If 80% of fund managers don't beat the market S&P, is this field mostly full of fraudsters?
If 80% of fund managers don't beat the market S&P, is this field mostly full of fraudsters?
Not necessarily fraudsters (since many of them seem to believe that they can beat the market), but certainly individuals who are paid handsomely for providing worthless services (and, in fact, providing services that have net negative value after considering higher transaction costs and lower tax efficiency when compared with passively managed index funds).
Well, I believe the original hedge funds (perhaps as early as 1949) were NOT created to beat the markets as much as to preserve wealth. They did so by allocating assets among stocks and bonds and perhaps alternative assets (e.g., real estate, precious metals, timber) to smooth volatility - essentially hedging gains and losses. Many hedge funds, I believe, only later became absolute return vehicles. I realize that many investment funds are not hedge funds, but even index funds such as those promoted by Vanguard do not beat the index they track although they often come close to matching it. I am mostly a Boglehead, a devotee of the philosophy of John Bogle, founder of Vanguard Funds, who encourages:
1. diversification;
2. keeping expenses low; and
3. not timing the market.
Index funds or ETFs that track the broad indexes are a great way to follow this philosophy. Many Bogleheads follow something as simple as the 3-fund portfolio consisting of the following or something similar:
1. Vanguard's total domestic stock market fund or ETF;
2. Vanguard's total international stock market fund or ETF; and
3. Vanguard's total bond market fund or ETF.
Yet there is abundant literature indicating that a portfolio of stocks and bonds can be improved (returns increased and volatility decreased) if roughly 10-15% of the assets are instead allocated to alternative investments such as real estate, precious metals, timber, etc., that are not highly correlated with the performance of stocks and bonds, even if (or perhaps especially if) the other methods of hedge fund managers (shorting, leverage, options) are not employed.
Yes, they are a scam just like any other type of financial adviser. They straight up don't know what they're doing, many of them admitted this after the crash in 2008. They are almost as useless as realtors who take 6% commission for doing minimal paperwork.
80s kid wrote:
Yes, they are a scam just like any other type of financial adviser. They straight up don't know what they're doing, many of them admitted this after the crash in 2008. They are almost as useless as realtors who take 6% commission for doing minimal paperwork.
I actually researched this for a masters thesis many moons ago. What I found was that expert analysts advising what stocks to buy did outperform the market by about 2.5% (I think) but it appeared transaction costs, signaling/hearing (everyone else rushing in) and managers not listening to analysts advice and making poor, gut instinct decisions. I also tested it on sports markets where I compared sports analysts/hosts/ex players predictions versus betting odds and I found most to be positive but bookies have a 5-12% margin which was difficult to overcome. But if you use the global betting market via odds.bestbetting.com for example the margin drops to 1-2% so you could profit theoretically, but then you run into exchange rate problems and the need to hedge and back when I researched this futures/forward interest was 5-6% (I never dreamed long term interest rates would drop to 1%.
I always look at what Jim Rogers is buying because he has an uncanny ability to sense secular changes.