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

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

Post by Miriam2 » Fri May 05, 2017 1:15 am

John Woerth, the company spokesperson for Vanguard, wrote this article on July 6, 2016, about "Buffett's Bet"

Why Warren Buffett's bet matters . . . and doesn't

Mr. Woerth said, "From my vantage point, if Buffett's bet and the accompanying publicity lead investors to drink from the indexing well, then they'll likely have a much better chance of investment success," and he quoted a great anecdote from Jason Zweig about "getting to Boca:"
I once interviewed dozens of residents in Boca Raton, one of Florida's richest retirement communities. Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and sea breezes, I asked these folks - mostly in their seventies - if they'd beaten the market over the course of their investing lifetimes. Some said yes, some said no. Then one man said, "Who cares? All I know is my investments earned enough for me to end up in Boca."
8-) 8-)

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

Post by knpstr » Fri May 05, 2017 7:29 am

nedsaid wrote: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.

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%
This is actually really interesting, thanks for that. But perhaps you need to take (or should have been taking) Warren's advice?

Growth of $10,000 last 10 years:
Nedsaid: $16,180.68
S&P 500: $19,726.74
:beer
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Ted Seides vs. Buffett

Post by selftalk » Fri May 05, 2017 8:19 am

[Thread merged into here, see below. --admin LadyGeek]

Now Ted Seides wants to bet with Buffett again. If he keeps doubling down every 10 years he MAY win once in a while. This is crazy as Ted wants to try to inflate his ego. Lets see what Buffett thinks about Ted`s offer.

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Re: Ted Seides vs. Buffett

Post by nisiprius » Fri May 05, 2017 8:28 am

I do think it's odd that Buffett seemed so ready to trumpet his expected win, and that Seides seemed so ready to acknowledge his expected loss, when it's still seven months before the chickens hatch. Folks, these are gambling men. Buffett is willing to bet that the personal prestige of calling the outcome seven months out outweighs the risk of egg on his face if Seides wins after all. For Seides I suppose that acknowledging a loss now has no downside.

One of the odder details which doesn't seem to have gotten a lot of attention--I assume Investopedia is a reliable source--Buffett's Bet with the Hedge Funds
The million dollars will go to charity: Girls Incorporated of Omaha if Buffett wins, Friends of Absolute Return for Kids if Protégé wins. In an odd twist, the money in the pot, which was supposed to be boring and secure, has seen by far the best return. The sides initially put $640,000 (split evenly) into zero-coupon Treasury bonds that were structured to rise to $1 million over 10 years. But the financial crisis saw interest rates plunge and sent the bonds up to nearly $1 million in 2012.

By mutual agreement, the bettors sold the bonds and bought Berkshire B-shares, which were worth $1.4 million as of mid-February 2015. That 119% return blew both the Vanguard fund and Protégé's funds of funds out of the water, and the stock has continued to outstrip both bets, rising 29.3% over the past 12 months. If the share price drops, the winning charity is guaranteed $1 million anyway, and if the pot remains larger than originally agreed amount, the charity gets the surplus.
So what the heck is with that? Buffett backs the S&P 500, Seides backs his fund-of-funds, and yet when it comes to real money, they both prefer to bet on Berkshire Hathaway. (With the $1 million guaranteed, they're not putting the charities at risk, but still). That actually seems troubling to me.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nedsaid » Fri May 05, 2017 10:15 am

knpstr wrote:
nedsaid wrote: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.

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%
This is actually really interesting, thanks for that. But perhaps you need to take (or should have been taking) Warren's advice?

Growth of $10,000 last 10 years:
Nedsaid: $16,180.68
S&P 500: $19,726.74
:beer
I am not 100% invested in the S&P 500 and I don't think you are either. :D The bear markets of 2000-2002 and 2008-2009 pretty much cured me of that. I have bonds and International Stocks too. I spent time last night with Excel spreadsheets calculating my Compound Annual Growth Rate and found Quicken did pretty good. I was also surprised by the favorable comparisons with the "Lazy Portfolios".

