Author Topic: If a Super Investor Offered to Manage Your Money, Would You Do It?  (Read 12331 times)

hodedofome

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Here's the ultimate test to see if you really believe the markets are efficient. If Jim Simons, Warren Buffett, Ray Dalio or George Soros offered to manage your portfolio for 40 basis points, would you go for it?

not_a_trex

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #1 on: August 12, 2014, 09:00:18 PM »
Possibly. Just because I don't think I'm capable of beating the market through active trading doesn't mean that I don't think anyone can do it.

surfhb

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #2 on: August 12, 2014, 11:38:54 PM »
All those guys would just tell you to invest in low cost index funds anyway :)

dragoncar

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #3 on: August 13, 2014, 12:12:59 AM »
Probably.  I mean, I already can have WB manage my money if I buy BRKB but I'm guessing you mean he spends 8 hours a day running my finances?  In that case, I think he can probably beat the market.  I think I could beat the market if I spent 8 hours a day on it too.  I just don't want to spend 8 hours a day on it (and I doubt active fund managers can achieve the same success once their fund is too big).

rmendpara

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #4 on: August 13, 2014, 03:39:27 AM »
Here's the ultimate test to see if you really believe the markets are efficient. If Jim Simons, Warren Buffett, Ray Dalio or George Soros offered to manage your portfolio for 40 basis points, would you go for it?

I don't know what that has to do with market efficiency...

It's not really disputed that when you are dealing in large dollar amounts, there are investments available to you that aren't publicly traded (i.e. private market investments) that clearly outperform on a risk/return basis to their portfolios.

Like Buffet's privately placed preferred shares in GS and BAC that had guaranteed payouts and warrants for conversion... yeah, good luck getting those terms for yourself.

40 bp? These guys (hedge fund guys anyway), regularly charge 200bp per year plus performance bonuses. But sure, if they decided to offer a discount, I'd take it

:)

marty998

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #5 on: August 13, 2014, 03:46:22 AM »
Probably.  I mean, I already can have WB manage my money if I buy BRKB but I'm guessing you mean he spends 8 hours a day running my finances?  In that case, I think he can probably beat the market.  I think I could beat the market if I spent 8 hours a day on it too.  I just don't want to spend 8 hours a day on it (and I doubt active fund managers can achieve the same success once their fund is too big).

No fund manager spends 8 hours a day managing their portfolios. A lot of the actual work is automated. A fund manager will have a set of parameters and portfolio guidelines to work within (i.e. their "investment mandate").

They would run their investment universe (list of all possible investments) through their criteria, buy the ones that get a tick, short (if permitted) the ones that don't, with all trading for the day done by the algorithmic bots.

After 11am you can find most of them at your downtown fancy restaurant, trying to drum up new business with prospective marks clients

KeithTax

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #6 on: August 13, 2014, 06:23:16 AM »
No! Past performance does not indicate future performance. Vanguard's S&P index fund is all I need to match the market at .05 expense ratio. I have no desire to "beat" the market.

PloddingInsight

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #7 on: August 13, 2014, 06:24:24 AM »
Honestly, no.

matchewed

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #8 on: August 13, 2014, 07:34:16 AM »
The premise is flawed. It is not an ultimate test as to whether markets are efficient or not. It is a demonstration of the bell curve. If we take all the stock pickers out there who have similar wealth to invest, the same information, the same opportunities, and plot their performance you will see that the people you listed are on the edge. You make the claim that it is due to market inefficiencies but that may not be the only explanation. It could just as easily be psychological, biases, human errors rather than market errors which can explain the same curve. It could be the mythos surrounding these individuals influencing how their decisions perform. Also I'm not sure many people would make the claim that markets are 100% efficient. Efficiency is not some black and white concept. There are degrees to it. It is not a question of faith or belief markets are efficient you just happen to come to the conclusion (perhaps due to skills you've picked up or other explanations) that there are inefficiencies that you can identify and profit from. Others don't. So what?

I think you're leaping at an explanation for the bell curve that may or may not be there with no proof that it is there. Now granted I have no proof for my explanation for the bell curve but then again I'm not making a claim. Just a reasoning that it could be for any number of reasons and probably more like several of them combined.

waltworks

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #9 on: August 13, 2014, 08:28:02 AM »
Personally, I'm ok with tracking the broader market so I'd probably ask them if they wanted to go fishing with me instead or something.

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SnpKraklePhyz

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #10 on: August 13, 2014, 08:31:32 AM »
Didn't Warren Buffet take this bet?  He bet on index funds vs. smartest managers over ten years.  He is currently winning.  Though his opponent includes fees - much more than a few basis points.

dragoncar

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #11 on: August 13, 2014, 08:58:06 AM »
Probably.  I mean, I already can have WB manage my money if I buy BRKB but I'm guessing you mean he spends 8 hours a day running my finances?  In that case, I think he can probably beat the market.  I think I could beat the market if I spent 8 hours a day on it too.  I just don't want to spend 8 hours a day on it (and I doubt active fund managers can achieve the same success once their fund is too big).

