Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

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MI_bogle
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by MI_bogle » Wed May 03, 2017 8:44 am

I wouldn't call it sour grapes, more like rationalizing and self-justification


I love that he says you can't compare apples to oranges, despite betting that his oranges were better than those apples. But now that apples objectively won, it's not proper to compare

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by rob65 » Wed May 03, 2017 8:49 am

The only point I agreed with was the relative lack of diversification in the S&P 500. A three fund portfolio with total stock market, total international stock market, and the short/intermediate bond fund of your choice would be better. IMHO, the average investor could do far worse than just going all in on a Vanguard Life Strategy or Target Date Fund.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Lax67 » Wed May 03, 2017 8:53 am

rob65 wrote:the average investor could do far worse than just going all in on a Vanguard Life Strategy or Target Date Fund.


All of our accounts, except for our taxable investment account, hold Vanguard Target Date funds. The simplicity is overwhelmingly satisfying.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by simplesimon » Wed May 03, 2017 8:53 am

Warren discussed the bet in this year’s annual letter to Berkshire Hathaway Inc. shareholders, explaining that the high fees active money managers charge create a headwind relative to low-cost passive alternatives. He is correct that hedge-fund fees are high, and his reasoning is convincing. Fees matter in investing, no doubt about it.


My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory. The S&P 500 looks overpriced and has a reasonable chance of disappointing passive investors. Hedge funds mitigate risk in bear markets, while seeking to participate in some of a bull market. Investing in hedge funds is a bet against continuing bull markets; investing in the S&P 500 is a bet on a continuing bull market.


I haven't read everything Buffett has said about the bet but I thought the gist of it was that the fees were hard to overcome. The author may be right about why the S&P500 ridiculously outperformed the hedge fund, but he missed Buffett's point.

What was the hedge fund's annual performance over the period and how did it compare to a typical diversified Bogleheads portfolio net of fees? This might make for a better Granny Smith apple to Fuji apple comparison.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by deltaneutral83 » Wed May 03, 2017 8:54 am

I guess I don't understand some of his points. He mentions that hedge funds (and I guess actively managed funds) hedge better during bear markets, sure, great, terrific, I'm with you on that. Well, you got the worst bear market since the great depression in that time frame 2008-2018? So you had every opportunity to show your stuff....and still got steamrolled. What was his point on that?

Buffet should offer him double or nothing and let the bet continue another ten years and state that we are just at halftime of the bet.

The one valid point he made was that retail investors are much more likely to take it off the table in a 50% collapse but that still ignores the fact that asset allocation hedges against a 50% drop. I'm sure we've all made investing mistakes but being 100% in equities past the age of 40-45 isn't generally a popular idea for 99% of the population.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Pajamas » Wed May 03, 2017 8:55 am

Interesting list of excuses and explanations, some of which don't make any sense at all. In the end, his fund could not beat the S&P 500 index, and I think it was a fair contest with simple rules. In the end, he accepted the bet.

He should come up with a similar contest with terms satisfactory to him and see if Warren Buffett will play along. Maybe he could win that way.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Eric76 » Wed May 03, 2017 8:57 am

If he was being honest, he would have said that Buffett won the bet because over the long term, a broad, inexpensive market index is the best vehicle for market exposure. Full stop. Instead he was grasping at straws for excuses.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by TheHouse7 » Wed May 03, 2017 8:59 am

Seems to me the hedge funds should have easily won under this scenario with the market crash at the beginning of the race if they can handle bear markets so much better than the S&P 500. :confused
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by BTDT » Wed May 03, 2017 8:59 am

Sounds just like the broker I fired when I discovered the Bogleheads :oops:
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by stemikger » Wed May 03, 2017 9:02 am

I agree with him about hedge funds may do better protecting against a downturn, but isn't that what my bonds are for? Low fees plus dry powder. For the record, I love Warren, but 90/10 is just too risky for me. 60/40 will keep me in the game.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Atgard » Wed May 03, 2017 9:04 am

Absolutely! I love when he says "Buffet just got lucky that U.S. stocks did well, we would have done GREAT in a market crash!" ... then forgets there WAS a huge market crash and worst recession in 80 years during the 10-year bet ... then he remembers again and says "because there was a big crash, lots of people who don't listen to Buffet would have bailed out at the bottom when it lost 50%!" (Sounds like "heads I shoulda won, tails you shoulda lost.")