I guess the moral of the story is that we should all be 100% invested in the S&P 500. As Admiral Farragut said, "Damn the torpedoes, full speed ahead." Who cares about 50% down bear markets anyway?
A fool and his money are good for business.

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

Post by LadyGeek » Fri May 05, 2017 10:18 am

FYI - I merged selftalk's thread into here.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by knpstr » Fri May 05, 2017 11:31 am

nedsaid wrote: I am not 100% invested in the S&P 500 and I don't think you are either. :D The bear markets of 2000-2002 and 2008-2009 pretty much cured me of that. I have bonds and International Stocks too. I spent time last night with Excel spreadsheets calculating my Compound Annual Growth Rate and found Quicken did pretty good. I was also surprised by the favorable comparisons with the "Lazy Portfolios".

I guess the moral of the story is that we should all be 100% invested in the S&P 500. As Admiral Farragut said, "Damn the torpedoes, full speed ahead." Who cares about 50% down bear markets anyway?
Yeah, ya got me. I'm invested 100% in Total Stock Market, not S&P 500.
Well to be clear, my "paper assets" are 100% vtsax, I do have some rental properties.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by triceratop » Fri May 05, 2017 11:33 am

knpstr wrote:
nedsaid wrote: I am not 100% invested in the S&P 500 and I don't think you are either. :D The bear markets of 2000-2002 and 2008-2009 pretty much cured me of that. I have bonds and International Stocks too. I spent time last night with Excel spreadsheets calculating my Compound Annual Growth Rate and found Quicken did pretty good. I was also surprised by the favorable comparisons with the "Lazy Portfolios".

I guess the moral of the story is that we should all be 100% invested in the S&P 500. As Admiral Farragut said, "Damn the torpedoes, full speed ahead." Who cares about 50% down bear markets anyway?
Yeah, ya got me. I'm invested 100% in Total Stock Market, not S&P 500.
Well to be clear, my "paper assets" are 100% vtsax, I do have some rental properties.
I don't want to speak for nedsaid but I suspect he is speaking more of significant holdings in international equities, in addition to bonds. You wouldn't expect VTSAX and S&P500 to diverge too much, but international stocks have really brought down returns over the past decade.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by selftalk » Fri May 05, 2017 11:49 am

I wonder how many Bogleheads will bail out of the S&P 500 when the international asset class starts to out perform it. It always happens that performance chasing phenomenon. The folks that now have and have bought in the past all along as a % of their total holdings are real champions as they hold for the long term no matter what.

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

Post by nedsaid » Fri May 05, 2017 11:50 am

triceratop wrote:
knpstr wrote:
nedsaid wrote: I am not 100% invested in the S&P 500 and I don't think you are either. :D The bear markets of 2000-2002 and 2008-2009 pretty much cured me of that. I have bonds and International Stocks too. I spent time last night with Excel spreadsheets calculating my Compound Annual Growth Rate and found Quicken did pretty good. I was also surprised by the favorable comparisons with the "Lazy Portfolios".

I guess the moral of the story is that we should all be 100% invested in the S&P 500. As Admiral Farragut said, "Damn the torpedoes, full speed ahead." Who cares about 50% down bear markets anyway?
Yeah, ya got me. I'm invested 100% in Total Stock Market, not S&P 500.
Well to be clear, my "paper assets" are 100% vtsax, I do have some rental properties.
I don't want to speak for nedsaid but I suspect he is speaking more of significant holdings in international equities, in addition to bonds. You wouldn't expect VTSAX and S&P500 to diverge too much, but international stocks have really brought down returns over the past decade.
Yep, the lesson here is not only to be 100% in equities at all times but also to invest only in what has performed well in recent years. Bonds, schmonds, who needs them? Why would anyone want to bother with that International stuff? The US Stock Market has been doing great in recent years, who needs anything else? Meh, diversification, schmiversification, who needs it? Just own what is hot, baby.

