If you’ve never read Buffett’s Graham and Doddsville essay, you should, and he can make a more persuasive case than I can.
This isn’t true. Lots of people beat the market, but beat the market enough to make 2/20 work for the money under management? Lol very few… and the ones that do generally stop taking outside money asap which is way faster than normies would think.
Plus managing OPM really really really fucks with the incentives of the person playing the game. If you took the portfolio that made the absolutely most money with 20:20 hindsight for the last 10 years I virtually guarantee you would have been fired 2-3 times before you made it to the 10 year mark where you were proved a genius.
This doesn’t even get into the fact that the game is substantially softer when your portfolio size is substantially smaller because you can gorge yourself on small cap nonsense that there’s not a real market for at prices that make no sense in comparison to larger cap financial products.
I don’t do the individual investing thing because I want to beat the market. I do the individual investing thing because I need my net worth to stay above a certain number to remain investable, which means if I don’t want to buy bonds I have to be very defensive. Hence most of my Roth (the vast majority of my portfolio) being parked in BRK stock since 2011.
Bottom line though being small and investing your own money are both very large advantages over the institutional investors that pretty much always fail to beat the market. Personally I’m more interested in NOT being invested in certain things than I am in being invested in certain things. I can say with absolute confidence that I have zero exposure to TSLA stock long or short for instance.
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I simply do not believe for a second there is some large number of investors crushing the S&P 500 and keeping quiet about it.
Renaissance and…who?
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We’re not talking about public funds here we’re talking about family offices. If a hedge fund manager does well his first few years and shuts down and goes family office he or she was probably good. If they instead use it to raise way more money they were probably lucky and knew it.
2/20 is a weird structure because it’s a bad deal for the investor (absolutely wtf terrible actually) unless it’s actually a wtf terrible deal for the manager. Show me an established hedge fund that has a lot of money under management and has for a long time and I’ll show you at best a break even with the S&P investment and probably a borderline scam. Bridgewater would have been who I would have pointed to as the exception before their models broke.
Not buying TSLA is functionally the same as buying it in the sense that you are making choices on individual stocks. No investor can do that long term successfully. Short term success is simply variance.
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Some do. Just like some beat the the poker tournament trail over long samples. But essentially both are nothing more than the tail of the bell curve, i.e. - mostly luck.
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No investor can do that long term successfully I pretty strongly disagree with. Be good at business and use that ability to invest in good businesses you understand at reasonable prices. You’ll have higher volatility but you’ll also probably have less risk of ruin and a higher overall return. My investment with BRK is mostly just me betting on this model of investing.
I know you’re a SME in a specific technical area. You could probably generate pretty good returns taking the knowledge you have about your own domain and using it to bet on public companies in the space. Who do you think knows more about how things are going to go for a direct competitor of yours? You or some 31 year old analyst at a sell side firm with who knows how many names to cover?
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Well there are insider traders. Pelosi doesn’t brag about her investment management skills, but I’m pretty sure she’s crushing the index.
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I think it’s a really bad idea to concentrate so much risk in the sector that you work in. And I’m not even sure it gives you too much of an advantage anyway.
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Yeah trades inside your sector pretty much need to always be ‘I know what’s going to happen next quarter halfway into the quarter’ type situations that can be long or short because you do in fact know when something is going to happen.
That means a lot of the time you’re betting against your sector when your sector is about to take a hit, making it kind of a hedge against taking career damage. My go to short in my own industry is always XPO lol.
I really can’t overstate this: when you’re an everyday participant in an industry, particularly in sales, you get exposed to some very tradable information. Don’t bet on your own companies stock like this, but other than that these are some of the best opportunities to pick up free money normal people will ever see.
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Perhaps a bit of both. A test launch is coming up (I think in Sept), and there have been 3 wsb posts but none very popular. Two posts 8 days ago about Cramer saying ASTS isn’t a buy, and one post a day or two ago about the launch news. WSB loves inversing Cramer, and the stonk has almost doubled since Cramer said not to buy it lol
Buying into the S&P500 is great. How else will you get the chance to own things like oil rigs in the arctic, make missiles, own slaves, and clear cut rainforests without even having to know any of the details?
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I think this is also true on the client side, in my specialized area of Pharma I know which software companies and consulting shops that sell to us are hiring the best people in the industry because it is small enough. I have never traded on this but in retrospect most of the companies that I thought were positioned to do well over the last five years have done much better than their competition in terms of market share growth and stock appreciation.
Of course all of that is small sample size and hindsight bias, etc. I’m not actually making those trades. But it’s a lot more plausible that I can predict who’s going to succeed and fail better than I could with companies in other industries, where my perceptions are heavily influenced by media reporting.
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I know we rehash the ‘beating the market’ argument once every several months, so I’ll ride my hobby horse that the actual benchmark is not beating the market but rather creating alpha aka having returns in excess of what can be explained by understood risk factors.
Any idiot can go 100% small-cap value or buy VTI on margin and be a near-lock to beat the market over a long-term horizon, but who cares? It’s like me being proud that my 100% VTI portfolio is beating the Wellington fund.
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To the extent that anyone feels any pride around this, I think it comes from a sense of self satisfaction of not being duped by the active management sales pitch. Sometimes the only way to win a game is to not play.
The point I was going for is that my 100% stock fund is beating a ‘premier’ 50% stock / 50% bond fund. In a sense I am beating the market since the global securities market is a blend of stocks and bonds. So in a sense we can all claim to be “beating the market” by choosing riskier investments.
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You can do even better by borrowing a bunch of money and investing it in stocks. Alpha!
I want to be very clear that the only active management scheme I’m willing to participate in is BRK. I think that’s different than having the active manager be me myself and I as a so far pretty lucrative hobby. The myth is that some Wall Street asshole is so much smarter than me that they can achieve better results despite being forced into an extremely short term investment horizon by their incentives and managing at least hundreds of millions of dollars. They absolutely can’t. Warren Buffet doesn’t have the shitty incentives and that’s like 50% of his success explained instantly.
You’re a full blown retirement actuary. You really think you couldn’t find inefficiencies in the filings of weird fixed income products? It would obviously be a slog and who wants to do that really, but let’s not pretend like you couldn’t do that work and make money from it.
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I think that’s probably in the “reasonable” range. I am not a virulent anti-active management priest or anything like that. And I can see in my job, which includes reviewing the performance of investment managers for my company’s pension plans, that the argument for active management is much, much stronger in the institutional space than in the retail space. Mostly because institutional fees are much lower, so the active managers have a much better chance of outperforming their own cost.
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Yeah it’s not that nobody can ‘beat the market’, it’s that nobody is willing to beat the market net of fees lol. Why would anyone do that that’s giving the investors free money. What makes Warren Buffett truly weird isn’t his talent although he is obviously a god tier value investor, it’s that his incentives are aligned with his investors which basically never happens.
Also you have to sell retail investors individually which means you have to pay people to go out and market. The idea that there’s ever going to be enough alpha in a trade that you could pay a salesperson is just wild to me. The numbers just don’t work.