In other words, he did get exactly what he wanted (a big crash), but even over 10 years (which is decidedly only medium-term for most stock investment horizons, especially in retirement accounts meant to go 30+), the boring index fund recouped the 50% hit it took right out of the gate (talk about sequence of returns risk!) and STILL managed to throttle the hedge funds.

So in what universe would he win? One where there are TWO once-in-a-lifetime crashes within 10 years?

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nisiprius » Wed May 03, 2017 9:26 am

Sour grapes. Also, sore loser.

He accepted the bet in the first place. Nobody put a gun to his head to make him do it. So all of his yammering about about why it wasn't a fair bet leads to the obvious question: why did he take it? If he was aware of all these factors at the time, he must have thought that his firm's strategy didn't just have an edge, but that it had such overwhelming superiority that it could easily overcome the various details he mentions.

(Or, alternatively, he thought that the publicity boost if he won would boost his firm's business more than the bad publicity if he lost.)

Point #3, "A passive investment in the S&P 500 is an active bet," is particularly objectionable, although it's a standard salesman's talking point. "I want passive." "Well, your so-called 'passive' investment isn't absolutely, perfectly, 100.0000000% passive. Therefore, since you can't actually get what you want, you should buy what I'm selling instead."

He says the S&P 500 lucked out because "the S&P 500 is biased toward U.S. stocks relative to global stocks and large companies relative to small ones. These two bets generated anomalously strong relative performance in this period."

I think the last numbers that have been made public were in February e.g. in this article in Fortune:
After nine years, the index fund has registered a compounded annual increase of 7.1%. And the average for the five funds (whose names have never been made public) is 2.2%. In total gains, the index fund is up 85.4%. The average gain of the five funds is 22%

First of all, his claim that the "bet" on "large companies relative to small ones generated anomalously strong relative performance in this period..." well, it ain't so. It didn't happen. Pants on fire. Four Pinocchios. He's making a plausible statement that could be true, with checking to make sure that it really is true.

From the date of the bet, 1/1/2008, through the approximate date of the last numbers, 2/1/2017:
Source
Image

The mostly-large-company S&P 500 index fund, VFINX (blue) did not have "anomalously strong" performance. The Vanguard Total Stock Market index fund, VTSMX, (orange) which invests in all company sizes had essentially the same but slightly higher performance. And the Vanguard Small-Cap Index Fund, NAESX, had distinctly higher returns over this time period. (I think the relative performance of the small-caps is the one which was "anomalously" high over that time period).

International is trickier, because in fact the performance of international stocks as represented by VGTSX was anomalously low, very close to zero, in fact. So if Vanguard Total World Index had existed at the time of the bet and had Buffett for whatever reason chosen it, then, yes, the total return would have been cut just about in half. That means it would have been "only" twice as much as the Protegé hedge fund portfolio.

PortfolioVisualizer, 50/50 mixture of Total Stock Market Index Fund (VTSMX), U.S., and Total International Stock Index (VGTSX), Ex-US. Total cumulative gain from start of bet to approximate date of Fortune article, 39% for the index funds versus 22% for the hedge funds. Source
Image
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by QuietProsperity » Wed May 03, 2017 10:14 am

I heard Ted Seides on the Invest Like The Best podcast this week and he seems to be a bit more humble about the experience in that forum compared to the Bloomberg article.

With that said, there were still a number of excuses/justifications/reasons etc. given for the loss, but two stuck out to me.

Vehicle Choice - He says that if they do the bet again (Which he said he would do if Buffett is game) he will not choose fund-of-funds and will instead go with direct hedge fund exposure. This to me is obvious and underscores just how bad the fund-of-fund structure is for us as investors. Some of these fund-of-funds can cost upwards of 5% a year!!!! If you want to invest in a hedge fund or some exotic investment strategy, go for it, but go direct & fees still matter.