Yes, Triceratop, I am speaking of Bonds and International Equities. I guess I am a chump because I diversified. Your comments are right on. Thanks.
A fool and his money are good for business.

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

Post by David Jay » Fri May 05, 2017 11:58 am

nedsaid wrote:
triceratop wrote:
knpstr wrote:
nedsaid wrote: I am not 100% invested in the S&P 500 and I don't think you are either. :D The bear markets of 2000-2002 and 2008-2009 pretty much cured me of that. I have bonds and International Stocks too. I spent time last night with Excel spreadsheets calculating my Compound Annual Growth Rate and found Quicken did pretty good. I was also surprised by the favorable comparisons with the "Lazy Portfolios".

I guess the moral of the story is that we should all be 100% invested in the S&P 500. As Admiral Farragut said, "Damn the torpedoes, full speed ahead." Who cares about 50% down bear markets anyway?
Yeah, ya got me. I'm invested 100% in Total Stock Market, not S&P 500.
Well to be clear, my "paper assets" are 100% vtsax, I do have some rental properties.
I don't want to speak for nedsaid but I suspect he is speaking more of significant holdings in international equities, in addition to bonds. You wouldn't expect VTSAX and S&P500 to diverge too much, but international stocks have really brought down returns over the past decade.
Yep, the lesson here is not only to be 100% in equities at all times but also to invest only in what has performed well in recent years. Bonds, schmonds, who needs them? Why would anyone want to bother with that International stuff? The US Stock Market has been doing great in recent years, who needs anything else? Meh, diversification, schmiversification, who needs it? Just own what is hot, baby.

Yes, Triceratop, I am speaking of Bonds and International Equities. I guess I am a chump because I diversified. Your comments are right on. Thanks.
Jason Zweig: You are not fully diversified unless part of your portfolio is underperforming.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by nedsaid » Fri May 05, 2017 12:04 pm

David Jay wrote:
Jason Zweig: You are not fully diversified unless part of your portfolio is underperforming.
I 100% agree with this. Thanks for posting.
A fool and his money are good for business.

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

Post by knpstr » Fri May 05, 2017 12:25 pm

nedsaid wrote:
triceratop wrote:
I don't want to speak for nedsaid but I suspect he is speaking more of significant holdings in international equities, in addition to bonds. You wouldn't expect VTSAX and S&P500 to diverge too much, but international stocks have really brought down returns over the past decade.
Yep, the lesson here is not only to be 100% in equities at all times but also to invest only in what has performed well in recent years. Bonds, schmonds, who needs them? Why would anyone want to bother with that International stuff? The US Stock Market has been doing great in recent years, who needs anything else? Meh, diversification, schmiversification, who needs it? Just own what is hot, baby.

Yes, Triceratop, I am speaking of Bonds and International Equities. I guess I am a chump because I diversified. Your comments are right on. Thanks.
I guess if you consider the last 41 years as "recent" where Vanguard shows the VFINX CAGR as 10.96%, then yes the S&P 500 has been doing well recently. I'm sure there were people in the mid 1970s saying that the music was going to stop then too and it is safer to diversify down to 4% returns.

I am for diversification also, that is why I own that one particular fund. People can introduce a risk to their portfolios when they hold low return investments in the name of diversification. It is why Warren Buffett called fixed-income investments the riskier investment vehicle to be in for those with multi-decade time horizons.

Buffett 2014 letter:
Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.
emphasis Buffett
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by knpstr » Fri May 05, 2017 12:31 pm

David Jay wrote:Jason Zweig: You are not fully diversified unless part of your portfolio is underperforming.
You mean the journalist?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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

Post by Atgard » Sat May 06, 2017 5:42 pm

Miriam2 wrote:John Woerth, the company spokesperson for Vanguard, wrote this article on July 6, 2016, about "Buffett's Bet"

