Forums  > General  > Long bet S&P vs Hedge Funds  
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Total Posts: 993
Joined: Jun 2005
Posted: 2019-11-30 11:30
Just remembered this bet by Warren Buffett and Protege Partners LLC:

I think the comparison was not fair (Protege Partners did not catch this unfortunately).
- S&P Index changes peaking up the 500 best performers from the large set of public stocks
- Set of top 5 Hedge Fund performers did not change during all 10 years period

Obviously, even if all is equal (e.g. within idealistic MC simulation), the average of 5 best series selected at time T=0, will lose to 500 Index updated regularly on the way.

Question is then,
How that old result would change if to compare S&P500 index with Hedge Fund index composed similarly: with the same periodicity as S&P update select best 500 HF's with same weighting formula.

Also, HF performance must be measured Brutto, i.e. the returns which they extract from the market, not "after the management fee" etc.


Total Posts: 328
Joined: Feb 2014
Posted: 2019-12-01 21:21
but the mgmt and other fees are taken out of the growth to pay for things. imho you are overfitting; as an investor, you will not able to invest in 500 hf's and rebalance for free and this losing the main point of the bet. &&


Total Posts: 993
Joined: Jun 2005
Posted: 2019-12-01 23:18
Yes, I am aware of limitations of investing into HF's, mainly due to lock-up period which worsens rebalancing. And of course, it is about investor's point of view. But suppose those HF's are funded by employees only (like RenTec), then what?

S&P500 is a basket of stocks which reflects ownership over assets generating profits and distributing part of that to shareholders via dividends and rewarding via abnormal stock price growth.

Remember that "invention" of poker players in 70's who started to pool their efforts to smooth the performance?

HF's could do the same - circle of mutually trusted ones quasi-freely relocating funds and sharing profits. Is it possible?

And still I believe, the main issue is with the initial setup of the bet:
- 500 vs only 5
- S&P is rebalanced, while HF index was fixed during all period
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