Not necessarily. Perhaps a discussion of how to put together such a portfolio would generate more responses. Otherwise one is left with the usual "past performance is no guarantee of future results" dead-end.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
80% of funds underperform the market?
- Thread starter gainpower777
- Start date
Not necessarily. Perhaps a discussion of how to put together such a portfolio would generate more responses. Otherwise one is left with the usual "past performance is no guarantee of future results" dead-end.
Shwish ...
Right over everyone's heads ...
Not over anyone's head. Just not pertinent to the discussion. Your comments about risk and institutional investors have nothing to do with the funds in question.
Institutional investors who are looking for an alternative to fixed income instruments do so because they have fixed income style obligations (pensions, foundation expenses, etc). For them, 6% with a weekly sharpe of 3 is ideal.
But, investors (retail and institutional) who invest in mutual funds do so because they want equity style risk. They would prefer (in Buffet's words) "a lumpy 15 over a smooth 12." Those investors should be upset that most long only, long term capital gains oriented mutual funds underperform their benchmark indices.
Apples and Oranges.
Not necessarily. Perhaps a discussion of how to put together such a portfolio would generate more responses. Otherwise one is left with the usual "past performance is no guarantee of future results" dead-end.
That's another part of the problem, and how that portfolio is put together is not really what I was discussing.
I talk about risk, reducing volatility in a portfolio to save mental capital. The point being, money managers are worth their weight in Gold. Because they save the mental capital of both themselves, and their investors. Whenever the inevitable drawdown comes, people wonder why those folks who have a talented money manager aren't stressing out.
Well, because their money manager focuses on risk adjusted returns instead of just a high % number.
I said it before, and I'll say it again ... you find a guy that has a great Sortino ratio, makes 6% year in, year out, and then once in a blue moon can give me 20%? Since his Sortino is higher?
Heck, I'll let that guy manage my money, and screw what the index is doing.
Because I don't want drawdown on my capital, because I know what that does to my psychology
Not over anyone's head. Just not pertinent to the discussion. Your comments about risk and institutional investors have nothing to do with the funds in question.
Institutional investors who are looking for an alternative to fixed income instruments do so because they have fixed income style obligations (pensions, foundation expenses, etc). For them, 6% with a weekly sharpe of 3 is ideal.
But, investors (retail and institutional) who invest in mutual funds do so because they want equity style risk. They would prefer (in Buffet's words) "a lumpy 15 over a smooth 12." Those investors should be upset that most long only, long term capital gains oriented mutual funds underperform their benchmark indices.
Apples and Oranges.
Woah woah woah woah woah.
The OP meant a mutual fund?
In that case?
Yeah, I'm an idiot. Seriously ... I have absolutely no problem with saying I spoke completely out of turn and leave this post up then.
It's just in my world, a mutual fund just is never talked about anymore. The circles I run with, we beat most of them on a consistent basis. I assumed (you know what they say about what ASSumptions will make you look like) that the OP was talking about an exchange traded fund, which would change everything completely, which is why I brought up SPY.
HOWEVER, I still maintain that the oft cited statistic about money managers not "beating" the market, is sort of pointless, due to the psychological pressures that come from drawdown.
Woah woah woah woah woah.
The OP meant a mutual fund?
In that case?
Yeah, I'm an idiot. Seriously ... I have absolutely no problem with saying I spoke completely out of turn and leave this post up then.
It's just in my world, a mutual fund just is never talked about anymore. The circles I run with, we beat most of them on a consistent basis. I assumed (you know what they say about what ASSumptions will make you look like) that the OP was talking about an exchange traded fund, which would change everything completely, which is why I brought up SPY.
HOWEVER, I still maintain that the oft cited statistic about money managers not "beating" the market, is sort of pointless, due to the psychological pressures that come from drawdown.
Your argument is total bullshit
http://www.newyorker.com/online/blo...ource=www&utm_medium=tw&utm_campaign=20140515
Your argument is total bullshit
http://www.newyorker.com/online/blo...ource=www&utm_medium=tw&utm_campaign=20140515
Ok, then tell me it's how it's total bull****, rather than simply throw up an article and using foul language. You argue logical points with me rather than trying to call my logic bull**** . Do you even have the ability to formulate a thesis, logical points, and discuss those points one by one?
Or ... are you the worst common denominator of what the internet has produced. People who think they can "research" by going out, and committing confirmation bias by finding a badly written article that agrees with their pre-existing thought pattern?
Boy, this just gets me started on a complete tear ...
Or, are you just too stupid to see the argument, to be able to argue it competiently, or to see the holes in the articles that may you might agree with, but are an adult enough to see that.
Well ... if you can't, please ... allow me ...
"when hedge funds, as an asset class"
Probably why I said competent huh jack-ass. Competent would denote individual. But please, continue to compare make an argument about risk-adjusted returns, by comparing an entire class to the worst year in the market in 60 years, or the best market in 60 years. I'm sure there is no statistical variances there.
And you gotta love this complete stupidity that continues on in the article ...
If hedge funds really are a hedge, rather than a way of trying to buy above-market returns, they should perform well precisely when everything else is going to pot. But they didnât.