No fund manager spends 8 hours a day managing their portfolios. A lot of the actual work is automated. A fund manager will have a set of parameters and portfolio guidelines to work within (i.e. their "investment mandate").

They would run their investment universe (list of all possible investments) through their criteria, buy the ones that get a tick, short (if permitted) the ones that don't, with all trading for the day done by the algorithmic bots.

After 11am you can find most of them at your downtown fancy restaurant, trying to drum up new business with prospective marks clients

Oh we are doing the realistic argument?  Well WB would never personally manage my portfolio so I guess what's the point of this discussion?

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #12 on: August 13, 2014, 09:15:17 AM »
The reason I posed the question was because a lot of folks on this site believe it's impossible to beat the market, yet let's be honest. If one of those guys offered to manage your portfolio I'd be willing to bet most would say yes. You'd be a fool not to. Paul Samuelson was an investor with Buffett as well as plenty of superstar traders at Commodity Corp. Fischer Black, after leaving MIT for Goldman Sachs, said, “Markets look a lot more efficient from the banks of the Charles than from the banks of the Hudson.”

Yes you can buy BRK but that's not what Buffett could do with a small account. He's mentioned before he 'knows' he can do 50% a year with $1 million. Simons and Soros have done 30%+ a year AFTER 2 & 20 FEES managing billions since the '70s and '80s, Dalio has done half that but with very little volatility.

The point of the exercise is I believe most people's belief in an 'efficient market/you can't beat the market,' only go so far as their own personal ability, or at least as far as the type of manager that they have access to.

PloddingInsight

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #13 on: August 13, 2014, 10:13:50 AM »
The point of the exercise is I believe most people's belief in an 'efficient market/you can't beat the market,' only go so far as their own personal ability, or at least as far as the type of manager that they have access to.

True, you could hire somebody who is in a position to do insider trading.  Like a congressman.

PloddingInsight

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #14 on: August 13, 2014, 10:21:46 AM »
The real trouble, though, is that you can't identify the "Super-Investors".

Many, many people try to make money on the stock market.  It stands to reason that even if the efficient market hypothesis holds true, half of them will be above-average investors and some small number of them will consistently do extremely well.  In any random process, there are going to be outliers.

And it's completely natural for someone who works very hard at investing and produces extremely good results over and over again, to believe that they are adding value.

But there's no way to test whether it's true or not, for that individual.  They could just be very lucky.  (And from the perspective of an observer, they could also be secretly breaking the law by engaging in insider trading as well -- just because they haven't been caught doesn't mean they're not doing it.)

I would not let my investments be managed by anyone who proposed to do active trading, no matter what their track record was.

Mr Mark

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #15 on: August 13, 2014, 10:28:49 AM »
No way.

Warren already manages a small small piece of my stash, via my indexes holdings in Berkshire Hathaway. ;-)


tomsang

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #16 on: August 13, 2014, 10:36:31 AM »
I would run away as fast as I could!!

A super investor does not need more capital. If someone is asking to manage your portfolio that is a super investor, you should be thinking Bernie Madoff.  In fact size limits their performance.

Every stock advisor that I have spoken with has said that he/she is a Super Investor. No one can provide their results to prove it.

As PloddingInsights mentioned, it is really challenging to see into the future to figure out who is the next Super Investor.

The more I look the more I believe that the market is an efficient market. That when you risk weight investments there is no free money.

Great question!



hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #17 on: August 13, 2014, 10:49:12 AM »
Many, many people try to make money on the stock market.  It stands to reason that even if the efficient market hypothesis holds true, half of them will be above-average investors and some small number of them will consistently do extremely well.  In any random process, there are going to be outliers.

This is true but let's take Simons and Soros for instance. It's one thing to buy a concentrated portfolio of stocks and hold onto them forever like Buffett. In that instance I can see how you could outperform the market even on a random basis (Barton Bigg's dad did this for his wife in the '70s, passed away, and that portfolio did 19% over 30 years). However, with Simons and Soros, you are talking about thousands, possibly tens of thousands or hundreds of thousands of trades over 30-40 years. With that many data points, the possibilities of extreme outperformance (we're talking 40-50% a year before fees) are so small we really shouldn't even be talking about them. To say someone can perform at that level over that period of time over that many trades and it's purely random? Get your head out of the sand and stop believing everything out of Fama's mouth.

matchewed

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #18 on: August 13, 2014, 10:56:28 AM »
Or trotting out one extreme doesn't prove you're right but rather proves the edge of the bell curve again. For every Simons or Soros how many other people do trading and succeed at that level? If the answer is close to 0 then you don't really have a point.

It's like pointing at Michael Phelps and saying "See, see everyone can win an Olympic medal."

