Hacker News Reader

Comment by anoncoward111 | Hacker News Reader

That's questionable. 1998 - 2008 was a catastrophic investment period for the SAP500 (0.8x return or so). 2008 - 2018 was quite good (2-3x)

View on HN

Warren bet that the S&P 500 would out perform a managed Hedge Fund.

And he would have been wrong 1998-2008, provided that the managed hedge fund literally just kept all their money in cash.

But did hedge funds keep their money in cash? Warren's point is exactly that the funds' decisions are not worth the cost.

It was a broad fund of hedge funds, the HFRI, if I remember correctly.

In particular, their 5% fees and profit (but not loss) sharing.

You're talking about a hypothetical fund with 20/20 hindsight.

I doubt anyone would pay 2% management fee and a 20% share on profit to a fund who is just going to keep the money in cash. Might as well do it myself for free.

I agree with you, but that isn't the point.

The point is, "Stick it in the SAP 500" would have been a losing proposition. You would have lost 20% of your money, and lost 10 years of opportunity cost to boot.

I get your point. But my point is that I doubt a hedge fund would have been performing better than the 20% loss of the S&P. Maybe it would have incurred a 40% loss. I think that in the investment world, action bias is very strong and literally doing nothing is not seen as a good thing.

We both agree that if you could have foreseen that decade, you would have sold all your stocks in 1998, put it on a savings account, and only have taken it out again in 2008.

I am glad we agree! I also 100% agree that the SAP500 may have performed better than plenty of funds 1998-2008. I'm sure we could even dig some up that did horribly. There were even funds 2008-2018 that liquidated during the Buffett bet :)

Managed hedged funds that put all their money in cash would likely lose money for the investor just from all the fees.

Hey, if you know a method to tell which years are better to keep money in cash than stocks (in advance), please, let us know!

You are missing the point. I conceded your point in the thread below.

Anyone who says "just stick it in the SAP500 and you'll make some money" is hiding the fact that even with a 10 year time-frame, that statement is not always true.

1998 - 2008 was a blood bath for many, despite the fact that you had 2 legitimate booms in there.

The question really is. Armed with that knowledge can you do any better without gambling?

If a basket of managed funds did the same or worse in that period then probably not for a passive investor.

I wonder what kind of bloodbath awaits us soon.

No he didn't. He bet the S&P500 would outperform a fund of funds. That's a colossal difference in meaning.

I think you missed Buffet's message. It was that Manager of Hedge Funds are not worth the fees they charge.

A Collection of Managed Hedge Funds UNDER performed the S&P 500.

Point - Managed funds are worth what they charge.

I didn't miss Buffett's message, because the only message he delivered through the bet was that a fund of funds underperforms the S&P 500. We cannot logically extrapolate the bet's conclusion about the aggregate industry to a conclusion about any particular fund; each fund must be examined on its own weight. There are plenty of fund managers who are worth the fees they charge, and drawing conclusions about their individual performance based on the aggregate performance of the industry is silly. Buffett didn't make any claim about individual funds.

I think it's not a one-time-investment at the beginning which is being measured, but a DCA (Dollar Cost Averaging) over a long period.

Reply on news.ycombinator.com