Why Warren Buffett's bet matters . . . and doesn't

Mr. Woerth said, "From my vantage point, if Buffett's bet and the accompanying publicity lead investors to drink from the indexing well, then they'll likely have a much better chance of investment success," and he quoted a great anecdote from Jason Zweig about "getting to Boca:"
I once interviewed dozens of residents in Boca Raton, one of Florida's richest retirement communities. Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and sea breezes, I asked these folks - mostly in their seventies - if they'd beaten the market over the course of their investing lifetimes. Some said yes, some said no. Then one man said, "Who cares? All I know is my investments earned enough for me to end up in Boca."
8-) 8-)
Since I am typing this from Boca Raton (I am not in my 70s, and my lawn is not as well manicured as it should be, but there are palm trees and sun aplenty), I got a particular kick out of that anecdote. It also served as a nice reminder to try to step back and enjoy what we have instead of always chasing another comma or trying to beat some other benchmark or portfolio.

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"Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by Howard Donnelly » Tue Sep 12, 2017 5:02 pm

[Thread merged into here, see below --admin LadyGeek]

"Warren Buffett made a $1 million bet at end of 2007 with hedge fund manager Ted Seides of Protégé Partners. Buffett wagered that a low-cost S&P 500 index fund would perform better than a group of Protégé’s hedge funds. Buffett’s index investment bet is so far ahead that Seides concedes the match, although it doesn’t officially end until Dec. 31."

"Warren Buffett wins $1M bet made with hedgie a decade ago"
http://nypost.com/2017/09/09/warren-buf ... ecade-ago/

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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by arcticpineapplecorp. » Tue Sep 12, 2017 5:11 pm

The problem for Seides is his five funds through the middle of this year have been only able to gain 2.2 percent a year since 2008, compared with more than 7 percent a year for the S&P 500 — a huge difference.

That means Seides’ $1 million hedge fund investments have only earned $220,000 in the same period that Buffett’s low-fee investment gained $854,000. source: http://nypost.com/2017/09/09/warren-buf ... ecade-ago/
Any other occupation, with that poor a relative performance, he'd be out of a job right? Gotta love Wall Street. Instead, they continue to make money off rich people with money who can clearly afford to lose it (and will):
In conceding defeat, Seides said the high investor fees charged by hedge funds was a critical factor.

Hedge funds tend to be a good deal for the people who run the funds, who pass on big bills to the investors.

“Is running a hedge fund profitable? Yes. Hedge fund managers typically demand management fees of 2 percent of assets under management,” according to Capital Management Services Group (CMSG), which tracks the hedge fund industry. “Performance fees for managers can be 20 percent to 50 percent of trading profits,” CMSG adds.

By contrast, the costs of an average index fund are minimal. A fund that tracks the S&P 500 fund might have an expense ratio of as little as 0.02 percent.

Indeed, Seides, in a sentiment that sounds as though he is now using the Buffett playbook, wrote that “the higher the price an investor pays for an asset, the less he should expect to earn.”
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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by nisiprius » Tue Sep 12, 2017 5:13 pm

While it seems likely that Buffett will win, it seems bizarre to me how many people have been so audibly counting the chickens before they have hatched. Indeed the article itself says that a sports gaming firm still gives Seides a 3% chance of winning.
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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by TheAncientOne » Tue Sep 12, 2017 5:38 pm

Nisprius, that gaming firm has to be way off. Buffett is 45 percentage points ahead with less than four months to go. I can't believe that this gives Protege that much chance of catching up relative to an S&P 500 index fund.

Protege is a fund of funds so not only do you have to pay the funds their usual carry, you also have to pay Protege for their incredible skill at picking winners.

