why do funds perform so poorly?

Hi Grob,

Your only substantive critique as far as I can tell is that I answered a different question than malaka asked. That's strange to me given that the title of the thread is:

"why do funds perform so poorly?"

And my paraphrase of his post:

"malaka56 asks, in essence, why can't all institutional investors earn fantastic market beating returns."

Can you describe in precise terms how the question I answered is fundamentally different from the one malaka raised in this thread?

Your attempt to paraphrase my post utterly misses the point, as does your Vanguard case study. Even if you secretly understand my argument, you still haven't rebutted it. Please, read Sharpe's paper, as it goes into more detail than I can here. If you still don't understand, ask again and I'll try to explain it more clearly.

I've never heard of "Bogle on Bogle," but I did read "Bogle on Mutual Funds" years and years ago, and I am quite familiar with his philosophy. I find it strange that you would invoke Bogle to contradict my argument. My argument (Sharpe's argument, really) is the intellectual foundation of the low cost index fund industry. Bogle is the pioneering businessman and standard bearer for that industry. They really couldn't possibly be better aligned. So please, explain for me, how exactly does Bogle disagree with me?

Martin
 
Quote from Sparohok:

Hi Grob,

Your only substantive critique as far as I can tell is that I answered a different question than malaka asked. That's strange to me given that the title of the thread is:

"why do funds perform so poorly?"

And my paraphrase of his post:

"malaka56 asks, in essence, why can't all institutional investors earn fantastic market beating returns."

Can you describe in precise terms how the question I answered is fundamentally different from the one malaka raised in this thread?

Your attempt to paraphrase my post utterly misses the point, as does your Vanguard case study. Even if you secretly understand my argument, you still haven't rebutted it. Please, read Sharpe's paper, as it goes into more detail than I can here. If you still don't understand, ask again and I'll try to explain it more clearly.

I've never heard of "Bogle on Bogle," but I did read "Bogle on Mutual Funds" years and years ago, and I am quite familiar with his philosophy. I find it strange that you would invoke Bogle to contradict my argument. My argument (Sharpe's argument, really) is the intellectual foundation of the low cost index fund industry. Bogle is the pioneering businessman and standard bearer for that industry. They really couldn't possibly be better aligned. So please, explain for me, how exactly does Bogle disagree with me?

Martin
More...

thanks for reading my response.

I'll pass on the rest. Maybe Hydro can help you out.

Bogle on Bogle is the euph for his book
 
Quote from malaka56:


Then you see the claimed returns of some posters on here (granted there is no verification), BUT if anyone ever looks at trading competitions like FXCM, trade2win, and consistently (yet simulated) programs like on collective2, and the number of other trading competitions. You can argue that getting returns like on FXCM of 700%+ a month, is not consistent, and it would be hard to tell because they only have montly trades, but if you look at longer term simulated programs, they are consistent over 36 week terms.
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Q
http://www.collective2.com/cgi-perl...x&tablename=newsearch&numrecs=897&showfilter=

SYSTEM => SHARPE => RETURN
Dr.Forex => 0.54 => 156.40%
Hawk-fx => 0.64 => 113.60%
Koan2EURUSD => 0.8 => 112.30%
VortexIIForex => 0.97 => 91.80%
SARF2! => 0.54 => 73.40%

UQ

Probably the Sharpe values in the top 5 systems above would be the main reason for them Not to launch their hedge funds, Yet.
 
Quote from LoosenUp:

Hi,

I have often ask the very same questions myself and I think it is because:

1) The bigger the fund size, the more limited are their product choices due to liquidity problems.

2) Fund managers sometimes failed to cut losses short because they would look like fools if it was just a false whipsaw move so they tend to hang on to losing positions and average down to lower the cost basis.

3) The incentive to keep the job and not rock the boat means they are going to be very conservative. Stability of job is their top priority and they sleep well at night. Striving for higher returns means higher risk is involved and it is not worth it.

4) Some fund managers might not use their best strategies because they always keep them to themselves.

5) Their strategies are also limited to what is allowed under their fund's trading mandate.

6) Major trading decisions are seldom made by a single person. Mostly they must be approved by investment committee and it is easier to go along the consensus rather than stick your head out.
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Perhaps there would be a possibility of market demands that expect much more on risk (MaxDD), consistency (HighSharpe) and MAR (Minimum Acceptable Return), rather than simply ROI (Max%).

For attracting funding purpose, probably managers would have to adjust their styles in order to meet market expectations.

Just my 2 cents.
 
Great answers you guys. I am a newbie and I make no claims to understand the markets, but I fully enjoy reading more experienced people debate their views, opinions, and relate their experiences. Quite interesting.

I agree, it would be very interesting to see a study correlating capital size with diminished returns. These factors seem to play a huge role in equities, but in gigantic markets like FX, I would think you would need to be moving some serious money to have liquidity issies.
 
Quote from Sparohok:

My point has absolutely nothing to do with efficient markets or any other academic constructions beyond basic arithmetic. It holds even in wildly inefficient market. Go back, read it again, maybe you'll understand.
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Dude, once again, I never said I disagree with the math behind it. You're just helping me prove my point, in a slightly more complicated manner. It's just common sense, the majority must lose for the minority to win. Did you really need Stanford to even try to figure that one out?
 
Quote from malaka56:

Great answers you guys. I am a newbie and I make no claims to understand the markets, but I fully enjoy reading more experienced people debate their views, opinions, and relate their experiences. Quite interesting.

I agree, it would be very interesting to see a study correlating capital size with diminished returns. These factors seem to play a huge role in equities, but in gigantic markets like FX, I would think you would need to be moving some serious money to have liquidity issies.
More...


exactly why soros and buffett are in currencies.
 
"areyoukidding?


Registered: Feb 2004
Posts: 1429


10-21-05 01:13 PM

Quote from areyoukidding?:

they are not scalping. they are trying to earn fees. this is a fee based business, just like wall street.



enough already."


congratulations you have found your best audience. i am surprised that you didn't PMed your own post:)
 
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