Bench-marking - He brought up the fact that the SP 500 was an unfair benchmark in retrospect. Given the level of market exposure in the group of funds he chose, he said a proper benchmark would have been 50% Total World Stock / 50% Cash. For fun I looked at a portfolio of:

25% US Stocks (VTSMX)
25% International Stocks (VGTSX)
50% Short Term Treasury (VFISX)


from Jan 2008 through Jan 2017 (Most recent numbers of bet from nisiprius):

Total Return: 35.96% (22%)
CAGR: 3.44% (2.2%)
Max DD: -25% (-24%; He mentioned this on the podcast as that max DD for the FoF portfolio in 2008)



So, if you invested in a low-cost, 3-fund, 50-50 global portfolio, you had about a 1.2% better annual return with the same max draw-down.

This to me is the key. Cliff Asness talks about this all the time. A lot (Not all) of alt strategies charge hedge fund type fees for strategies that can be easily replicated with simple stock/bond allocations for far far less.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by TIAX » Wed May 03, 2017 10:32 am

nisiprius wrote:Sour grapes. Also, sore loser.

He accepted the bet in the first place. Nobody put a gun to his head to make him do it. So all of his yammering about about why it wasn't a fair bet leads to the obvious question: why did he take it? If he was aware of all these factors at the time, he must have thought that his firm's strategy didn't just have an edge, but that it had such overwhelming superiority that it could easily overcome the various details he mentions.

(Or, alternatively, he thought that the publicity boost if he won would boost his firm's business more than the bad publicity if he lost.)

Point #3, "A passive investment in the S&P 500 is an active bet," is particularly objectionable, although it's a standard salesman's talking point. "I want passive." "Well, your so-called 'passive' investment isn't absolutely, perfectly, 100.0000000% passive. Therefore, since you can't actually get what you want, you should buy what I'm selling instead."

He says the S&P 500 lucked out because "the S&P 500 is biased toward U.S. stocks relative to global stocks and large companies relative to small ones. These two bets generated anomalously strong relative performance in this period."

I think the last numbers that have been made public were in February e.g. in this article in Fortune:
After nine years, the index fund has registered a compounded annual increase of 7.1%. And the average for the five funds (whose names have never been made public) is 2.2%. In total gains, the index fund is up 85.4%. The average gain of the five funds is 22%

First of all, his claim that the "bet" on "large companies relative to small ones generated anomalously strong relative performance in this period..." well, it ain't so. It didn't happen. Pants on fire. Four Pinocchios. He's making a plausible statement that could be true, with checking to make sure that it really is true.

From the date of the bet, 1/1/2008, through the approximate date of the last numbers, 2/1/2017:
Source
Image

The mostly-large-company S&P 500 index fund, VFINX (blue) did not have "anomalously strong" performance. The Vanguard Total Stock Market index fund, VTSMX, (orange) which invests in all company sizes had essentially the same but slightly higher performance. And the Vanguard Small-Cap Index Fund, NAESX, had distinctly higher returns over this time period. (I think the relative performance of the small-caps is the one which was "anomalously" high over that time period).

International is trickier, because in fact the performance of international stocks as represented by VGTSX was anomalously low, very close to zero, in fact. So if Vanguard Total World Index had existed at the time of the bet and had Buffett for whatever reason chosen it, then, yes, the total return would have been cut just about in half. That means it would have been "only" twice as much as the Protegé hedge fund portfolio.