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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by PuddlesTheDuck » Tue Sep 12, 2017 5:50 pm

Reading through longbets page http://longbets.org/362/, it seems pretty clear that people 10 years ago thought Buffet would win. We also should remember that it took 5 years for the S&P to push ahead, highlighting the risk associated with investing in stocks. I think this bet did a lot of good for people's expectations of investing.
arcticpineapplecorp. wrote:
Tue Sep 12, 2017 5:11 pm
Any other occupation, with that poor a relative performance, he'd be out of a job right? Gotta love Wall Street. Instead, they continue to make money off rich people with money who can clearly afford to lose it (and will):
The point of a hedge fund is to avoid market returns, so I think you (and Seides; seriously, what a dumb bet) are a little off the mark. It's not about total returns (otherwise why does anyone invest in bonds?), it's about getting some return no matter the market conditions (at least, that's the goal). Now I don't want to sound like a hedge fund apologist, but there's a reason for them to exist, but this type of thing is exactly how you're both not supposed to evaluate outcomes as well as how not to make bets (I bet that in 17 years apples will be considered tastier than pork belly). As Seides even notes (emphasis mine):
Mr. Buffett is correct in his assertion that, on average, active management in a narrowly defined universe like the S&P 500 is destined to underperform market indexes. That is a well-established fact in the context of traditional long-only investment management. But applying the same argument to hedge funds is a bit of an apples-to-oranges comparison. Having the flexibility to invest both long and short, hedge funds do not set out to beat the market.
But then he decides to bet on them. Sigh.

As to your other point, hedge funds do charge too much money. Far too much. As Swedroe pointed out in Unconventional Success, hedge funds do provide some pretty nice returns for the risk before fees (enough that you would consider them over bonds), but break even or do worse (both in return and volatility) than the risk-free rate after fees. And there's no reason to pick a hedge fund when you are looking for the returns of stocks.

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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by nedsaid » Tue Sep 12, 2017 7:53 pm

The fee drag from hedge funds is an enormous obstacle to overcome, the so-called two and twenty, two percent assets under management and twenty percent of profits.
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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by nisiprius » Tue Sep 12, 2017 8:06 pm

TheAncientOne wrote:
Tue Sep 12, 2017 5:38 pm
Nisprius, that gaming firm has to be way off. Buffett is 45 percentage points ahead with less than four months to go. I can't believe that this gives Protege that much chance of catching up relative to an S&P 500 index fund.

Protege is a fund of funds so not only do you have to pay the funds their usual carry, you also have to pay Protege for their incredible skill at picking winners.
(Shrug)

I expect Buffett to win.
You expect Buffett to win.
Buffett expects Buffett to win.
Seides expects Buffett to win.

But the actual headline, quoted from the New York Post, is "Warren Buffett wins..."

No, he hasn't won yet. The bet is over at the end of the year. This is pretty simple stuff.

Now, if the Long Now Foundation actually had a mechanism allowing the two participants to end the bet early if both are willing to agree on a winner, and if they exercised that option and ended the bet now, one could say that Buffett had won. I don't think there is such a mechanism, and if there is, they haven't invoked it.

I agree with you; I would not be willing to make a bet that Seides will win, at 96.8-to-3 odds.

But the plain, simple, objective fact of the matter is that Buffett has not yet won the bet.
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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by mlebuf » Tue Sep 12, 2017 8:12 pm

...and more money keeps flowing into Vanguard (and other low-cost providers) with every new article such as this. Hedge fund investors believe their wealth gives them access to greater returns. Hedge fund managers know that they are just bigger sheep to be fleeced.

As for the final outcome of the bet, the fat lady is yet to sing, but she's warming up backstage. :mrgreen:
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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by arcticpineapplecorp. » Tue Sep 12, 2017 8:12 pm

PuddlesTheDuck wrote:
Tue Sep 12, 2017 5:50 pm
As to your other point, hedge funds do charge too much money. Far too much. As Swedroe pointed out in Unconventional Success, hedge funds do provide some pretty nice returns for the risk before fees (enough that you would consider them over bonds), but break even or do worse (both in return and volatility) than the risk-free rate after fees. And there's no reason to pick a hedge fund when you are looking for the returns of stocks.
I think you mean Swenson, not Swedroe:

https://www.google.com/search?q=unconve ... 8&oe=utf-8

Though Swedroe has been known to skewer the hedgies too (reporting they did worse than riskless treasuries over a 10 year period):

http://www.etf.com/sections/index-inves ... nopaging=1

Otherwise, very good points made.
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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by pkcrafter » Tue Sep 12, 2017 10:22 pm

Oh, oh, Nisiprius may be the harbinger of bad news. The best thing for Seides to do is get out of the market 'till the end of the year and wait for a crash. On the other hand, the bet is a paltry 1MM, so no big deal.