PloddingInsight

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #19 on: August 13, 2014, 11:22:11 AM »
This is true but let's take Simons and Soros for instance. It's one thing to buy a concentrated portfolio of stocks and hold onto them forever like Buffett. In that instance I can see how you could outperform the market even on a random basis (Barton Bigg's dad did this for his wife in the '70s, passed away, and that portfolio did 19% over 30 years). However, with Simons and Soros, you are talking about thousands, possibly tens of thousands or hundreds of thousands of trades over 30-40 years. With that many data points, the possibilities of extreme outperformance (we're talking 40-50% a year before fees) are so small we really shouldn't even be talking about them. To say someone can perform at that level over that period of time over that many trades and it's purely random? Get your head out of the sand and stop believing everything out of Fama's mouth.

I'm only very vaguely aware that Fama is somebody who advocates the EMF.  I've never read a word that he has written.  My opinion is based on studying economics, especially arbitrage pricing theory, and pondering the matter.

I don't think either one of us is claiming that these guys make money on every trade they make.  They just come out ahead, in aggregate.  So what does it take to make 40-50% return?  Risk, leverage, or insider information.  But mostly risk.  How many investors are exposed to enough risk to make 40-50% a year if the odds come out in their favor?  Probably very, very many.  I expect there are large numbers of risk-loving investors that make 40-50% in any given year.  Many of them tout their stock-picking skills and keep doing what they're doing until their luck runs out and they lose most of their gains.  With large numbers of investors exposed to enough risk to potentially hit those returns, it's no surprise that one or two outliers should get lucky more often than not for a long string of years.  (And again, given the amount of money on the line and the power and access that comes with having lots of money, you really can't rule out insider trading.)

The thing about the efficient market hypothesis is that you can't really prove or disprove it from some individual's investing results.

BTW Soros only got 22% in 2013.  Less than index funds.

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #20 on: August 13, 2014, 11:34:27 AM »
It's like pointing at Michael Phelps and saying "See, see everyone can win an Olympic medal."

No, nobody is saying everyone can do it. It's more like pointing at Michael Phelps and saying "it's possible."

matchewed

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #21 on: August 13, 2014, 11:47:39 AM »
It's like pointing at Michael Phelps and saying "See, see everyone can win an Olympic medal."

No, nobody is saying everyone can do it. It's more like pointing at Michael Phelps and saying "it's possible."

So you want people to admit that there are shades of grey? Fine there are shades of grey. I don't think anyone is saying there isn't. And frankly think that when people are trotting out extreme examples to prove that it is possible are just scoring points instead of discussing if it's probable.

Possibilities are silly. Probabilities are where your skill, perseverance, and knowledge make it so interesting things can happen. Am I going to win the Olympics? Probably not. Am I going to become the best stock picker? Probably not.

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #22 on: August 13, 2014, 11:59:18 AM »
I don't think either one of us is claiming that these guys make money on every trade they make.  They just come out ahead, in aggregate.  So what does it take to make 40-50% return?  Risk, leverage, or insider information.  But mostly risk.  How many investors are exposed to enough risk to make 40-50% a year if the odds come out in their favor?  Probably very, very many.  I expect there are large numbers of risk-loving investors that make 40-50% in any given year.  Many of them tout their stock-picking skills and keep doing what they're doing until their luck runs out and they lose most of their gains.  With large numbers of investors exposed to enough risk to potentially hit those returns, it's no surprise that one or two outliers should get lucky more often than not for a long string of years.  (And again, given the amount of money on the line and the power and access that comes with having lots of money, you really can't rule out insider trading.)

The thing about the efficient market hypothesis is that you can't really prove or disprove it from some individual's investing results.

BTW Soros only got 22% in 2013.  Less than index funds.

We're talking about long periods of time here, mentioning one year that Soros underperformed a 1 country index fund says nothing. That's 1 data point out of thousands of possibilities. Let's talk about the previous 40 years - it's not even close. When I say 40-50% a year I mean compound annual growth over time, not individual years.

There are plenty of guys out there that have outperformed the market, I just shared a few that people know. There are plenty that you don't know about and they'd like to keep it that way. For instance, I doubt you know Brad Rotter who was a floor trader by day in the '80s and went to Univ of Chicago at night (where Fama teaches). So by day he'd stand in a particular corner of the exchange where he could see both the S&P 500 pits and the Treasury bond pits at the same time. Federal Reserve news would hit the bond pits first, and he had about 5-10 seconds to put in an order in the S&P pits before those guys got the news. Perfectly legal and almost guaranteed money. Yet at night his professors would talk about the markets were efficient and it was impossible to outperform them. And Brad would just laugh in their face.

Yes I know with computers you can't do this anymore (at least without HFT), but this is just one example.

The thing most non-active traders/investors don't understand is that making outsized returns is not about taking on extra risk. It's about mitigating risk to as little as possible. If you 'only' make the market return in the bull years, but avoid years like 2008 you'll vastly outperform over time. To be a good investor you have to first become a good risk manager. Most guys never do this which is why most blow up. Only the ones who know how to manage risk will make it in the end.

