This seems to be the main argument.lack_ey wrote:If it performs anything close to as advertised, even just by modern portfolio theory, you should probably include an allocation, despite the cost.
My counterpoint was, "sure, if it performs anything close to as advertised... but that's a pretty big if"
You guys fire back, "WE'VE done the research... We're sure this fund is legit, and it will likely perform as advertised... Here's why - (big explanation of factors and backtested data and leverage)".
I say, "I doubt you've done enough research to KNOW that it will perform as advertised. I don't even know if it's possible to know for sure. And there's leverage in there? Yikes. "
You guys reply, "Well, of course, nothing's guaranteed... but really smart people have done the research, and they say it is designed beautifully to be market-neutral. Leverage is no big deal if you do it right"
I say, "Really smart people have been wrong before... In fact, when it comes to economics, really smart people have been wrong a LOT..."
You say, "Have you done the research? Don't talk to us if you don't understand the fund"
I say, "I don't really need to understand the fund to submit that 1.5% ER is a high hurdle to overcome, and that intensively backtested portfolios designed by really smart people have failed many times in the past..."
You say, "You just don't understand THIS fund! Don't talk if you're not willing to fully understand this fund!"
There's a lot more to such a long thread, of course, and my opinion of the arguments are very biased...
You guys may be right... All I know is every complicated investing formula that has ever failed at one point back-tested very well. So I don't hold a lot of trust in back-tested formulas*. And the research you want me to do is check out how well these factors back-test. That doesn't interest me.
(*Yes, technically, investing in U.S. stock market is an investing formula based on back-tested data... but it's a very simple prediction... Stock market in general, over the long-term, goes up... Back-tested data on 4 different "styles" with 15 different variables, sprinkled with leverage, is a bit more complicated beast)
Edit: You guys are not wrong to believe in this fund, but we're not idiots for distrusting it either... You keep thinking if we were just smarter or more open-minded or spent some time researching economic theory, we would come around to believing in this fund... But I'm old enough to have seen a lot of "new" types of funds designed by "very smart people" using "math/computers/economic theories/back-tests" come and go.
I'm not trying to say you guys are wrong. The math may indeed be right. My experience leads me to believe that AQR will do a good job making themselves rich off the fees. They may also make you guys a lot of money too. I certainly hope so. I don't trust them enough to invest my money, and I see nothing wrong with voicing my concerns on a public board dedicated to low-fee simple investing. Actually, it's not that I don't trust them, it's that I don't trust that economics can be accurately modeled. I think there's too many variables and the real world always seems to throw a curve ball.
I'm sorry this thread has devolved to people shouting at each other. I truly am done now... Good luck to you all...