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There was a book written titled "Where are the customers Yachts? By Fred Schwed written back in the 40s ...and it makes plain why most these Hedge fund guys are just making money off slicing up their clients money ...not by being investment geniuses !
Be Positive & Life Comes Around ! How's the Situation in USA ? Things are going from Bad to Worse in Mumbai , India . That Double Mutation Strain discovered last Year has wrecked havoc since March 2021 ! The Maharashtra State Govt is thinking of Complete Lockdown(we are already in 15 day partial lockdown ) .Other States like Uttar Pradesh & Delhi have Sunday lockdown & weekend lockdown respectively since this yesterday. That Double Mutation Strain spreads via Air (not only droplets) & evades /escapes the immune system .Even people who got 2 shots of Vaccine became sick .
Buffet may be the best value investor of all time, but Munger, who was a former attorney, was the guy who executed the "art of the deal" to get the sweet heart benefits. This ensured Buffet couldn't lose.
Manufacturing business in Hathaway company first Munger give advice to buy then Warren Buffett once try it but he fell in love it .so now 5 billlion profit earned from manufacturing industry business which is larger than insurance
@@aaryanmehta4609 Kraft Heinz merger and Bank of America bailout are a prime example of private deals rather than just investing. Buffet himself said Munger convinced him it’s better to buy a great company at a good price than buy cheap company for a great price.
@@aaryanmehta4609 Well. maybe Warren would do the same without Munger... but I choose to believe that we each need support of at least one respected peer in ways more than cerebral.
Most people mention Benjamin Graham's Intelligent Investor as Buffet's foundation in investing. But most investors forget when he met Munger, his investing greatly departed from Grahams to implement Mungers.
The book laughing at wall street touches on this. Mutual funds and 401ks just dont do better than the s&p, but they charge you 2% because you believe your funds are managed by an expert. Its a joke.
El Jay Vanguard has an S&P 500 index mutual fund that I use. Low management fees, and it serves a different goal than the ETFs and individual stocks that I own. It’s pretty much matched the S&P 500 and I don’t want to get robbed by the IRS when I retire in 40+ years, so it works out well for me.
vicco90 If you’re American (I don’t know if other countries have something similar), you have the option of going for a Roth IRA. Basically, you get taxed when you put money in, but not when you take it out in retirement. You’ll pay capital gains taxes on S&P 500 indexes when you sell them off to retire. I’m not touching my Roth IRA until I retire, but depending on what I want to do (ie start a business, have a safety net that gets more interest than cash in a savings account, etc.) I can sell them off when I feel like it. I’m young, so your plans might be different depending on how old you are and what your situation is, but that’s my reason for doing each.
What do you mean by 401ks? 401ks are a type of investment account. A 401k can't have performance by itself because it's just a place to hold money. You can invest in index funds in most 401k accounts.
@@johnnycanuck123video , Be Positive & Life Comes Around ! How's the Situation in USA ? Things are going from Bad to Worse in Mumbai , India . That Double Mutation Strain discovered last Year has wrecked havoc since March 2021 ! The Maharashtra State Govt is thinking of Complete Lockdown(we are already in 15 day partial lockdown ) .Other States like Uttar Pradesh & Delhi have Sunday lockdown & weekend lockdown respectively since this yesterday. That Double Mutation Strain spreads via Air (not only droplets) & evades /escapes the immune system .Even people who got 2 shots of Vaccine became sick .
The problem lies in the misconception that the purpose of hedge funds is to make as much money as possible. The people who invest using hedge funds do not need to make any more money... They want to protect it.
Hedge funds are enormously profitable… for the hedge fund operators. Imagine raking in 2% of a wealthy client’s money without risking a dime of your own, whether your hedge fund goes up or down. Now THAT is a guaranteed return (for the operator, not the investor). Not to mention 20% if the fund actually makes money.