The best way to look at trading is to compare it to poker or blackjack. The first rule is to protect your $$$ until the odds are in your favor. Only then do you bet. If you can lose as little $$ as possible when you are wrong, and make as much $$ as possible when you are right, you should do well. I don't see many people that believe the guys who win the world series of poker did it out of pure chance. Yet trading and poker are so similar it's hard to find the differences.

« Last Edit: August 13, 2014, 12:04:18 PM by hodedofome »

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #23 on: August 13, 2014, 12:00:47 PM »
So you want people to admit that there are shades of grey? Fine there are shades of grey. I don't think anyone is saying there isn't.

Um, yes they are...

PloddingInsight

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #24 on: August 13, 2014, 12:22:15 PM »
We're talking about long periods of time here, mentioning one year that Soros underperformed a 1 country index fund says nothing. That's 1 data point out of thousands of possibilities. Let's talk about the previous 40 years - it's not even close. When I say 40-50% a year I mean compound annual growth over time, not individual years.

There are plenty of guys out there that have outperformed the market, I just shared a few that people know. There are plenty that you don't know about and they'd like to keep it that way. For instance, I doubt you know Brad Rotter who was a floor trader by day in the '80s and went to Univ of Chicago at night (where Fama teaches). So by day he'd stand in a particular corner of the exchange where he could see both the S&P 500 pits and the Treasury bond pits at the same time. Federal Reserve news would hit the bond pits first, and he had about 5-10 seconds to put in an order in the S&P pits before those guys got the news. Perfectly legal and almost guaranteed money. Yet at night his professors would talk about the markets were efficient and it was impossible to outperform them. And Brad would just laugh in their face.

Yes I know with computers you can't do this anymore (at least without HFT), but this is just one example.

The thing most non-active traders/investors don't understand is that making outsized returns is not about taking on extra risk. It's about mitigating risk to as little as possible. If you 'only' make the market return in the bull years, but avoid years like 2008 you'll vastly outperform over time. To be a good investor you have to first become a good risk manager. Most guys never do this which is why most blow up. Only the ones who know how to manage risk will make it in the end.

The best way to look at trading is to compare it to poker or blackjack. The first rule is to protect your $$$ until the odds are in your favor. Only then do you bet. If you can lose as little $$ as possible when you are wrong, and make as much $$ as possible when you are right, you should do well. I don't see many people that believe the guys who win the world series of poker did it out of pure chance. Yet trading and poker are so similar it's hard to find the differences.

FWIW I recognize that there are, at times, exploitable inefficiencies in pricing.  They exist for short periods of time and then go away due to people finding and exploiting them.  That's Arbitrage Pricing Theory in a nutshell.  Traders exploiting inefficiencies is what keeps the market liquid and efficient.  However I don't think Soros's track record is evidence of anything other than luck and/or insider trading.

And the stock market is not AT ALL like poker or blackjack.  AT. ALL.  In poker or blackjack, you just have to be better than the five or ten people you're playing with.  To beat the stock market, you basically have to be better than every single other human.  And think of the consequences of that:  In order for it to be rational for you to start out trading, you have to have at least a reasonable expectation that you will be better at trading than every other person out there.  Hubris!

Now in theory, I recognize that there may be a person out there who is better than every other human at some particular niche in the stock market, and is making a lot of money at it.  But that recognition is very, very different from having evidence that allows you to conclude that a specific person has the ability to beat the market.  There will always be winners, even winners on long streaks.  How can you tell whether they are actually better than everyone, vs just lucky?  Even if you believe some people beat the market, it's impossible to prove which people they are.

So no, I wouldn't let Soros or anyone else manage my investments.

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #25 on: August 13, 2014, 12:39:40 PM »
You don't have to be better than everyone, just better than the people buying and selling at the wrong time (which are a lot, since most don't manage risk or control their emotions).

PloddingInsight

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #26 on: August 13, 2014, 12:44:07 PM »
You don't have to be better than everyone, just better than the people buying and selling at the wrong time (which are a lot, since most don't manage risk or control their emotions).

This is so wrong I can't even respond to it.

waltworks

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #27 on: August 13, 2014, 01:23:07 PM »
I'd let someone manage my money with the following conditions: if they do worse than the market, they pay me back the difference. If they beat the market, they can keep 50% of the proceeds.

-W

milesdividendmd

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If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #28 on: August 18, 2014, 01:33:46 AM »
I wouldn't.

If you want to hold a guru's portfolio, just follow his 13f filings on insidermonkey.com or gurufocus and clone his portfolio.

You only miss out on a month or 2 of owning the identical portfolio and no fees (other than trading fees).

Market efficiency certainly doesn't preclude beating the market. It just argues that the market is a superior pricing mechanism to the vast majority of individuals.

And not even Fama argues that the market is perfectly efficient.

