Buffett pulls ahead in wager against hedge funds

[berkshiremystery]

Buffett pulls ahead in wager against hedge funds

2013-01-24 Fortune.com

 

Five years into a ten-year bet that an S&P index fund can beat hedge fund funds-of-funds, Warren Buffett is in the lead for the first time.

 

http://finance.fortune.cnn.com/2013/01/24/buffett-hedge-fund-bet/?source=yahoo_quote

[dcollon]

Interesting news on the zero coupon and the investment in Berkshire.

 

Thanks for posting the update.

[valueorama]

It is pretty funny that the bet money (escrow) invested in safe zero coupon did better than their respective bets. I have a feeling, with that escrow now in BRK, it will perform better than both their bets by 2017.  ;D

[djcattlco]

Thank you for the link to the Fortune article....and WEB guarantees the wager proceeds from the zc bond placed in BRK for safekeeping wont go below $1MM!!!!  I love it

[berkshiremystery]

Another good article...

 

 

Buffett Wins With an Index Fund

2013-01-25 Barron's

 

http://blogs.barrons.com/focusonfunds/2013/01/25/buffett-wins-with-an-index-fund/?mod=yahoobarrons

 

The longer you hold an investment, the more those fees hurt. Stewart Neufeld in the Journal of Financial Planning estimates that Wall Street takes home 46 percent of your returns over a decade — leaving you 54 percent — if the fund’s management fees, trading costs and such cause it to underperform the benchmark by 250 basis points, or 2.5 percent.

 

Extend the holding period under such circumstances to 50 years, and Wall Street gets 74 percent. In both cases, you’re providing 100% of the cash, and taking 100% of the risk.

 

 

 

 

[bookie71]

" It ain't over til it's over" 

[Guest longinvestor]

Another good article...

 

 

Buffett Wins With an Index Fund

2013-01-25 Barron's

 

http://blogs.barrons.com/focusonfunds/2013/01/25/buffett-wins-with-an-index-fund/?mod=yahoobarrons

 

The longer you hold an investment, the more those fees hurt. Stewart Neufeld in the Journal of Financial Planning estimates that Wall Street takes home 46 percent of your returns over a decade — leaving you 54 percent — if the fund’s management fees, trading costs and such cause it to underperform the benchmark by 250 basis points, or 2.5 percent.

 

Extend the holding period under such circumstances to 50 years, and Wall Street gets 74 percent. In both cases, you’re providing 100% of the cash, and taking 100% of the risk.

 

Would love to see a fund which guarantees returns, "or your money back". Anyone know of one? Collecting fees is so damn easy.

[berkshiremystery]

Some similar opinion made by George Soros that hedge funds as a group can't beat the market.

 

Soros Says Hedge Funds Can’t Beat Market Because of Fees

2013-01-25 Bloomberg

Video 2:18min

 

http://www.bloomberg.com/news/2013-01-25/soros-says-hedge-funds-can-t-beat-market-because-of-fees.html

 

 

[twacowfca]

It is pretty funny that the bet money (escrow) invested in safe zero coupon did better than their respective bets. I have a feeling, with that escrow now in BRK, it will perform better than both their bets by 2017.  ;D

 

I'll lay you odds on that.  :)

[Parsad]

Another good article...

 

 

Buffett Wins With an Index Fund

2013-01-25 Barron's

 

http://blogs.barrons.com/focusonfunds/2013/01/25/buffett-wins-with-an-index-fund/?mod=yahoobarrons

 

The longer you hold an investment, the more those fees hurt. Stewart Neufeld in the Journal of Financial Planning estimates that Wall Street takes home 46 percent of your returns over a decade — leaving you 54 percent — if the fund’s management fees, trading costs and such cause it to underperform the benchmark by 250 basis points, or 2.5 percent.

 

Extend the holding period under such circumstances to 50 years, and Wall Street gets 74 percent. In both cases, you’re providing 100% of the cash, and taking 100% of the risk.