Funny thing is that if the bet was made public immediately, Seides would have little choice but to take the bet. If he didn't, he would surely lose a lot of investors. He's made up for the 1MM over the past 10 years, although his investors didn't.

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Re: "Warren Buffett wins $1M bet made with hedgie a decade ago"

Post by staythecourse » Tue Sep 12, 2017 10:52 pm

Personally, I am not sure why anyone thinks it is any sort of loss for Seides. 1 million is a joke for him, most likely, since he has been charging 2/20 fees this ENTIRE time. The investors may not have done better then SP500, but I can bet the MANAGER of a hedge fund (him vs. any manager of a sp500) has done significantly better.

I am sure Seides is fine losing this one and keeping his money that he has extracted from his naive investors then getting the bragging rights against Buffett or any other index lover.

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

Post by LadyGeek » Wed Sep 13, 2017 3:57 pm

I merged Howard Donnelly's thread into here, which is a continuation of the discussion from May.

Please state your comments in a civil, factual manner.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by james22 » Thu Sep 14, 2017 3:51 am

A lot of very smug passive investors are going to learn when they look back at the beach that since the crash the one set of footprints they see are those of the central bankers that have carried them.
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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

Post by JoMoney » Thu Sep 14, 2017 6:31 am

james22 wrote:
Thu Sep 14, 2017 3:51 am
A lot of very smug passive investors are going to learn when they look back at the beach that since the crash the one set of footprints they see are those of the central bankers that have carried them.
Maybe... but I've heard similar cynical claims all my life. The uncritical optimists, and methodical 'stay the course' policies may not look savvy, but it's worked well over time, market timing hasn't (and can't for anything close to majority of people).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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

Post by nisiprius » Thu Sep 14, 2017 7:59 am

james22 wrote:
Thu Sep 14, 2017 3:51 am
A lot of very smug passive investors are going to learn when they look back at the beach that since the crash the one set of footprints they see are those of the central bankers that have carried them.
Nice rhetoric, but would you flesh it out to the point where we can make a judgement on it?

I understand you to be saying this:

a) Central bankers will raise interest rates, i.e. will begin participating passively rather than actively in the bond market, and allow interest rates to rise to a "natural" level set by private participants in the market.

b) As a result, there will be a severe stock market crash.

c) When it occurs, it will be much worse for investors in index funds than for investors in actively-managed funds as a class. That is to say, your ordinary, competently-managed, run-of-the-mill, low-cost, actively managed fund that are able to act prudently, and dodge obvious problems ahead, rather than being shackled to an index.

(To put it another way: active funds would be beating index funds if it were not for the Fed).

If that isn't a correct, expression of your views, please correct it.

And, please name a good handful of good, solid, ordinary actively-managed funds that would be a fair comparison to index funds--ones available in 401(k) plans, one named in "16 Best Mutual Funds" articles, funds that an average retail investor could easily discover for themselves.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by rbaldini » Thu Sep 14, 2017 11:05 am

knpstr wrote:
Thu May 04, 2017 3:22 pm
It's safe to say that Ted Seides is no Warren Buffett.
True, but it's not like Buffett used his oracle magic to pick the winners here. He just picked the S&P 500. Easy. Any Boglehead would have won this bet ... had they the money to put down.

The lesson isn't "Buffett is amazing!" It's "indexing works."

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

Post by BogleAlltheWay » Thu Sep 14, 2017 11:23 am

The fact fund managers did not line up to take the bet tells me all I need to know.