Ohhhh, ok jackass whoever you are trying to make a name for yourself that is writing this article, trying to sound intelligent in a periodical like the New Yorker. So you REALIZE AND ADMIT that you are running fudging the numbers to make some hairbrained case. You admit to curve-fitting the data to the best and taking the best and the worst variances! Which is about as stupid as making an article entitled ...
BRUCE LEE WAS ALL WRONG
Most childish marketing tactic in the world. Let me attack a legend, so I can try to sound intelligent.
: rolls eyes :
It gets better ...
s going to pot. But they didnât.
Hereâs another way to look at it. If somebody offered you a costly investment that combined the promise of safety with the lure of attractive returns, how would you assess it?
Whoever wrote this article, I swear to God. So which is it? You going to talk about an entire class (which I don't run or have my money with a hedge fund by the way, because I'm better than 99% of them) ... or are you going to talk about an individual?
And nothing better than deflecting attention away from the fact that you admit to using statical variances against an entire class by then jumping to a hair-brained argument that has nothing to do with the psychological benefit that risk-adjustment produces which was my point in the first place !!!!!!!
Is there any discussion that risk-adjustment leads to better decisions? Is there?
Please, someone show me the guy that bought the SPY, and held it through the crisis because he had the mental fortitude to do it, and is laughing to day because he held on? Better yet, show me the guy that bought SPY in 2007, and held on, and is laughing today. I'd like to me the guy that has that sort of psychological make-up.
Because even if he does and such an individual exists?
MOST DONT
Remember me a widow that contacting me, with her children in 2008. My stance was and is pretty public. But see, do you think this widow understood risk-adjustment? Her husband died, left her a basket of individual stocks, and said: "These will take care of you".
Now he's gone, and she's freaking out.
Why is she freaking out? Because she just watched 1.1 million, drop to $300,000 USD. And she understands none of it.
OHHHHHhhhhhhhh then it's "in vogue" to start saying that yeah, maybe her husband could have included some hedges to his portfolio before he died. THEN it's in vogue to hand the money over to a guy that is down, but only by 3 percent.
Why is it in vogue then?
PROBABLY BECAUSE OF WHAT I DISCUSSED IN MY FIRST POST OF THIS THREAD !!!! MENTAL CAPITAL AND HUMAN PSYCHOLOGY !!!!
But you know what? Please, by all means. Just buy the SPY.
Hey, why not, just load up and just go "all in". Please ... by all means.
Just don't call me when we have another 2008 ok? And don't have any widows call me when we have another 2008 ok?
I was typing with a professional this morning, he runs in the derivatives space. Just this morning we were talking about why we stop interacting with the public. Heck, it's why I'm getting out of the teaching space, and retiring that business complately, and he was the one that gave me that nudge. You go, and try to help people out, and they jump in your face as if they are total geniuses because they've been in a bull-market for five years and they are the lords of the universe.
The article refutes everyone of your points. hedge funds dont produce any less volatility than a 60/40 portfolio and produce basically the same return. So yes they have less vol but also much less return than SPY in the long run. The markets are just too efficient. Very few money managers less than 1% can beat the market over the long run that means that your chance of failure in selecting them is >99%
Woah woah woah woah woah.
The OP meant a mutual fund?
In that case?
Yeah, I'm an idiot. Seriously ... I have absolutely no problem with saying I spoke completely out of turn and leave this post up then.
It's just in my world, a mutual fund just is never talked about anymore. The circles I run with, we beat most of them on a consistent basis. I assumed (you know what they say about what ASSumptions will make you look like) that the OP was talking about an exchange traded fund, which would change everything completely, which is why I brought up SPY.
HOWEVER, I still maintain that the oft cited statistic about money managers not "beating" the market, is sort of pointless, due to the psychological pressures that come from drawdown.
This also holds for many hedge funds who masquerade their risk characteristics... a common example: a convert fund who compares their returns to the SPX. Yes, they have higher risk adjusted returns, but they are just trading a different beta and when those risk factors blow up, so will all of them (we saw this in 2008 when they couldn't short common and many shut down). Macro funds as of late who have lost a lot of money because they can't find a trend. It's funny to see it happen. The funds start blaming the environment for their poor performance. When they are making money, it's alpha; when they lose money it's the environment.
One of the fastest growing fields in trading right now is constructing portfolios that perform like hedge funds without the fees... it often involves just creating a basket of vanilla liquid products (treasuries, index funds, options, etc.).
And when you start to think about tax consequences (a concern for Americans more than the rest of the world), the numbers skew worse for active managers. Short term trading performance has to do almost double that of the index in order to beat the corresponding ETF's and that makes the proposition even tougher.
Somewhere you said you were 400bps over the market this year. The market is about 400bps up meaning you are up 800bps. If your account is large enough your tax rate could be 55%: meaning you have under performed the market. Eventually an index fund holder will have to pay long term gains, but until he sells he will receive compounding on his deferred tax portion. Over the long run, this can change the $ return profile dynamically.