@@aaryanmehta4609I’m working for an asset management firm and almost all of our clients are institutional investors seeking uncorrelated assets with equity markets, high risk-adjusted returns, etc., all of which are crucial to institutional investors such as pension funds, insurance companies, and endowment funds because they need consistent cash flow to meet their obligations.
It's always more to the story. The real question is if the consultant is going to act in the best interest of their clients and look for growth and suitability, or are they really charging the client just to do nothing at all.
For the average folk trying to retire, index is a great way to go... Warrens method is simple but not easy. Most value investors can't even put up returns like him.
the terrifying part about this that it is probably true for any theory driven discipline. if you're dealing with 'experts' who aren't doing nuts and bolts level work you're probably better off in your ignorance than with their input.
Warren Buffett has common sense, however common sense is any thing but common. Greed drives people to take risks. "The greater the risk, the greater the reward" right? This may be true in individual cases, however Warren Buffett has proven that in the aggregate the rules are different. Absolutely no one can argue with his financial success.
warren and charlie are absolute legends. the hedge fund industry is an absolute joke. say goodbye to "2&20" and say hello to zero-commission and zero-expense ratio ETF's and mutual funds ..... thank you Mr. Bogle!
A point of a hedge fund is to HEDGE against the market in a case of a downturn. The people throwing their money into HEDGE funds, also throw their money into other Index funds and ETFs but choose to leave the nitty gritty hedging process to the experts.
The point of hedge funds is that the SEC allows you to use more complex financial instruments to amplify returns if your clients are all accredited investors. They also perform terribly during recessions. You literally stated the opposite of the truth
Exactly the point - where is the line on the chart for Berkshire performance? If there were one, it would show Berkshire's gain at roughly 130% during the period in question. A bit of an omission there Mr. Buffett. This is a sales presentation by him and a deceptive one.
I agree with Warren Buffett, the S&P 500 is a very well balanced index fund, you can either buy a vanguard index fund or a vanguard ETF VOO and buy it with very little management fee .04% basically almost no fees and if you want even better results combine VOO and VGT which is the vanguard information technology ETF and probably the best index fund right now. I own both VOO and VGT and convined with some other stocks like apple, AMD, Costco, Home Depot, Nike, Roku etc. I been getting 10-15% rate of return monthly
In all fairness, a value investor like Buffet (whom I respect) challenging other fundamental investors using hedge funds as their investment vehicle in all likelihood leaves out the most valuable investors on the planet: the quants. There are quant funds that have earned 100% per year over a 10-year period and others that have averaged 27% annually since 1974. No fundamental fund managers -- or the S&P index funds -- have even come close. Many quants were so profitable they have gone private, but still continue to create incredible results and billions of dolars for their founders year-in and year-out. See, for example, Renaissance.
Most the Financial Engineering / Quantitative Finance and other Physical Science graduates end up at hedge funds. They make things purposely look so complicated because that is their job! Hedge Funds are there to make simple things look difficult, to justify the performance fees /loads they charge as a percentage of NAV - Net Asset Value. Most of the customers and regulators don't understand mathematics or physics and other sophisticated computational statistical /data science jargon. So, they fall for it!
My Depression era mother always said you put money into stocks you can afford to lose. It's not a place for college funds, etc. Advice that served me well in 2008.
Gordon Adams what about the 10 years after 2008? You could have ridden the Dow from 6500 to 26000. Dollar cost averaging the S&P500 is fabulous over the long term, when you are nearing retirement start moving over to quality bonds
@@NateB I would. If the stock market crashed and I lost everything forever or it crashed and stayed low for years and years I'd bigger problems than not having money because some serious shit went down. You slowly start to sell and transition into other assets as you get older so you're not forced to sell at a low price. I bet if you dont panic and sell and have a well diversified portfolio you'd make it out of the great depression somewhat okay and then give it a while and youd be better off than before it.