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

Post by deltaneutral83 » Thu Sep 14, 2017 3:07 pm

BogleAlltheWay wrote:
Thu Sep 14, 2017 11:23 am
The fact fund managers did not line up to take the bet tells me all I need to know.
Yea, you'd think Teddy would have been smart enough to just operate his 2 and 20 in the shadows rather than take a public beatdown. Although he can take the money and bet it all on Red at the roulette table and double up :D

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

Post by garlandwhizzer » Thu Sep 14, 2017 4:01 pm

Those are good results relative to the experts, nedsaid. You've been investing for a long time and it appears that you've learned a lot along the way. If you invest long enough, it is inevitable that you've make lot of mistakes, but for the adept market student, failures turn out to be better teachers than successes. Judgement often comes from experience. The other advantage you have is that your portfolio is small enough to be nimbler (not hundreds of millions or billions that need to be invested). Congratulations on a job well done at least over this time period. Hope you can keep it up. Most individuals who try to beat the experts or the indexes fail, but not all are destined to fail.

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

Post by Chadnudj » Thu Sep 14, 2017 5:24 pm

From article:
Comparing hedge funds and the S&P 500 is a little bit like asking which team is better, the Chicago Bulls or the Chicago Bears. Like the Bulls and the Bears in the Windy City, hedge funds and the S&P 500 play different sports.
Pretty much stopped reading there. Every Chicagoan can tell you that the Bears are far, FAR worse than the Bulls right now. I mean, the Bulls at least made the playoffs last season (before falling quickly).

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

Post by stemikger » Fri Sep 15, 2017 12:26 am

It sounds like he knew he was at a great disadvantage and saying how the S&P is the gold standard.

WHY THE HELL DID HE STICK HIS NECK OUT!! Not exactly the way to promote Hedge Funds.

It's always easy to be a Monday morning quarterback at the end of a bet. He sounds smart enough to have known better.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by JoMoney » Fri Sep 15, 2017 1:59 am

^exactly... If he thinks hedge-funds are the Chicago Bears it was idiotic to to accept a challenge to play basketball against the Chicago Bulls.
Seides was the one who said:
"Through a cycle, nevertheless, top hedge fund managers have surpassed market returns net of all fees, while assuming less risk as well. We believe such results will continue.
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."
http://longbets.org/362/
A smart person would acknowledge that reality didn't match his beliefs because his assumptions just might be wrong.
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by james22 » Fri Sep 15, 2017 4:19 am

nisiprius wrote:
Thu Sep 14, 2017 7:59 am
james22 wrote:
Thu Sep 14, 2017 3:51 am
A lot of very smug passive investors are going to learn when they look back at the beach that since the crash the one set of footprints they see are those of the central bankers that have carried them.
Nice rhetoric, but would you flesh it out to the point where we can make a judgement on it?

I understand you to be saying this:

a) Central bankers will raise interest rates, i.e. will begin participating passively rather than actively in the bond market, and allow interest rates to rise to a "natural" level set by private participants in the market.

b) As a result, there will be a severe stock market crash.

c) When it occurs, it will be much worse for investors in index funds than for investors in actively-managed funds as a class. That is to say, your ordinary, competently-managed, run-of-the-mill, low-cost, actively managed fund that are able to act prudently, and dodge obvious problems ahead, rather than being shackled to an index.

(To put it another way: active funds would be beating index funds if it were not for the Fed).

If that isn't a correct, expression of your views, please correct it.

And, please name a good handful of good, solid, ordinary actively-managed funds that would be a fair comparison to index funds--ones available in 401(k) plans, one named in "16 Best Mutual Funds" articles, funds that an average retail investor could easily discover for themselves.
I'm saying this, nisiprius:

a) Central banks lowering of interests rates has inflated equities far beyond fair value.

b) As a result, there will be a severe stock market crash.

c) When it occurs, it will be much worse for investors who ignore valuation than for those who don't. That is to say, your ordinary competently, run-of-the-mill investor who actively manages his/her low-cost portfolio by prudently practicing strategic/tactical asset allocation, will dodge obvious problems ahead, rather than those shackled by "stay the course."

(To put it another way: active value investors would be beating passive investors if it were not for the Fed.)

