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Buffett Says $100 Billion Wasted Trying To Beat The Market
Funny thing about trickles. Take Western Washington, it seems like it rains almost all the time but there is never enough cheap water for the bottom feeders. Just constant cold trickle on the head and there it stops, not even good for a whistle wetting.
Been looking at snippets of Buffet's letter here and elsewhere. I think Warren (at 86) is beginning to lose touch a bit. When you think you're sitting atop the world, something usually happens to demonstrate otherwise.
He's a lot more sanguine about the global situation than I am at the moment. He certainly understands that past performance is no guarantee of future returns. Get out your washtubs the next time it rains? Really?
"The bundle of hedge funds had compound annual returns of 2.2 percent in the nine years through 2016, compared with 7.1 percent for the index fund. The billionaire estimated that about 60 percent of the gains that the hedge funds produced during that period were eaten up by management fees."
Here's the arithmetic: 5.25% gross for the hedge funds. 2+20 in fees = 2% + 1.05% = 3.05% fees 5.25% - 3.05% = 2.2% net.
3.05% fees/5.25% gross is approximately 60%
If hedge fund managers underperformed the market (before fees), and index funds merely matched the market (before fees), then everyone else outperformed the market on average. That means individual investors and active mutual funds on (dollar-weighted) average beat the index funds.
This is just Sharpe's argument that you can't beat the market. In order for someone to outperform, there has to be someone who was underperforming. Fortunately, active investors had a bunch of losers they could take advantage of over the past nine years. Hedge funds.
Comments
@Anna - Thought for a moment you were talking about some of Cobert's recent monologues.
(Different trickle)
Sorry - Regards
'"A rose by any other name would smell as sweet"
He's a lot more sanguine about the global situation than I am at the moment. He certainly understands that past performance is no guarantee of future returns. Get out your washtubs the next time it rains? Really?
What if it only rains a trickle?
Here's the arithmetic:
5.25% gross for the hedge funds.
2+20 in fees = 2% + 1.05% = 3.05% fees
5.25% - 3.05% = 2.2% net.
3.05% fees/5.25% gross is approximately 60%
If hedge fund managers underperformed the market (before fees), and index funds merely matched the market (before fees), then everyone else outperformed the market on average. That means individual investors and active mutual funds on (dollar-weighted) average beat the index funds.
This is just Sharpe's argument that you can't beat the market. In order for someone to outperform, there has to be someone who was underperforming. Fortunately, active investors had a bunch of losers they could take advantage of over the past nine years. Hedge funds.