Which Boglehead writes for the Economist?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Which Boglehead writes for the Economist?

Postby asset_chaos » Thu Dec 20, 2012 7:32 am

C'mon, fess up. Which boglehead writes for the Economist? There are two articles in the Economist on the failures of hedge funds. One of them has to have been written by a boglehead.

http://www.economist.com/news/leaders/21568740-investors-have-paid-too-much-hedge-fund-expertise-better-focus-low-costs-star
Rich managers, poor clients
Investors have paid too much for hedge-fund expertise. Better to focus on low costs than star fund managers

http://www.economist.com/news/finance-and-economics/21568741-hedge-funds-have-had-another-lousy-year-cap-disappointing-decade-going
Going nowhere fast
Hedge funds have had another lousy year, to cap a disappointing decade
Regards, | | Guy
asset_chaos
 
Posts: 854
Joined: Tue Feb 27, 2007 7:13 pm
Location: Melbourne

Hedge fund balony

Postby Taylor Larimore » Thu Dec 20, 2012 8:27 am

Guy:

Thank you for the Economist articles. Very interesting and informative.

Unfortunately, this sentence is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%


Bogleheads need to understand that all data bases for hedge funds (unlike mutual funds) depend on volunteer reporting. For this reason underperforming hedge-funds seldom report their returns. The result is that hedge fund data basis grossly overstate the average return of hedge fund performance.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
Taylor Larimore
Advisory Board
 
Posts: 19996
Joined: Tue Feb 27, 2007 9:09 pm
Location: Miami FL

Re: Hedge fund balony

Postby NYBoglehead » Thu Dec 20, 2012 8:32 am

Unfortunately, this sentence is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%


Definitely baloney (or is it bologna?). Using the 2 and 20 model, the fund would have to have grossed ~23.25% annually in order to provide an investor return of 17%. This simply is not happening.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 10:38 am

Re: Hedge fund balony

Postby empb » Thu Dec 20, 2012 8:35 am

NYBoglehead wrote:Unfortunately, this sentence that is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%


Definitely baloney (or is it bologna?). Using the 2 and 20 model, the fund would have to have grossed ~23.25% annually in order to provide an investor return of 17%. This simply is not happening.

I think you've misunderstood. That is 17% cumulatively over the referenced decade, no? They wouldn't have much leg to stand on if it was 17% annualized.
User avatar
empb
 
Posts: 723
Joined: Tue Aug 11, 2009 2:22 pm
Location: EC2A

Re: Hedge fund balony

Postby NYBoglehead » Thu Dec 20, 2012 8:43 am

empb wrote:
NYBoglehead wrote:Unfortunately, this sentence that is absolute balony:

After fees, investors in the average hedge fund have received a return of just 17%


Definitely baloney (or is it bologna?). Using the 2 and 20 model, the fund would have to have grossed ~23.25% annually in order to provide an investor return of 17%. This simply is not happening.

I think you've misunderstood. That is 17% cumulatively over the referenced decade, no? They wouldn't have much leg to stand on if it was 17% annualized.


Ah, my bad. I was piggybacking off Taylor and made an assumption. Thanks for the correction. If that's the case 17% cumulative return over a decade is simply awful.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 10:38 am

Re: Hedge fund balony

Postby asset_chaos » Thu Dec 20, 2012 7:45 pm

Taylor Larimore wrote:Bogleheads need to understand that all data bases for hedge funds (unlike mutual funds) depend on volunteer reporting. For this reason underperforming hedge-funds seldom report their returns. The result is that hedge fund data basis grossly overstate the average return of hedge fund performance.

Taylor,

You're quite right. And that makes the reported 17% cumulative return over a decade even worse because it's just an upper bound on what really happened. These hedge funds as a group are such unbelievably bad investments that it bogles the mind (in the bad way) that so-called sophisticated investors and institutions have piled money into these things. As usual, if people could get their mind Bogle-ed (as in following Mr Bogle's investment principles), they'd be so much better off.

And a very merry Christmas to all.
Regards, | | Guy
asset_chaos
 
Posts: 854
Joined: Tue Feb 27, 2007 7:13 pm
Location: Melbourne

Re: Which Boglehead writes for the Economist?

Postby lloydbraun » Thu Dec 20, 2012 8:10 pm

I pointed this article out to my wife a couple of days ago when it appeared online as yet another example of low-cost, passive index funds beating actively managed funds over the long term. There was also a decent Diane Rehm episode on NPR the other day that touched in the importance of low cost index funds in 401Ks and IRAs.
lloydbraun
 
Posts: 96
Joined: Mon May 30, 2011 10:14 pm

Re: Which Boglehead writes for the Economist?

