This is a little quote form Zacks:
Hedge fund managers had a tough go of it in 2016. As the S&P 500 climbed 9.5% (without dividends reinvested), long-short hedge fund managers declined 4.3%, according to data compiled by Credit Suisse.
Those guys make a lot of money for managing those funds and they seem to consistently do worse than the market, and worse than me, when averaged. Hmmm.
Saul
Hedge fund managers had a tough go of it in 2016.
I’m very confident that those managers did very well last year, as always. Their clients? That’s another story.
as always, i am full of carp
Three out of four investors underperform the market. 2016 was the year for hedge fund managers (and their clients) to be on the losing side.
February 20, 2011
Why Does the Average Mutual Fund Underperform?
It has often been stated that the average mutual fund underperforms the market but I have never seen an adequate explanation. I used to believe in a simplistic reason: Since mutual funds make up the average, if you deduct their management fees, their results will be that amount below the average. While this holds true, it is not the real reason. For an explanation we have to look at the Pareto Distribution of wealth.
http://softwaretimes.com/files/why+does+the+average+mutua.ht…
Denny Schlesinger
Denny, Saul and others,
Should an invester or trader expect that 80% of profits will come from 20 % of one’s positions or trades?
Andy
Denny, Saul and others,
Should an invester or trader expect that 80% of profits will come from 20 % of one’s positions or trades?
I marked this question “Reply Later” because I could not figure out the answer. I still can’t. At first blush this seems to be a mistaken application of the Pareto Principle but maybe not.
Way back while working for Colgate-Palmolive the problem we had was that our competition was delivering in 24 hours while we took 48. To close the gap we ran some statistics and discovered that credit checks were taking a long time. We also discovered that 20% of the orders accounted for 80% of the merchandise sold. Part of the solution we adopted was to sell small orders on a cash only basis reducing the workload of the credit department by over half. There was a lot of other stuff but one could say that 80% of the business came from 20% of the invoices and their contribution to profits was even higher since the cost of processing small orders was the same as for large orders (until we implemented the changes mentioned above). Except that large customers got bigger discounts and could take longer to pay their invoices.
We reduced our delivery time to 24 hours but I still don’t know the answer to the question.
Denny Schlesinger
So Buffet’s letter came out a few weeks ago. I was away when I read it. Nothing we already don’t know but what struck me was a $500,000 bet he made regarding funds vs the market. Probably old news to you guys but just incase:
http://www.berkshirehathaway.com/letters/2016ltr.pdf
Great read from page 21.
…I explained that the massive fees levied by a variety of “helpers” would leave
their clients – again in aggregate – worse off than if the amateurs simply invested in an unmanaged low-cost index fund…
Subsequently, I publicly offered to wager $500,000 that no investment pro could select a set of at least
five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match
the performance of an unmanaged S&P-500 index fund charging only token fees. I suggested a ten-year bet and
named a low-cost Vanguard S&P fund as my contender. I then sat back and waited expectantly for a parade of
fund managers – who could include their own fund as one of the five – to come forth and defend their
occupation. After all, these managers urged others to bet billions on their abilities. Why should they fear putting
a little of their own money on the line?
What followed was the sound of silence.
…
Since 2008, the S&P gained 85.4% (7.1% compounded annually).
Funnily enough, Berkshire Hathaway also trails the S&P in that time.
Well that’s one of Buffet’s mantras - put as few people as you can between you and your money.