The Proof Is In That Hedge Funds Perform Poorly

[zerozero]

The hedge fund mirage vindicated: good for managers, but bad for investors

What Lack does is try to track the fate of the typical dollar invested in a hedge fund. He finds that the returns have been dismal. In response, AIMA says we should look instead at the fate of the typical fund rather than weighting the funds by dollars.

AIMA is an association of fund managers, and as a vindication of fund managers qua people this works fine. Hedge funds became famous and lucrative because a lot of hedge fund managers really did get some very good returns. But this precisely speaks to Lack's point. When hedge funds, as an asset class, were small and relatively obscure they did quite well. That made them bigger and less obscure, but they haven't done well since then. Everyone knows that one of the worst foibles of retail investors is a tendency to chase growth. After, tech stocks appreciate a lot people think to themselves "I should get into high-tech." Then when the market crashes, they think "man stocks are risky, I want to get into something safer." This kind of buy high, sell low trading leads to big losses but it appeals to people's herd instincts. Lack is basically saying that hedge funds as an asset class are just another example of this. The time to get into hedge funds was back when nobody was doing it. Then they did well, and everyone rushed into hedge funds after the gains had already been made. AIMA doesn't rebut this at all. Instead they're basically saying "don't blame us, investors should have gotten in earlier."

 

[Domingo Halliburton]

yeah, this is pretty much the point of Random Walk Down Wall Street

 

[Broke Wave]

yeah, this is pretty much the point of Random Walk Down Wall Street

I don't see the correlation, and that book is not factual.

 

[Domingo Halliburton]

I don't see the correlation, and that book is not factual.

he basically points out that most hedge funds and mutual funds usually perform poorer than index funds. Of course their are exceptions. But no one consistently beats the market over a long enough time period.

Which part isn't factual?

 

[Broke Wave]

he basically points out that most hedge funds and mutual funds usually perform poorer than index funds. Of course their are exceptions. But no one consistently beats the market over a long enough time period.

Which part isn't factual?

The premise of the Efficient Market Hypothesis is not factual

 

[Domingo Halliburton]

The premise of the Efficient Market Hypothesis is not factual

Yeah inefficiencies may exist in places. But the market is usually very efficient. And inefficiencies are corrected once they're exploited.

 

[Broke Wave]

Yeah inefficiencies may exist in places. But the market is usually very efficient. And inefficiencies are corrected once they're exploited.

Not true. The market is not efficient in some senses, and is efficient in other senses.

For example, in sectors where demand and supply are readily defined, the market is efficient in giving the best possible price for both the buyer and seller, all costs factored in.

The inefficiency of the market begins in the realm of demand and what people demand. Advertisement is a part of the inefficiency of the market, because people irrationally demand inferior products. People don't know what is best for them, or what is the best product, and therefore the market simply responds to what people want, not what is best. This plays itself out in the stock market, because people are interested in fads, not the best possible investment, and therefore these investments are not priced properly, and fads are priced incorrectly. The market corrects itself usually, but this still indicates inefficiency, and therefore it is very possible to beat the market.

 

[Domingo Halliburton]

Not true. The market is not efficient in some senses, and is efficient in other senses.

For example, in sectors where demand and supply are readily defined, the market is efficient in giving the best possible price for both the buyer and seller, all costs factored in.

The inefficiency of the market begins in the realm of demand and what people demand. Advertisement is a part of the inefficiency of the market, because people irrationally demand inferior products. People don't know what is best for them, or what is the best product, and therefore the market simply responds to what people want, not what is best. This plays itself out in the stock market, because people are interested in fads, not the best possible investment, and therefore these investments are not priced properly, and fads are priced incorrectly. The market corrects itself usually, but this still indicates inefficiency, and therefore it is very possible to beat the market.

so what are you investing in then smart guy?

 

[Broke Wave]

so what are you investing in then smart guy?

I'm a student.

 

[Domingo Halliburton]

I'm a student.

and they're teaching you the efficient market hypothesis is false?

 

[Broke Wave]

and they're teaching you the efficient market hypothesis is false?

They don't teach critical thinking in economics they just teach the numbers and theory. It is up to you to decide what you take away from those numbers.

It's like me asking if they teach in Political Science that right-wing American policies lead to failure. They don't implicitly teach that, but if you are looking at facts and evidence, you can see that many right-wing policies have been failures in the modern context.

 

[Meta Reign]

Not true. The market is not efficient in some senses, and is efficient in other senses.

For example, in sectors where demand and supply are readily defined, the market is efficient in giving the best possible price for both the buyer and seller, all costs factored in.

The inefficiency of the market begins in the realm of demand and what people demand. Advertisement is a part of the inefficiency of the market, because people irrationally demand inferior products. People don't know what is best for them, or what is the best product, and therefore the market simply responds to what people want, not what is best. This plays itself out in the stock market, because people are interested in fads, not the best possible investment, and therefore these investments are not priced properly, and fads are priced incorrectly. The market corrects itself usually, but this still indicates inefficiency, and therefore it is very possible to beat the market.

And here we have it, ladies and gentlemen. The logic of a pompus liberal, douchebag, know-nothing.

May I ask you, douche. Can you name a few of these so-called inferior products, and their douche-approved counter-products? I mean that shouldn't be hard for a smart, do-goodie liberal such as yourself, right?

 

[Broke Wave]

And here we have it, ladies and gentlemen. The logic of a pompus liberal, douchebag, know-nothing.

May I ask you, douche. Can you name a few of these so-called inferior products, and their douche-approved counter-products? I mean that shouldn't be hard for a smart, do-goodie liberal such as yourself, right?

What did I do to warrant this? Did I insult you? Do you have a serious complaint with what I said? Are you an adult?

 

[Domingo Halliburton]

What did I do to warrant this? Did I insult you? Do you have a serious complaint with what I said? Are you an adult?

despite his wording, he does make a good point. Where are these market inefficiencies? And don't tell me "advertising makes people excited about products" again.

 

[Broke Wave]

despite his wording, he does make a good point. Where are these market inefficiencies? And don't tell me "advertising makes people excited about products" again.

Human Behavior is irrational. For example think of Gold. Why is Gold a currency? What gives Gold value? Does it have any practical value to consumers outside of computers? Why is gold approximately 1600 dollars an ounce? Because people buy it because they believe it is a hedge against inflation. Is that an efficient way to price a commodity? Is the 1600 dollar price any indication as to the supply of gold? One of many inefficiencies is human behavior and cultural interactions with the market, its not the only one.