PortfolioVisualizer, 50/50 mixture of Total Stock Market Index Fund (VTSMX), U.S., and Total International Stock Index (VGTSX), Ex-US. Total cumulative gain from start of bet to approximate date of Fortune article, 39% for the index funds versus 22% for the hedge funds. Source
Image

Wow, great analysis! Any chance you could contact Bloomberg and write a response based on the above?
Last edited by TIAX on Wed May 03, 2017 10:33 am, edited 2 times in total.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nedsaid » Wed May 03, 2017 10:32 am

I do agree that the S&P 500 and a hedge fund and thus the benchmarks should be different. But Seides took the bet and lost. The biggest factor in the loss is simply that hedge funds charge too much. They also are not transparent so you have to take their word for what the managers were doing. It is a good lesson for investors to keep their fees low and the disadvantages of complex investments.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by telemark » Wed May 03, 2017 10:48 am

He's right about a lot of things. There is always a large element of chance involved in investing, enough that no outcome can really be regarded as conclusive. And the last eight years have been unusually kind to stock-heavy portfolios, and risk really is important: going 100% stocks is not the wisest choice for all investors even if it sometimes pays off.

But...

We are not limited to choosing between going 100% in the S&P 500 or paying 2 and 20 to a hedge fund manager. We can diversify beyond the S&P 500 and choose an appropriate level of risk without using managed funds or paying exorbitant fees. The real question should be "what do you get for your 2 and 20, that you can't get for much less with index funds?"

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Nate79 » Wed May 03, 2017 11:29 am

I think you guys are doing a little too much patting yourselves on the back saying "hey look, another example of low cost index fund beating active investing...". Woohoo we did it! How many of you are 100% S&P portfolio? I'm not. I have international and bonds to supplement TSM. My portfolio likely didn't beat the S&P500 neither. It's not surprising that 100% US large cap stock fund beat a diversified US stock/International stock/Bond/etc fund regardless of fees.

Suppose international was on a tear the last 10 years instead of in the dumps and the hedge funds won the bet. What would be the argument in that case?

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by cjcerny » Wed May 03, 2017 11:44 am

Mr. Seides should just graciously admit that Mr. Buffett won the bet for all the reasons Mr. Buffett said he would win the bet. But, he can't do that. His livelihood would be at stake.

Active management can work well in very limited circumstances. Vanguard's actively managed Wellington and Wellesley funds are great, but they are super low cost and can only compete in a non-taxable account against the mighty S&P 500 or Total Stock Market Index funds. Other than those conditions, there's just no way active management is going to hang with a stock index over the long run under any circumstance other than luck. Good luck finding the lucky active fund managers.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by dad2000 » Wed May 03, 2017 11:44 am

Blah, blah, blah...

Vanguard Lifestrategy Income is an extremely low risk fund, and it still smoked the fund-of-funds. He can cherry pick all he wants, but he probably loses a 10 year bet to any well-diversified index/allocation fund 95% of the time.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by knpstr » Wed May 03, 2017 11:45 am

Sure buddy, it wasn't the high fees and poor management of the funds, the S&P 500 was just irrational.

Give him another 10 years, and another 10 years, and another...

Undoubtedly the hedge funds will beat the S&P 500 during some periods. The question is which outperforms the other more often on average. I want to pick the one that wins on average since I am not smart enough to time when to switch back and forth.

Oh, and the two are absolutely comparable. We, as investors, invest for total return. All options must be weighed against all others. No imaginary lines in the sand.

And then he states that hedge funds have high fees, but attempt to have less risk.
Hate to break it to this guy but, high fees = high risk.

***Would love to see Warren address this article at the annual meeting on Saturday.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by JoMoney » Wed May 03, 2017 12:07 pm

Ted Seides in the original 2008 Longbets statement wrote:...There is a wide gap between the returns of the best hedge funds and the average ones. This differential affords sophisticated institutional investors, among them funds of funds, an opportunity to pick strategies and managers that these investors think will outperform the averages. Funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay.
Yes, there is a wide differential between narrow investment choices and a broad market index fund. Mr. Seides has shown that he does not know how to pick "the best hedge funds". I would suggest there's probably a lesson he could learn from this, but I'm sure it's financially much better for him to keep up his charade.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by JoMoney » Wed May 03, 2017 12:36 pm

Nate79 wrote:I think you guys are doing a little too much patting yourselves on the back saying "hey look, another example of low cost index fund beating active investing...". Woohoo we did it! How many of you are 100% S&P portfolio? I'm not. I have international and bonds to supplement TSM. My portfolio likely didn't beat the S&P500 neither. It's not surprising that 100% US large cap stock fund beat a diversified US stock/International stock/Bond/etc fund regardless of fees...