 

Would love to see a fund which guarantees returns, "or your money back". Anyone know of one? Collecting fees is so damn easy.

 

Segregated insurance funds.  Other than that, I believe it may be a contravention of securities laws...or at least completely frowned upon to guarantee such a thing.  The other funds that make such guarantees are often found to be frauds or ponzi schemes as well.  Cheers!

[twacowfca]

Another good article...

 

 

Buffett Wins With an Index Fund

2013-01-25 Barron's

 

http://blogs.barrons.com/focusonfunds/2013/01/25/buffett-wins-with-an-index-fund/?mod=yahoobarrons

 

The longer you hold an investment, the more those fees hurt. Stewart Neufeld in the Journal of Financial Planning estimates that Wall Street takes home 46 percent of your returns over a decade — leaving you 54 percent — if the fund’s management fees, trading costs and such cause it to underperform the benchmark by 250 basis points, or 2.5 percent.

 

Extend the holding period under such circumstances to 50 years, and Wall Street gets 74 percent. In both cases, you’re providing 100% of the cash, and taking 100% of the risk.

 

Would love to see a fund which guarantees returns, "or your money back". Anyone know of one? Collecting fees is so damn easy.

 

Segregated insurance funds.  Other than that, I believe it may be a contravention of securities laws...or at least completely frowned upon to guarantee such a thing.  The other funds that make such guarantees are often found to be frauds or ponzi schemes as well.  Cheers!

 

There is a way to do almost that without running afoul of securities laws.  Invert.  No management fees or rake off for the fund manager until a hurdle like beating the S&P 500 average is cleared, and then no cut for the manager except over a three year rolling average. 

 

Hmmm.  Seems like someone actually did set something up like this not long ago.  :)

[bargainman]

Maybe this is what Sanjeev meant by the insurance funds, but 'guaranteed return of capital' funds have been around for a while now.  At least 10 years I think.  It's simple really.  Just put x% in a bond that matures at the final date, then use the rest to buy long call options over the time period..  The $ value is guaranteed as long as your bond doesn't default.  That said that's just the $ amount.  You lose to inflation.  Of course this just guarantees that you'll get your money back, not that you'll make a certain return...

[berkshiremystery]

Another good article...

 

 

Buffett Wins With an Index Fund

2013-01-25 Barron's

 

http://blogs.barrons.com/focusonfunds/2013/01/25/buffett-wins-with-an-index-fund/?mod=yahoobarrons

 

The longer you hold an investment, the more those fees hurt. Stewart Neufeld in the Journal of Financial Planning estimates that Wall Street takes home 46 percent of your returns over a decade — leaving you 54 percent — if the fund’s management fees, trading costs and such cause it to underperform the benchmark by 250 basis points, or 2.5 percent.

 

Extend the holding period under such circumstances to 50 years, and Wall Street gets 74 percent. In both cases, you’re providing 100% of the cash, and taking 100% of the risk.

 

Would love to see a fund which guarantees returns, "or your money back". Anyone know of one? Collecting fees is so damn easy.

 

 

Shouldn't it be enough, if someone builds himself a decent portfolio,... purchasing a "$100 dollar bill" and paying it with a $50 bill note of the same currency. It's not a guaranteed return, but a pretty sure bet or with a decent margin of safety. If this cushion isn't a guarantee, what else do you want?

 

Otherwise I remember some decades ago,... in a period of much higher long term interest rates,... some financial marketing guys build products with some guarantee of principle,.... 50/50%, splitting half of the money into some speculative future fund, while the other half would be put in some safe zero bonds compounding around 7-8%, thus doubling the half over some decade to the original nominal face value of the invested capital in case if the other half would blow-up. Someone wouldn't have lost anything, but neither way would they have gained much. For any guaranteed return or guarantee on principle, there goes a hidden premium paid, and that's the flip side of the coin, that someone has to subtract from your total return. There is no free lunch.