Postby tfb » Fri Dec 21, 2012 11:18 am

I don't understand the media's attention given to hedge funds. However poor they are, they are just not that relevant to the investing public. Nobody has tried to sell me an investment in hedge funds.
Harry Sit, taking a break from the forums.
User avatar
tfb
 
Posts: 6675
Joined: Mon Feb 19, 2007 6:46 pm

Re: Which Boglehead writes for the Economist?

Postby Call_Me_Op » Fri Dec 21, 2012 11:22 am

17% over a decade is pitiful.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Call_Me_Op
 
Posts: 4717
Joined: Mon Sep 07, 2009 3:57 pm
Location: Milky Way

Re: Which Boglehead writes for the Economist?

Postby NYBoglehead » Fri Dec 21, 2012 11:27 am

^You are correct. A lot of attention is placed on how risky hedge funds are, but my response is always "Who cares?" The overwhelming majority of Americans do not meet the criteria to invest in one and shouldn't really care how poorly they perform. I'm happy to allow the uber wealthy to have a monopoly on this poor investment vehicle!!

That said, one thing that does matter to us all is municipal pension funds investing in hedge funds. I am not a public employee but as a NY taxpayer I am not pleased that some of the public employee pension funds have money in hedge funds. This is a drag on the returns and the general public is responsible through taxes to cover the shortfall needed to pay out benefits. Problematic indeed.
NYBoglehead
 
Posts: 1588
Joined: Fri May 25, 2012 10:38 am

Re: Which Boglehead writes for the Economist?

Postby staythecourse » Fri Dec 21, 2012 11:35 am

NYBoglehead wrote:^You are correct. A lot of attention is placed on how risky hedge funds are, but my response is always "Who cares?" The overwhelming majority of Americans do not meet the criteria to invest in one and shouldn't really care how poorly they perform. I'm happy to allow the uber wealthy to have a monopoly on this poor investment vehicle!!

That said, one thing that does matter to us all is municipal pension funds investing in hedge funds. I am not a public employee but as a NY taxpayer I am not pleased that some of the public employee pension funds have money in hedge funds. This is a drag on the returns and the general public is responsible through taxes to cover the shortfall needed to pay out benefits. Problematic indeed.


Agree 100%. MANY folks are part of hedge funds via their pension plans. Hedge funds have done a GREAT job wining and dining the managers of the plan to get some of their money.

I am still waiting to see some well deserved lawsuits on how irresponsible PUBLIC pension money is invested.

Good luck.
...we all think we're above average investors just like we all think we're above average dressers... -Jack Bogle
staythecourse
 
Posts: 2950
Joined: Mon Jan 03, 2011 10:40 am

Re: Which Boglehead writes for the Economist?

Postby Alex Frakt » Fri Dec 21, 2012 11:42 am

tfb wrote:I don't understand the media's attention given to hedge funds. However poor they are, they are just not that relevant to the investing public. Nobody has tried to sell me an investment in hedge funds.

The media attention is because people love reading about rich people. Especially when they screw up.

But it's not totally irrelevant to much of the investing public. All kinds of stuff that matter to us, from the solvency of public pension funds (and thus state tax rates) to the availability of scholarships to the price of museum admission depends on institutional money that are potential targets for these things.

For example:
http://www.nytimes.com/2012/10/13/busin ... d=all&_r=0
Even more startling, data compiled by the National Association of College and University Business Officers for the 2011 fiscal year (the most recent available) show that large, medium and small endowments all underperformed a simple mix of 60 percent stocks and 40 percent bonds over one-, three- and five-year periods. The 91 percent of endowments with less than $1 billion in assets underperformed in every time period since records have been maintained. Given the weak results being reported this year, that underperformance is likely to be even more pronounced when the fiscal year 2012 results are included.

The impact is significant. Universities depend on returns on their endowments to finance operations, pay faculty and administrative salaries, provide scholarships and pay for building projects.
Alex Frakt
Founder
 
Posts: 9478
Joined: Fri Feb 23, 2007 2:06 pm
Location: Chicago


Return to Investing - Theory, News & General

Who is online

Users browsing this forum: Austintatious, Bing [Bot], Electron, frugalmeister, happyisland, Lynette, neurosphere, staythecourse, tomd37, Trevor and 42 guests