See this interview with his student Cliff Asness:

http://finance.yahoo.com/video/cliff-asness-try-beat-market-100707809.html

So in conclusion: the market isn't perfectly efficient. Some talented individuals have a long history of market outperformance that appears non random.

You are probably not one of those exceptionally talented stock pickers, and I certainly am not.

But if you are convinced you know who the geniuses are, it's quite easy to copy their portfolios based on publicly available information.
« Last Edit: August 18, 2014, 02:16:13 AM by milesdividendmd »

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #29 on: August 18, 2014, 08:34:20 AM »
You may be able to see their stock holdings but not all of the gurus buy only stocks. Soros could be in currencies and futures and options and swaps and all sorts of derivatives that won't show up on a 13F.

FWIW Meb Faber has been tracking a guru-following 13F strategy since the early 2000s that's handily beat the market.

FastStache

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #30 on: August 18, 2014, 11:36:44 AM »
I don't think either one of us is claiming that these guys make money on every trade they make.  They just come out ahead, in aggregate.  So what does it take to make 40-50% return?  Risk, leverage, or insider information.  But mostly risk.  How many investors are exposed to enough risk to make 40-50% a year if the odds come out in their favor?  Probably very, very many.  I expect there are large numbers of risk-loving investors that make 40-50% in any given year.  Many of them tout their stock-picking skills and keep doing what they're doing until their luck runs out and they lose most of their gains.  With large numbers of investors exposed to enough risk to potentially hit those returns, it's no surprise that one or two outliers should get lucky more often than not for a long string of years.  (And again, given the amount of money on the line and the power and access that comes with having lots of money, you really can't rule out insider trading.)

The thing about the efficient market hypothesis is that you can't really prove or disprove it from some individual's investing results.

BTW Soros only got 22% in 2013.  Less than index funds.

We're talking about long periods of time here, mentioning one year that Soros underperformed a 1 country index fund says nothing. That's 1 data point out of thousands of possibilities. Let's talk about the previous 40 years - it's not even close. When I say 40-50% a year I mean compound annual growth over time, not individual years.

There are plenty of guys out there that have outperformed the market, I just shared a few that people know. There are plenty that you don't know about and they'd like to keep it that way. For instance, I doubt you know Brad Rotter who was a floor trader by day in the '80s and went to Univ of Chicago at night (where Fama teaches). So by day he'd stand in a particular corner of the exchange where he could see both the S&P 500 pits and the Treasury bond pits at the same time. Federal Reserve news would hit the bond pits first, and he had about 5-10 seconds to put in an order in the S&P pits before those guys got the news. Perfectly legal and almost guaranteed money. Yet at night his professors would talk about the markets were efficient and it was impossible to outperform them. And Brad would just laugh in their face.

Yes I know with computers you can't do this anymore (at least without HFT), but this is just one example.

The thing most non-active traders/investors don't understand is that making outsized returns is not about taking on extra risk. It's about mitigating risk to as little as possible. If you 'only' make the market return in the bull years, but avoid years like 2008 you'll vastly outperform over time. To be a good investor you have to first become a good risk manager. Most guys never do this which is why most blow up. Only the ones who know how to manage risk will make it in the end.

The best way to look at trading is to compare it to poker or blackjack. The first rule is to protect your $$$ until the odds are in your favor. Only then do you bet. If you can lose as little $$ as possible when you are wrong, and make as much $$ as possible when you are right, you should do well. I don't see many people that believe the guys who win the world series of poker did it out of pure chance. Yet trading and poker are so similar it's hard to find the differences.

I've been reading Market Wizards after your recommendation. I was surprised at the returns some of these wizards were making, and how much they stressed risk management. It's been a great read so far.

johnhenry

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #31 on: August 18, 2014, 02:43:03 PM »
It's like pointing at Michael Phelps and saying "See, see everyone can win an Olympic medal."

No, nobody is saying everyone can do it. It's more like pointing at Michael Phelps and saying "it's possible."

I can point to lots of lottery winners and say the same thing.... it's possible.

Mister Fancypants

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #32 on: August 19, 2014, 09:08:53 AM »
Everyone here is debating a meaningless debate... the retail investor doesn't matter, no one cares.

Wall Street charges the retail investor a fee to play the game whether it is a trading commission or a management fee and then doesn't really care what you do. The amount of company ownership by individuals is trivial. Companies are owned by institutions now not people, its been decades since people owned companies.

Everyone here has a $1m portfolio or less a few have a little more, no one here is a player, it is all meaningless sorry to burst your bubbles.

All the big players who beat the markets and many do beat the markets have nothing to do with stock ownership or Market In/efficiencies. They have complex derivatives, leveraged financing, private offerings and deals that are only available to people with hundreds of millions and billions of dollars available to them. Of course there is insider trading, and it is fairly common, however it doesn't always lead to beating the market just to insider trading and sometimes bad press and jail time, sometimes it beats the market.

I know all this because I have spent the last 15 years writing software on Wall Street for the players of the game...

