To paraphrase an old saying, when you think everyone else at the poker table is a chump and they're all winning and you're losing, you're most probably the chump.
Underperforming hedge funds getting rich off of fees
- Thread starter guru
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Is "not being as concerned about absolute returns" a good enough reason to pay ridiculous high fees that enrich undeserving hedge fund managers at one's own expense? It sounds like an excuse used by hedge fund salesmen to justify their high fees.
It is absolutely reasonable to judge a hedge fund with cheaper index ETFs. If something is more expensive, I expect it to be better. If it is inferior, yet more expensive, the buyers who continue buying this inferior but more expensive product for years will be labelled as stupid. That sounds reasonable to me.
Poor retail investors who bought into index ETFs look like geniuses to me compared to the ultra-rich hedge fund sucker clients.
They're rich, you're not. Not that being rich is necessarily a sign of success, but if you're on a site called Elite Trader and measuring success of a financial product then the folks who are rich have success and the folks who aren't, don't. Clearly they're doing something right and the people who are poorer aren't, at least to the extent that they either became rich themselves or continue to get richer if they inherited their money. Could be, crazy I know, but could be they understand concepts like MPT or at least their money managers do, and most retail investors and traders do not?
You don't know me. It is presumptious of you to assume I'm not rich. Tell me, how would you know that I'm not rich? For all you know, I could be much richer than you but I wouldn't be presumptious to assume that. Anyway, my wealth is irrelevant. What is relevant is who made more money? The index ETF retail investors or the rich sucker hedge fund clients? What are the FACTS?
There are a lot of rich people who got rich through doing what they are good at but are bad at investing. Most of these rich people would have been much better investing in index ETFs instead of investing in hedge funds. Google the FACTS -> Index ETFs versus hedge funds.
Please don't assume that retail investors who bought index ETFs are poorer than sucker hedge fund clients.
You sound like you have vested interest in hedge funds. If yes, please declare your vested interest.
I think you're missing the point.
Person A has a net worth of $100mln, makes $10 mln a year from all businesses combined but loses $100k with hedge funds.
Person B has a net worth of $500k, makes $100k a year from everything combined, included in that $50k from trading/investing.
As I understand, Sig would say person A is more successful. You'd say person B.
Correct me if wrong.
I'll ignore the dick size comparisons; however if you insist I'll be happy to compare tax returns via PM. However that's irrelevant when discussing the matter at hand, and probably based on you taking my quote of a common saying as being directed at you personally rather than as a quote of a common saying.
The issue is that there's a concept called MPT out there that you clearly don't know the first thing about, and yes, that is directed at you personally. It depends on a somewhat rigorous understanding of statistics, which you may or may not possess, but if you do I'm happy to wait while you spend a couple hours going over MPT at which point we can have an intelligent conversation about the matter. Until then, you'll insist that the absolute return of a single fund is more important than the total return of an asset manager's portfolio. And you'll remain at your current wealth level while asset managers will continue to increase the size of the total portfolio's they manage, of which hedge funds are generally a very small part, by the judicious use of hedge funds in a variance play which has little to do with their absolute returns. If you wish to remain ignorant on how that works that's certainly your right, it's just sad to see willful ignorance is all.
I don't have any connection to hedge funds, by the way. I founded and run a business in the energy sector and prior to business school was a military pilot. I can pretty confidently say I've spent a good deal more time studying things like MPT than you have, and my thoughts on the matter come from at least an educated background on the subject and plenty of friends who do work in that space or the asset management space who are the LPs in hedge funds. Your thoughts come from...where exactly?
Good to know you have no connection to hedge funds. This makes it easier to discuss hedge funds.
Again, please do not be presumptious to assume that I clearly don't know about MPT. You don't know me. Why keep assuming you're "better" than other people whom you don't know? Would you like it if I adopt this condescending tone on you?
Thanks for elaborating. It makes more sense now. I was thinking along the lines of a portfolio of index ETFs vs hedge funds. Index ETFs makes much more sense in this context. In your case, if I understand you correctly, hedge funds are a small part of your portfolio used mainly to achieve risk-adjusted returns, not absolute returns. That is logical, provided the hedge fund is transparent on their investments, investment style, doesn't style drift and has a long track record so that one can assess accurately whether the hedge fund fits into the portfolio.
I heard an interview on the Trend Following podcast where the manager said, "we don't charge annual fees, we only charge fees on up years