I am, and I'm sure there's at least a few others. Even people who followed a simple "Three Fund" or "Second Graders" portfolio have also done well relative to the many other slice-n-dice portfolios people come up with and the 'stories' that go with it.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by subrosa » Wed May 03, 2017 1:21 pm

So he lost the bet...

For a mere $320,000.00*, tax deductible no less, the guy no one** probably ever heard of is associated with the investor everyone has heard of.
Permanently.
Seides got a ton of publicity for his donation.
He will get years more, if / when the S&P falls behind his picks he'll be able to point it out for at least 10 more years.
Supposedly some investors will leave him or not join him because he lost the bet.
But we/he will never know this.
I doubt it though. 2015 he, according to reuters, turned down an offce from Credit Suisse, writing that for the fort time in > a decade he was a free agent and seemed excited about all that he could now do.
Even if things slow a bit for him, he will have the free time to write the book in a few years about the experience and make any $ losses up.
Maybe even more will seek him out from the publicity. He certainly sounded top the world in 2015.
But we/he will never know this.

I think he won the war.

*a huge amount for any mortal, but 'behaviorally' spread out it was $32,000.00 a year over 10 years... and for that, for 10 years now he was granted a decent amount of fame for a donation that - all told - is probably pretty modest for a hedge fund... of funds... manager...? (I do not really know what he actually does). edit- I thought it was $240,000 originally; I think it was $320,000.00. I think he actually had partners as well- no one ever talks about them though, so either way I still think to get 10 years of publicity from this it wasn't too bad for Seides.

** taking nothing away from his pre bet accomplishments, and speaking more generally to the non hedge fund audience, I think this is probably statistically likely to a high degree.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nisiprius » Wed May 03, 2017 3:24 pm

QuietProsperity wrote:I heard Ted Seides on the Invest Like The Best... He says that if they do the bet again (Which he said he would do if Buffett is game) he will not choose fund-of-funds and will instead go with direct hedge fund exposure....
I'm sure he chose the portfolio-of-multiple-funds approach because at that time he was with Protégé Partners and that is what Protégé Partners does.

He left Protégé in 2015, to start a hedge fund at Credit Suisse, but apparently that fell through and I'm not clear on what he's doing now. He published a book in 2016 entitled So You Want To Start a Hedge Fund: Lessons for Manager and Allocators, but the "About the Author" page says little.

In any case, now that he is no longer in the business of managing portfolios of multiple funds, that may have affected his feelings about the best strategy.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by triceratop » Wed May 03, 2017 3:36 pm

nisiprius wrote:International is trickier, because in fact the performance of international stocks as represented by VGTSX was anomalously low, very close to zero, in fact. So if Vanguard Total World Index had existed at the time of the bet and had Buffett for whatever reason chosen it, then, yes, the total return would have been cut just about in half. That means it would have been "only" twice as much as the Protegé hedge fund portfolio.


Not only that, Seides claims this:

It was global diversification that hurt hedge fund returns more than fees. In fact, a low-cost index of large global companies, the MSCI All Country World Index, almost exactly matched hedge-fund returns during the same nine-year period of our bet (and international stocks actually lost money during that period.) This index isn’t a perfect benchmark for hedge funds either, but it is a lot closer to an apples-to-apples comparison than hedge funds and the S&P 500.


VTIAX shows a positive return from 01/01/2008 to present, at least since mid-February. Simply a falsehood. Probably Seides is using the price return to "prove" his point
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by jalbert » Wed May 03, 2017 3:44 pm

Mr. Seides does mention that:
The S&P 500 index fund fell 50 percent in the first 14 months of the bet.

This means that the timing of the bet turned out to be especially bad for Mr. Buffett-- Mr. Seides mentioned that hedge funds mitigate market risk so they get their real advantage when market downturns happen. Having the deepest bear market in almost a century in the first 14 months of the betting period was already a big advantage for Mr. Seides in terms of event outcome.