The article refutes everyone of your points. hedge funds dont produce any less volatility than a 60/40 portfolio and produce basically the same return. So yes they have less vol but also much less return than SPY in the long run. The markets are just too efficient. Very few money managers less than 1% can beat the market over the long run that means that your chance of failure in selecting them is >99%
Then it proves my point.
LESS VOLATILITY IS BETTER DECISION MAKING
Which what I've said. From the first post. Which leads to the next point that just blows my mind.
That right there.
Why is everyone so *(&#*& obsessed with "beating the market"?
Seriously.
It's like one of the worst cases of covetousness I've ever seen. And all of society is absolutely cursed with it.
You ever talk to someone who is looking to have their $1,000,000 be placed into AUM?
Son, you do what you do, but I better not f8(@^%^ hear that you lost my money ...
They do want constant updates. They do want their money to grow, and beat inflation and treasuries. And they sure as hell don't want to hear excuses that "you'll come back, this 20% drawdown is nothing to be concerned about". That's the last thing they want to hear.
So ... I beat the market (thus why I bring up SORTINO ratios). Big deal. I like the guys that don't beat the market, but have VERY minimal drawdowns. We've gotten to this place in society, that everyone is obsessed with what THAT GUY OVER THERE. OH NO! S&P 500 IS BEATING ME FOR XYZ PERIODICITY. Some of my best ideas came from listening to guys that were not as talented as me. And I know guys that can blow me out of the water.
Yeah, well ... so what.
I know guys that have had 300% years.
Thus why I bring up Sortino's.
But everyone is so obsessed with what "the market is doing", that it might someday, on some weird periodicity, if you line the time-frames up JUST right, beat them, and that somehow translates into "Failure"
It's stupid with a capital S.
So I can make 634 BPS with a Sharpe of 3.08 in a 5 month time frame.
Uhhh ... how ... in any circumstance, does this not lead to me having an absolutely stellar life materially? So why should I care jack-all what anyone else is doing?
All anyone can see is: % and not what led to it in the first place, and god forbid that Bob's % is beating Jill's %
All people hear is 643 BPS. How do I beat that?
Sigh
How did I get that 643 BPS?
By making good decisions, and not being under a lot of stress.
But how can you invest and trade and not be under a lot of stress?
THANK YOU! MY REASON FOR LOOKING FOR LESSENED VOLATILITY!
So let me guess ... you're one of those stellar human beings that DID (not talk about DID) buy the SPY in 2006, or 2007, held it through all of 2008/2009, and didn't care one whit about the drawdown?
And since you've never answered this point, it leads me to believe I know the answer to that question before I ask it.
There's a reason why Permanent Portfolio got so popular. It pretty much does exactly what the market does. Stupid simple. Then why didn't people just "buy the market"
They understood psychological pressures of drawdown.
This also holds for many hedge funds who masquerade their risk characteristics... a common example: a convert fund who compares their returns to the SPX. Yes, they have higher risk adjusted returns, but they are just trading a different beta and when those risk factors blow up, so will all of them (we saw this in 2008 when they couldn't short common and many shut down). Macro funds as of late who have lost a lot of money because they can't find a trend. It's funny to see it happen. The funds start blaming the environment for their poor performance. When they are making money, it's alpha; when they lose money it's the environment.
One of the fastest growing fields in trading right now is constructing portfolios that perform like hedge funds without the fees... it often involves just creating a basket of vanilla liquid products (treasuries, index funds, options, etc.).
And when you start to think about tax consequences (a concern for Americans more than the rest of the world), the numbers skew worse for active managers. Short term trading performance has to do almost double that of the index in order to beat the corresponding ETF's and that makes the proposition even tougher.
Somewhere you said you were 400bps over the market this year. The market is about 400bps up meaning you are up 800bps. If your account is large enough your tax rate could be 55%: meaning you have under performed the market. Eventually an index fund holder will have to pay long term gains, but until he sells he will receive compounding on his deferred tax portion. Over the long run, this can change the $ return profile dynamically.
Excellent points (Actually, that was last week I think, or a week and half ago), exact numbers today, after this last week, is ...
In my long only book, longer term stuff, I'm over the market by only 91 BPS this year with a Sharpe of 2.44.
In the short-term trading, I'm over the market by 241.4 BPS with a Sharpe of 3.08 for 2014, measured weekly.
Now, to your points ....your post makes sense.
But really, my whole point addressing this thread is "Not beating the market", which to my mind, is just silly. Heck, one poster here is seriously suggesting you just buy SPY and forget about it. That's what I was addressing, and why a person seeks risk-adjusted returns, rather than "beating some arbitrary metric". But no, he's seriously proposing people just buy the SPY. Not a mutal fund. And then tries to scoff at risk-adjusted returns.
It's ludicrous.
Ok, real simple for other obvious amatuers who have no experience to say to buy SPY today when they don't have to deal with the psychological pressures of 2008, 2009.
In a bull market, everyone is a genius, and all like that.
But absolutely, I agree with your post. It's not hard to do. Hell, just buy three solid blue-chips, and short the Nikkei for pities sake, weight it accordingly.
Personally, and this is just me? I liked the guy that said he was looking forward to his first seven figure tax bill. Nice problem to have to worry about.