 

Or,... maybe BRK itself offers an investor currently some guaranteed return, after the hidden "put" repurchase feature. Only some food for thoughts.

 

Berkshire Stock Outperformed the S&P 500 by 83 Percentage Points in the Year After the Only Other Time Buffett Offered to Buy Back Stock

 

At page 20 of the slides

http://www.tilsonfunds.com/BRK.pdf

 

[berkshiremystery]

Soros sounds almost like Ericopoly.... ;D

 

 

“Outperforming the market with low volatility on a consistent basis is an impossibility,” said Soros, 82. “I outperformed the market for 30-odd years, but not with low volatility.”

 

[twacowfca]

Another good article...

 

 

Buffett Wins With an Index Fund

2013-01-25 Barron's

 

http://blogs.barrons.com/focusonfunds/2013/01/25/buffett-wins-with-an-index-fund/?mod=yahoobarrons

 

The longer you hold an investment, the more those fees hurt. Stewart Neufeld in the Journal of Financial Planning estimates that Wall Street takes home 46 percent of your returns over a decade — leaving you 54 percent — if the fund’s management fees, trading costs and such cause it to underperform the benchmark by 250 basis points, or 2.5 percent.

 

Extend the holding period under such circumstances to 50 years, and Wall Street gets 74 percent. In both cases, you’re providing 100% of the cash, and taking 100% of the risk.

 

Would love to see a fund which guarantees returns, "or your money back". Anyone know of one? Collecting fees is so damn easy.

 

 

Shouldn't it be enough, if someone builds himself a decent portfolio,... purchasing a "$100 dollar bill" and paying it with a $50 bill note of the same currency. It's not a guaranteed return, but a pretty sure bet or with a decent margin of safety. If this cushion isn't a guarantee, what else do you want?

 

Otherwise I remember some decades ago,... in a period of much higher long term interest rates,... some financial marketing guys build products with some guarantee of principle,.... 50/50%, splitting half of the money into some speculative future fund, while the other half would be put in some safe zero bonds compounding around 7-8%, thus doubling the half over some decade to the original nominal face value of the invested capital in case if the other half would blow-up. Someone wouldn't have lost anything, but neither way would they have gained much. For any guaranteed return or guarantee on principle, there goes a hidden premium paid, and that's the flip side of the coin, that someone has to subtract from your total return. There is no free lunch.

 

Or,... maybe BRK itself offers an investor currently some guaranteed return, after the hidden "put" repurchase feature. Only some food for thoughts.

 

Berkshire Stock Outperformed the S&P 500 by 83 Percentage Points in the Year After the Only Other Time Buffett Offered to Buy Back Stock

 

At page 20 of the slides

http://www.tilsonfunds.com/BRK.pdf

 

I think the strategy you suggest is what Taleb (with Empirica Kurtosis) and Spitznagle (with Universa) have done.  Their main strategy may have been to buy low duration Treasuries and get a little positive income and then put a small amount of their funds into option misspricings to make a little more income.  However, instead of returning those  modest profits to their clients, they take more than half of that modest income (leaving some income in the account to show clients that they haven't lost money) and buy way out of the money options (multi sigma) that will pay off at some unbelievable gain in the rare event that there is a market crash.

 

That strategy was too underperforming for their clients in the former fund during a low volatility period in the market, but made out like a bandit in the latter fund when the market crashed in '08.

 

:)

[twacowfca]

Soros sounds almost like Ericopoly.... ;D

 

 

“Outperforming the market with low volatility on a consistent basis is an impossibility,” said Soros, 82. “I outperformed the market for 30-odd years, but not with low volatility.”

 

There is one guy that has outperformed the market by a huge margin with relatively low volatility for more than half a century.  He lives in Omaha.  Volatility is normally defined stochastically.  However Ziemba notes that most of Buffett's volatility has been up volatility.  His adjustment of how the Sharpe ratio is calculated to look mainly at down volatility, shows that the adjusted low volatility of Buffett's returns is also an outlier. :)