I'm not predicting a bear market in the next 9 months, but declaring the bet to be essentially over is to continue to ignore the unpredictability of markets.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by triceratop » Wed May 03, 2017 3:49 pm

Seides must think his readers were born yesterday with all the false comparisons. Of course the S&P500 could underperform global equities. Of course one should diversify. Of course one should benchmark appropriately: and if Seides wanted to be fair he would have chosen funds which invested solely in S&P500 companies; presumably he did not because he saw some investment advantage -- but now he is using poor active decisions to excuse himself from the failure against a passive strategy. That changes nothing about Buffett's point about the low fee advantage. Does Seides think we don't know that broad index funds exist in international equities too? :oops: The entire piece is intellectually offensive.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by NiceUnparticularMan » Wed May 03, 2017 4:04 pm

In fact, a low-cost index of large global companies, the MSCI All Country World Index, almost exactly matched hedge-fund returns during the same nine-year period of our bet


That's an . . . interesting . . . argument for paying hedge fund fees.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by lack_ey » Wed May 03, 2017 4:30 pm

jalbert wrote:Mr. Seides does mention that:
The S&P 500 index fund fell 50 percent in the first 14 months of the bet.

This means that the timing of the bet turned out to be especially bad for Mr. Buffett-- Mr. Seides mentioned that hedge funds mitigate market risk so they get their real advantage when market downturns happen. Having the deepest bear market in almost a century in the first 14 months of the betting period was already a big advantage for Mr. Seides in terms of event outcome.

I'm not predicting a bear market in the next 9 months, but declaring the bet to be essentially over is to continue to ignore the unpredictability of markets.

The market valuations went up through the full period (to today), and that's what counts. You can't really make a case based on market behavior through a small part of the bet, while ignoring market behavior over the rest of it.


In any case, to the extent to which hedge funds are not hedged and contain market exposure, they are not mitigating market risk. Of all the points being made, I think the one I would take most issue with (other than brushing off the costs, particularly of the awful fund-of-hedge-funds structures) would be the characterization of lower drawdown compared to the market as some risk-mitigating property of hedge funds. If you have about 0.5 beta on the global stock market, as a baseline you go up less than the market does when the market is up, and you go down less than the market does when the market is down. That is nothing special and can be accomplished by deleveraging a global stock allocation with cash. What's more generally relevant is if there was any residual alpha after fees after accounting for the common market exposures, and where any of that came from.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by oldcomputerguy » Wed May 03, 2017 4:55 pm

QuietProsperity wrote:Bench-marking - He brought up the fact that the SP 500 was an unfair benchmark in retrospect. Given the level of market exposure in the group of funds he chose, he said a proper benchmark would have been 50% Total World Stock / 50% Cash.


Why should he think that matters? The bet was between him and Buffett, not between him and a particular benchmark. No matter what benchmark he thinks should have been used to gauge his performance, the fact is that he took the bet, and he lost. No benchmark is going to change that.

Sounds like more excuses, to me.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by reriodan » Wed May 03, 2017 5:56 pm

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by David Jay » Wed May 03, 2017 6:09 pm

JoMoney wrote:
Nate79 wrote:I think you guys are doing a little too much patting yourselves on the back saying "hey look, another example of low cost index fund beating active investing...". Woohoo we did it! How many of you are 100% S&P portfolio? I'm not. I have international and bonds to supplement TSM. My portfolio likely didn't beat the S&P500 neither. It's not surprising that 100% US large cap stock fund beat a diversified US stock/International stock/Bond/etc fund regardless of fees...

I am, and I'm sure there's at least a few others. Even people who followed a simple "Three Fund" or "Second Graders" portfolio have also done well relative to the many other slice-n-dice portfolios people come up with and the 'stories' that go with it.
Image

I love it! He couldn't match the return of any Lazy portfolio.

