, he didn't
| restrict which funds the expert picked.
|
| > If he restricted his focus to the highest performing funds of
| the past 10 - 30 years, he would have lost handily.
|
| This is like saying "If I only bet on the teams who won the
| world cup, I would always make money". Past performance is no
| guarantee of future returns.
|
| > this isn't really the smoking gun you'd think it is.
|
| If the bet wasn't the best way to show the relative value of
| these investments, is there a better way? Or is the answer
| really "if you need a hedge fund as part of your portfolio, you
| probably aren't coming to HN for investment advice"?
| fractionalhare wrote:
| _> Or is the answer really "if you need a hedge fund as part
| of your portfolio, you probably aren't coming to HN for
| investment advice"?_
|
| Yeah, that's basically the answer. Retail investors don't
| typically need to optimize their portfolios with bespoke
| investment vehicles. Their exposure and goals aren't
| complicated.
| rohit89 wrote:
| > There is an entire sub-industry of hedge funds which
| explicitly expect to underperform on an absolute basis for long
| periods of time, but which service their clients with highly
| bespoke risk products. Clients are frequently well-informed and
| happy with this arrangement.
|
| Care to expand on this with some examples?
| fractionalhare wrote:
| Sure - off the top of my head, basically any fund or advisor
| which specializes in derivatives volatility. Universa
| Investments is a specific example, but you can find more by
| searching for those criteria.
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