Indexing is the way to go for retailers as you will never beat the players retailers don't have the capital, or the tools. The data is out there, you just need to know how to find it and access it fast enough and it will never happen.

-Mister FancyPants

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #33 on: August 19, 2014, 10:05:55 AM »
If this super investor had access to algorithmic investing systems (i.e. high frequency software trading) then yes.  Some of them make virtually guaranteed profits.

Otherwise, no.

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #34 on: August 20, 2014, 07:36:32 AM »
Everyone here is debating a meaningless debate... the retail investor doesn't matter, no one cares.

Wall Street charges the retail investor a fee to play the game whether it is a trading commission or a management fee and then doesn't really care what you do. The amount of company ownership by individuals is trivial. Companies are owned by institutions now not people, its been decades since people owned companies.

Everyone here has a $1m portfolio or less a few have a little more, no one here is a player, it is all meaningless sorry to burst your bubbles.

All the big players who beat the markets and many do beat the markets have nothing to do with stock ownership or Market In/efficiencies. They have complex derivatives, leveraged financing, private offerings and deals that are only available to people with hundreds of millions and billions of dollars available to them. Of course there is insider trading, and it is fairly common, however it doesn't always lead to beating the market just to insider trading and sometimes bad press and jail time, sometimes it beats the market.

I know all this because I have spent the last 15 years writing software on Wall Street for the players of the game...

Indexing is the way to go for retailers as you will never beat the players retailers don't have the capital, or the tools. The data is out there, you just need to know how to find it and access it fast enough and it will never happen.

-Mister FancyPants

Thank you for making this point.  For someone to believe this question was meaningful, they would have to believe that Warren Buffett was just a "stock picker".  Not to discount his ability to see potential or value in a company and recognize when then stock of that company is undervalued.  But, he is a business manager, and like many businessmen, he is also, secondarily an "investor" in companies he doesn't own or manage.  This man has grown his wealth by buying and building and managing businesses and buying large stakes in companies where he can make decisions and/or wield his influence. 

If Warren were to be charged with managing a portfolio of say, $800K for some retail investor like you or me, and could only invest in the products at our disposal, my guess is that he'd put it all in some combination of stock/bond index funds.

On the other hand, if him managing my portfolio means that he makes me part of his business, that is a different story.  He may say, "I've been talking to the owners a little factory just outside of your town.  If they were on the other side of town, they'd have access to one of my railroads but they are having trouble getting the money borrowed to build over there.  I'm going to take your $800K to buy 30% of this company and you and I are going to be part of the team that gets the new factory built.  The owners are glad to have us on board."

Having a "guru" help you "invest" like that may help you get rich.  Having them sell off some of your Walgreen shares to buy Cisco, isn't going to do it.

Martha Stewart could have also been a considered a great "investor".  She was just one of the unlucky few rich, well-connected people who happened to get caught doing what nearly all rich, well-connected would do when an opportunity arises. Martha and Warren are both business owners.  That's how they got rich.  They are investing money they made running businesses.  The point is that they are not "stock pickers" and they are not better at "picking stocks" than you or me.  When they "invest" they don't need to pick stocks.  As Mister FanyPants points out, you don't need to pick stocks when you are wealthy and well-connected, or work on Wall Street. You just take advantage of opportunities that you happen to be aware of because of the connections you made while getting rich.


Mister Fancypants

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #35 on: August 20, 2014, 08:55:34 AM »
Thank you for making this point.  For someone to believe this question was meaningful, they would have to believe that Warren Buffett was just a "stock picker".  Not to discount his ability to see potential or value in a company and recognize when then stock of that company is undervalued.  But, he is a business manager, and like many businessmen, he is also, secondarily an "investor" in companies he doesn't own or manage.  This man has grown his wealth by buying and building and managing businesses and buying large stakes in companies where he can make decisions and/or wield his influence. 

If Warren were to be charged with managing a portfolio of say, $800K for some retail investor like you or me, and could only invest in the products at our disposal, my guess is that he'd put it all in some combination of stock/bond index funds.

On the other hand, if him managing my portfolio means that he makes me part of his business, that is a different story.  He may say, "I've been talking to the owners a little factory just outside of your town.  If they were on the other side of town, they'd have access to one of my railroads but they are having trouble getting the money borrowed to build over there.  I'm going to take your $800K to buy 30% of this company and you and I are going to be part of the team that gets the new factory built.  The owners are glad to have us on board."

Having a "guru" help you "invest" like that may help you get rich.  Having them sell off some of your Walgreen shares to buy Cisco, isn't going to do it.

Martha Stewart could have also been a considered a great "investor".  She was just one of the unlucky few rich, well-connected people who happened to get caught doing what nearly all rich, well-connected would do when an opportunity arises. Martha and Warren are both business owners.  That's how they got rich.  They are investing money they made running businesses.  The point is that they are not "stock pickers" and they are not better at "picking stocks" than you or me.  When they "invest" they don't need to pick stocks.  As Mister FanyPants points out, you don't need to pick stocks when you are wealthy and well-connected, or work on Wall Street. You just take advantage of opportunities that you happen to be aware of because of the connections you made while getting rich.