Don't know the AA of all of them but I know Coffeehouse is 40% bonds.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Nthomas » Wed May 03, 2017 6:19 pm

I also think a huge takeaway is that he points out the S&P was so highly valued at that point that he thought there was no way it would return its historical average over the next ten years. A lot of people are currently saying that about valuations and future returns and although they very well may be right it's another example of why we should just forge ahead and keep investing. No one can predict the future.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by MichaelRpdx » Wed May 03, 2017 6:27 pm

rob65 wrote:The only point I agreed with was the relative lack of diversification in the S&P 500. A three fund portfolio with total stock market, total international stock market, and the short/intermediate bond fund of your choice would be better. IMHO, the average investor could do far worse than just going all in on a Vanguard Life Strategy or Target Date Fund.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by MichaelRpdx » Wed May 03, 2017 6:44 pm

JoMoney wrote:I am, and I'm sure there's at least a few others. Even people who followed a simple "Three Fund" or "Second Graders" portfolio have also done well relative to the many other slice-n-dice portfolios people come up with and the 'stories' that go with it.
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Note to all, that image is a link to a live MarketWatch tracker of the lazy portfolios. It includes links to details on each of them. The Second Grader's Starter is a three fund port for example, a personal favorite.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by selftalk » Wed May 03, 2017 7:24 pm

It`s very hard to believe how Ted Seides actually justifies losing to Buffett. He looks ridiculous in what he said as his defense. Ted`s a grown man and should act like one. He should have kept his mouth shut and faded away. He lost fair and square. All this will be turned around by the news media as usual (fake news) so good ole Ted won`t lose face. Losing will in all probability get MORE investors and WOULD BE investors to select the index way. Wall Street doesn`t give up easily. My hat`s off to Buffett.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by JoMoney » Wed May 03, 2017 7:54 pm

Warren Buffett in 2016 Letter to BRK Shareholders wrote: http://berkshirehathaway.com/letters/2016ltr.pdf
In my opinion, the disappointing results for hedge-fund investors that this bet exposed are almost certain to recur in the future. I laid out my reasons for that belief in a statement that was posted on the Long Bets website when the bet commenced (and that is still posted there).
Image

Seides wrote:...Hedge funds mitigate risk in bear markets...

Bonds mitigate the risk of not having the money when you need it... Better performance was had by the cash Seides put up for the bet than the 2.2% of his hedge fund portfolio. The hedge funds failed to beat the 3.9% annualized return of a total bond market index over the past 9 years... even Vanguard's short-term bond index returned 2.5% annualized.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by simplesimon » Wed May 03, 2017 8:31 pm

nisiprius wrote:He left Protégé in 2015, to start a hedge fund at Credit Suisse, but apparently that fell through and I'm not clear on what he's doing now.


Seems like he's got his own website which contains podcasts, a link to articles about "The Bet" and, according to his LinkedIn, serves as a consultant to asset managers...probably operations rather than investment management.

To his credit, like someone previously mentioned, he "won" the bet by getting this much publicity.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Taylor Larimore » Wed May 03, 2017 8:37 pm


Nine years ago, Warren Buffett and I made a 10-year charitable wager that pitted the returns of five funds of hedge funds against a Standard & Poor’s 500 index fund. With eight months remaining, for all intents and purposes, the bet is over. I lost.

Mr. Seides should have stopped there.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by GreatOdinsRaven » Wed May 03, 2017 9:50 pm

Someone may have already posted the link to his interview with Patrick O'Shaugnessy, where he discusses this bet with Buffet.

If not here it is. It will drive everyone batty for all the reasons discussed, above.

I used to feel sorry for the guy. Now I realize that he brought it on himself- and hasn't learned anything in the process. In fact he's doubling down. Everyone's selling something...

https://itunes.apple.com/us/podcast/inv ... 0385003431
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by jalbert » Thu May 04, 2017 12:25 am

The market valuations went up through the full period (to today), and that's what counts. You can't really make a case based on market behavior through a small part of the bet, while ignoring market behavior over the rest of it.

