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For all the hedgers out there


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It is worth looking at the chart posted by Warren Buffett at the AGM on the performance of the S&P 500 vs Protégé Hedge Funds.

 

The difference in performance is striking and while I agree with Warren that fees hurt the hedge funds, I do believe that the underperformance is so large that negative Alpha is much larger than the impact from fees.

 

I think that most of the underperformance comes from hedging or shorting stocks/the market and likely some from bad picks. And what about the impact of predicting macro?

 

So if you are trying to hedge to protect your portfolio or you are shorting to profit, you are quite likely going against a very strong headwind that may result in the same kind of underperformance as presented by Warren.

 

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You are probably underestimating the impact of fees (especially of a fund of hedgefunds) over a long enough timeframe and most hedgefunds don`t necessarily hedge.

Look at Druckenmillers or Richard Dennis  track record to see what you can do when you are able to play the market on both sides without restrictions. But its hard to pick 5 hedgefunds and outperform because the more funds you pick the more you are the market itself. Since you can`t outperform the market when you own the whole market the only thing that matters is fees. Thats the reason it was an easy bet for Buffet.

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It is worth looking at the chart posted by Warren Buffett at the AGM on the performance of the S&P 500 vs Protégé Hedge Funds.

 

The difference in performance is striking and while I agree with Warren that fees hurt the hedge funds, I do believe that the underperformance is so large that negative Alpha is much larger than the impact from fees.

 

I think that most of the underperformance comes from hedging or shorting stocks/the market and likely some from bad picks. And what about the impact of predicting macro?

 

So if you are trying to hedge to protect your portfolio or you are shorting to profit, you are quite likely going against a very strong headwind that may result in the same kind of underperformance as presented by Warren.

 

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Is there such a PPT online that I could see?  :)

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