Actually you kinda missed my point, Warren Buffet is a great investor, he knows how to find undervalued investments either stocks or businesses and determine if they are something he would like to own. Due to the size of his bankroll and his reputation the deals and products available to him are not available to everyone or sometimes anyone else. For example during the financial crisis Goldman Sachs called him and offered him terms that were insanely favorable to him because they were in dire need of his endorsement more than they needed the capital. That is not to say they didn't need to sure up their reserves, everyone else on Wall Street had a deal and he gave them credibility. GE got the same type of backing. The almighty Warren Buffet invested it must be a safe play. Berkshire made a killing on both deals, he got sick dividends for years, and in the end in the now owns a huge chunk of GS at a great price. But the reality is he doesn't own GS, Berkshire does. Which is a big difference and people make that mistake a lot, Warren Buffet makes deals managing his company, not for himself. He personally doesn't buy and sell stuff Berkshire Hathaway does, he happens to be the single largest shareholder of Berkshire, but he is the manager of the company its not his money.

His goal as Berkshires manager is to own businesses to generate surplus capital to invest to generate more surplus capital to invest for the highest return, and at any given time that could be a company acquisition, stock ownership or Berkshire stock buy backs. Those are his business objectives, not personal investment goals, his personal wealth is mostly tied up in Berkshire as he clearly believes he can beat the S&P 500. He seems to a really good job of it and has earned his reputation. He also always states he recommends people invest in index funds of course he has never told people not to invest with him he encourages ownership in Berkshire Hathaway, and he will manage you investments along side his for no fee whatsoever. That is the only way he would ever manage money.

As far as Martha Stewart, I wouldn't consider her a good investor per se, a successful business women yes, an inside trader yes. As far as the inside trading was concerned she made very little money on the trades compared to her net worth and it was only worth a slap on the wrist by SEC standards she went to Federal prison for perjuring herself not for insider trading. She could have avoided jail entirely with a moderate to hefty fine by admitting to it instead of lying about it.

So to reiterate my point, the big players have access to tools and products retailers don't, they don't want or need your money, in fact they can care less that you even invest. Stay on the sidelines as far as they are concerned.

There are plenty of opportunities in financial products and plenty of people make enormous sums of money and it has nothing to do with which stock you buy many times the underlying investment doesn't even matter. Volatility is profitably, market direction doesn't even matter, half the time these guys make money off the fact that retailers think they matter.

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #36 on: August 20, 2014, 11:38:49 AM »
Buffett has said before with a $1 million portfolio he could make 50% a year. He did close to that in his partnership days so I'm not one to doubt him.

johnhenry

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #37 on: August 20, 2014, 11:56:56 AM »
[quote by me]
 As Mister FanyPants points out, you don't need to pick stocks when you are wealthy and well-connected, or work on Wall Street. You just take advantage of opportunities that you happen to be aware of because of the connections you made while getting rich.
[/quote]

[quote by me]Not to discount his ability to see potential or value in a company and recognize when then stock of that company is undervalued.[/quote]

[quote by you]
Actually you kinda missed my point, Warren Buffet is a great investor, he knows how to find undervalued investments either stocks or businesses and determine if they are something he would like to own. Due to the size of his bankroll and his reputation the deals and products available to him are not available to everyone or sometimes anyone else. For example during the financial crisis Goldman Sachs called him and offered him terms that were insanely favorable to him because they were in dire need of his endorsement more than they needed the capital.
[/quote]

It seems that we are very much on the same page about those points. 

My point is: Folks on this forum are engaged in a meaningless debate when they label Warren Buffet an successful "investor" for the sake of comparing those results to their own results as "investors".  I guess some would consider that arguing semantics... whether to "label" someone an "investor" or a "businessman". 

The comparison (of Buffet to individual investors) is meaningless because:
a) his wealth and influence provides him with business (investment?) opportunities that aren't available to the rest of us

b) Buffett is a business owner and the personal wealth he has amassed is a result of his success in business.
   
    You make that point well in your last post.  You say that he has his personal wealth tied up in Berkshire as he clearly believes that he can beat the S&P.

    I believe that statement makes my point perfectly.  He does beat the S&P, but he does it by running a business, not "investing".  Just about every small and medium business owner around is in that same boat.   The local plumbers, electricians, restaurant owners, car dealership owners, all the way up to Bill Gates have business ventures that likely outperform the S&P.  Those folks are accurately described as businessmen, not investors.  Some of the more financially savvy business owners may invest a good portion of their personal wealth in stocks, bonds, etc and be well-diversified.  But even when their personal holdings eclipse the equity in their business, they are not looked upon by the community as investors.  Even when they sell their business at the end of their careers, they are considered "former businessmen", not investors, which is as it should be.