Had the bet period started 10-14 months later instead of on 1/1/2008, the SP500 would have really slaughtered the hedge funds. In that sense, the timing of the start of the bet was unfavorable for Mr. Buffett. Probabilisticly, the conditional expectation of Mr. Buffett's bet equity conditioned on the event that the SP500 dropped 55% in the first 14 months is far lower than the (unconditioned) expected value of the bet at the start of the 10-year period.
Last edited by jalbert on Thu May 04, 2017 11:51 am, edited 2 times in total.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by deltaneutral83 » Thu May 04, 2017 8:31 am

Whatever benchmark Seides wants to use is fine since he had international and fixed income with equal weights. I take it he still got smoked or otherwise he'd be touting it.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Atgard » Thu May 04, 2017 9:11 am

As JoMoney pointed out, while the hedge funds returned 2.2%, even bonds returned 2.5% – 3.9%.

So there aren't many indexes he would have beaten over the past 10 years. Literally almost anything else -- total stock, large cap, small cap, REITs, long bonds, short bonds, CDs/cash (we were getting 5-6% back then), I-Bonds, gold, etc. -- or any combination thereof -- would have trounced him. Maybe the only thing he beat was international stocks? Even then, unless you went 100% international, any reasonable portfolio with U.S. stocks & bonds & some international still would have beaten him.

Yet he has excuses?? Sure buddy, sign me up, can I write you a check?

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by Artisan » Thu May 04, 2017 12:20 pm

He took the bet to get publicity. End of story.

If he could consistently beat Warren Buffet I'd have heard of his name before the bet.

People will believe his nonsense. Sigh.....

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by boglephreak » Thu May 04, 2017 12:26 pm

double or nothing, this time with his personal funds.

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nisiprius » Thu May 04, 2017 12:27 pm

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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by knpstr » Thu May 04, 2017 3:22 pm

It's safe to say that Ted Seides is no Warren Buffett.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by stemikger » Thu May 04, 2017 10:16 pm

knpstr wrote:It's safe to say that Ted Seides is no Warren Buffett.


+1

Ted Seides may be a nice guy, but this was the most idiotic career move a hedge fund manager could make. Betting against Warren Buffett for all the world to see. Wow!!!
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nedsaid » Fri May 05, 2017 12:30 am

I couldn't help myself, I took the returns off of the Market Watch Lazy Performers as of 5/4/2017 and compared them to my own retirement portfolio as of the same day with 1, 3, 5, 10 CAGR.

Aronson Family Taxable
13.67% 1 year
5.49% 3 year
7.64% 5 year
4.97% 10 year

Fundadvice Ultimate Buy & Hold
9.68% 1 year
3.66% 3 year
5.98% 5 year
3.76% 10 year

Dr. Bernstein's Smart Money
11.04% 1 year
5.20% 3 year
7.55% 5 year
4.45% 10 year

Coffeehouse
9.74% 1 year
5.59% 3 year
7.77% 5 year
4.97% 10 year

Yale U's Unconventional
9.10% 1 year
5.89% 3 year
7.55% 5 year
4.94% 10 year

Dr. Bernstein's No Brainer
13.11% 1 year
5.06% 3 year
9.12% 5 year
4.85% 10 year

Margaritaville
11.93% 1 year
4.26% 3 year
6.69% 5 year
4.07% 10 year

Second Grader's Starter
15.97% 1 year
6.62% 3 year
10.09% 5 year
5.00% 10 year

Vanguard LifeStrategy Moderate Growth
10.67% 1 year
5.55% 3 year
7.69% 5 year
4.72% 10 year

Nedsaid (calculated by Quicken as of 5/4/2017)
12.97% 1 year
5.90% 3 year
8.52% 5 year
5.38% 10 year (This number is more like 5.06% CAGR- I found a flaw having to do
with Cash Balance Pension Fund Contributions. Quicken undercounted pension contributions.)

Nedsaid (calculated by Excel as of 12/31/2016)
8.63% 1 year
4.87% 3 year
8.88% 5 year
4.93% 10 year

These numbers as of 12/31/2016 are solid as I calculated this in Excel myself.

S&P 500
18.24%
10.59%
13.81%
7.03%
Last edited by nedsaid on Fri May 05, 2017 3:08 am, edited 6 times in total.
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