The correct expression of my views: You can actively manage your low-cost portfolio.

I manage mine like so:

401K. More Stable Value and less Small Value index fund when the market overvalued, vice-versa when undervalued.

Roth IRA. More Preferreds (BAC-L, WFC-L) and less International Small when the market overvalued, vice-versa when undervalued.

As well as more Precious Metals, Energy, and REIT index funds when undervalued, less when overvalued.

Taxable. More cash when the market overvalued, less when undervalued.

As well as more Berkshire (BRK), Markel (MKL), Fairfax (FRFHF), Brookfield Asset Management (BAM), and Oaktree Capital Management (OAK) when undervalued, less when overvalued.
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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

Post by Atgard » Fri Sep 15, 2017 11:29 am

But James, active managers have ALWAYS been saying that they will be able to see crashes coming and avoid big losses, but their actual performance does not back that up. How many active managers got out of stocks right before the 2008 crash? (Or how many presciently got out of just the stocks that crashed and kept ones that didn't -- even though pretty much all of them tanked?) Only a tiny percentage, maybe. Most went down right along with the indexes.

Did your active manager call you up in 2007/2008 and say "get out of stocks now, avoid any kind of real estate"?

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

Post by james22 » Fri Sep 15, 2017 12:46 pm

Again, active ≠ active manager, Atgard.

Active investors can patiently hold cash in a way active managers cannot (without losing AUM).
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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

Post by GibsonL6s » Fri Sep 15, 2017 1:38 pm

There is an interesting article on the bet showing the components of the picks the hedge fund manager made here through 2016.

http://www.investopedia.com/articles/in ... vtas-noas

The interesting thing is a balanced fund like VBINX would have been about 74%. More interesting to me is just a simple bond fund like BND with no equity risk returns 38% versus the 22% average for the hedge fund portfolio.

What I was most curious about was how the Oracle would have done had he taken the bet. Well through 2016, he meaning BRKB would have trounced the hedge funds, but lost to index with a 77% cumulative return.

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

Post by JoMoney » Fri Sep 15, 2017 10:29 pm

GibsonL6s wrote:
Fri Sep 15, 2017 1:38 pm
There is an interesting article on the bet showing the components of the picks the hedge fund manager made here through 2016.

http://www.investopedia.com/articles/in ... vtas-noas

The interesting thing is a balanced fund like VBINX would have been about 74%. More interesting to me is just a simple bond fund like BND with no equity risk returns 38% versus the 22% average for the hedge fund portfolio.

What I was most curious about was how the Oracle would have done had he taken the bet. Well through 2016, he meaning BRKB would have trounced the hedge funds, but lost to index with a 77% cumulative return.
You can get year by year performance data for each of the funds in the 'fund of funds' from Mr.Buffett as reported in his annual letter
(table on page 22) http://www.berkshirehathaway.com/letters/2016ltr.pdf

Here's a Morningstar total return growth chart of The Vanguard S&P500 fund vs BRK stock
Link
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by baw703916 » Fri Sep 15, 2017 10:49 pm

Hedge funds might have a place in a portfolio if you could find a good one whose manager charged five basis points. Seides is right that a large factor in his loss is that the E/R's are just too darn high!
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Re: Ted Seides "Why I lost My Bet With Warren Buffett" - Bloomberg

Post by james22 » Sat Sep 16, 2017 12:59 am

After expense performance is all that matters - I'd give my whole portfolio over to Renaissance Technologies and pay their 5% management and 44% performance fees if I could.
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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

Post by baw703916 » Sat Sep 16, 2017 8:21 pm

james22 wrote:
Sat Sep 16, 2017 12:59 am
After expense performance is all that matters - I'd give my whole portfolio over to Renaissance Technologies and pay their 5% management and 44% performance fees if I could.
However, you can only do so IRL if you work for them. And then, both your employment and your portfolio returns depend on RT continually improving their secret sauce to stay ahead of the competition while making no major mistakes.
Most of my posts assume no behavioral errors.

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