  Sure, Warren Buffett may be more familiar with stock investing than your average small business owner.  Yes, give him full credit for being a businessman who successfully manages multiple businesses that are very well diversified.  But that does not warrant mythical status of an oracle with an ability to manage a portfolio that consistently beats the S&P.....when that portfolio is stocks and bonds at prices available to small-time investors. 

  In short, owning a business that produces returns that beat the S&P does not make someone a great investor.


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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #38 on: August 20, 2014, 12:23:00 PM »
Buffett has said before with a $1 million portfolio he could make 50% a year. He did close to that in his partnership days so I'm not one to doubt him.

I don't doubt it, and if given the opportunity to give him $1 million to invest for me I wouldn't think twice.

Mister Fancypants

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #39 on: August 20, 2014, 12:28:51 PM »
    You make that point well in your last post.  You say that he has his personal wealth tied up in Berkshire as he clearly believes that he can beat the S&P.

    I believe that statement makes my point perfectly.  He does beat the S&P, but he does it by running a business, not "investing".  Just about every small and medium business owner around is in that same boat.   The local plumbers, electricians, restaurant owners, car dealership owners, all the way up to Bill Gates have business ventures that likely outperform the S&P.  Those folks are accurately described as businessmen, not investors.  Some of the more financially savvy business owners may invest a good portion of their personal wealth in stocks, bonds, etc and be well-diversified.  But even when their personal holdings eclipse the equity in their business, they are not looked upon by the community as investors.  Even when they sell their business at the end of their careers, they are considered "former businessmen", not investors, which is as it should be.

  Sure, Warren Buffett may be more familiar with stock investing than your average small business owner.  Yes, give him full credit for being a businessman who successfully manages multiple businesses that are very well diversified.  But that does not warrant mythical status of an oracle with an ability to manage a portfolio that consistently beats the S&P.....when that portfolio is stocks and bonds at prices available to small-time investors. 

  In short, owning a business that produces returns that beat the S&P does not make someone a great investor.

Touché, however I still think Warren Buffet is both a phenomenal businessman and the business he happens to be in is investing. He leaves the running of the businesses he acquires to those who were running them, in fact that is one of his principals in finding companies to buy.

He likes to take surplus capital and invest it, that it what he does and does it very well.

hodedofome

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #40 on: August 20, 2014, 01:26:51 PM »
I'd argue Buffett uses his businesses to fund his investing, but you'll get no argument from me that Berkshire Hathaway is not your standard investment fund. It's really more of a multi-strategy hedge fund, stretched out between buy and hold stocks, private equity, derivatives, lending money, etc. It's not something an individual could ever hope to recreate. However, that doesn't mean Buffett couldn't do more than enough if he was 'only' an individual investor. I bet the business saviness comes more from Munger than Buffett. The business structure alone wreaks of a genius lawyer's mind. It's quite complex and very sneaky how they are able to 'hide' their stock transactions from the public.

There's no doubt in my mind that he comes across businesses all the time that are too small for BRK, but that he'd love to buy in a small account. That's probably why he was so confident in projecting his returns in a $1 mil portfolio.

Mister Fancypants

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #41 on: August 20, 2014, 01:43:18 PM »
I'd argue Buffett uses his businesses to fund his investing, but you'll get no argument from me that Berkshire Hathaway is not your standard investment fund. It's really more of a multi-strategy hedge fund, stretched out between buy and hold stocks, private equity, derivatives, lending money, etc. It's not something an individual could ever hope to recreate. However, that doesn't mean Buffett couldn't do more than enough if he was 'only' an individual investor. I bet the business saviness comes more from Munger than Buffett. The business structure alone wreaks of a genius lawyer's mind. It's quite complex and very sneaky how they are able to 'hide' their stock transactions from the public.

There's no doubt in my mind that he comes across businesses all the time that are too small for BRK, but that he'd love to buy in a small account. That's probably why he was so confident in projecting his returns in a $1 mil portfolio.

I would let Charlie invest for me too... The two of them work very well together and after so many years have learned enough form each other and taught enough to each other that they are easily both adept at both investing and business.

However I do agree Charlie is worth his weight in the management structure.

usmarine1975

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #42 on: August 21, 2014, 07:45:12 PM »
Vanguard funds are managed by someone. So most here would or should answer yes.

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #43 on: September 02, 2014, 01:55:17 PM »
No. The risk/reward isn't there for me.
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LAWson

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Re: If a Super Investor Offered to Manage Your Money, Would You Do It?
« Reply #44 on: September 02, 2014, 03:03:16 PM »
Buffett has said before with a $1 million portfolio he could make 50% a year. He did close to that in his partnership days so I'm not one to doubt him.

I believe it. I've seen several investors who have pulled off those kinds of numbers for a good number of years. Also, there are always a handful of good opportunities per year in small caps (and below).

If a superinvestor focused all his time on finding small, under-the-radar stocks, I'd let him/her manage my money.