Index funds are very good for investors with little insight. I have done it successfully. There are other reasons for investment advisers. Such as: What happens if you get Alzheimer or Dementia? What if you can not financially trust members of your family? You can loose all your investments from actions of a corrupt caretaker. Happened to many.
People always ask me if I feel stocks are equal or more valuable that investment property. More profitable in a sense you may yield higher return. Sure but higher return on what? Your own money... Investment property I yield a return on the banks money... 10% of a 100k is 10k, yes very good.... I like that. Ok 8% of 500k is 40k. I'm just saying try and do both.
Erik johnson 😂 you obviously never rented out property, fees, taxes, mortgage insurance, house insurance, months without renters. Commercial real estate is where any pro invest
@@907living6 Depends what market your in big guy. Commercial real estate in Boston MA where I live. Yes, you have to be a pro. As in a corporation or have an outstanding credit line with a large debt to equity ratio on an LLC because to put 20% down, solicit a tenant and structure a lease takes big big dollars. I'm out here on my own right now. Thanks for the support chuckles.
though Robinhood ain't exactly free... majority of retail traders won't worry about being front run so it's a good model... been waiting for something like this to hit Australia and there is now one called Stake... Robinhood article here (startupsventurecapital.com/robinhoods-exceptionally-clever-business-model-arbitraging-privacy-776663d4d855)
Rad Dalio is/was a hedge manager I think he is now retiring. BUt he has outperfom the market and the S&P500. His HF doesn't accept clients since 2004. there are plenty of very succesfull HF managers as well. But Buffet point is good, many charge exhuberant amounts of commissions
A lot of folks harp on about the performance of the S&P as a reflection of the American economy, but what about the world as a whole? Any unifying perspective on future trends of the global economy as a whole that might guide buying international indexes?
I've been studying the hedge fund industry for a time now, and there are only a few(like 1%) hedge funds that are really legit. Renaissance Technologies, Baupost Group, Abrams Capital, Blue Ridge, DE Shaw, etc. Are some examples of legit examples, but they are a minority.
@Daniel La Zarr the ones I mentioned have a track record that goes back many years. It is impossible to be lucky for 15 years in a row. Tge average hedge fund may not beat the S&P, but there's a minority that does. Look at Reinassance(specially their Medallion fund).
These two column. That show the earning different income resources. In the 2008 S&P negative in earning and other investment to different company may be by business or Illinois business such as the future also have the loss
Hedge funds go short in order to enhance their long positions hence the word hedge fund. Berkshire does not short anything significant. It does, from time to time, have short positions to smooth out things like oil prices, but every airline or railroad company does this. Berkshire is not a hedgefund but a holding company.
Ordinary people or the average Joe/Jane feel that when they pay "experts" they get better results. They go to a finacial advisorsr and they get sold products by hedgefund managers. They feel unsophisticated enough to do "wall street stuff."
I think Buffet is missing the point about hedge funds. The purpose of hedge funds, as a general principle, is not to try to "beat the market", but rather to reduce the risk of your overall portfolio while still making money. Hedge funds do this by apply investment/trading techniques that make money in ways that are not correlated to the general performance of the stock market. i.e. so that if the stock market falls, the value of the hedge fund investment won't change (on average, though its performance might be quite volatile due to other factors). For example a hedge fund might see small correlations between the price of a raw material, and the share price of companies transporting that material (and put on trades when the two get out of sync a little, in the hope that they get back into sync again, generating a small a profit).
@AerialExplorer what you say atout edge fund is true but Buffet's point is that in the long (real long, like 10-30 years) the index fund beats the edge fund. Risk and volatility becomes less and less of a concern the longer you stay in the market (assuming the market doesn't crash when you want to cash out which is why the older you become the more of your portfolio should be bond instead of stock). Volatility is a concern in the short run not in the long run. If today you buy s&p500 and it crushes tomorrow but you stick with it (assuming the global economy will be for the next 30 years as it has been for the last 30 years, which, considering emerging markets and the different global scenario I personally don't think will hold true but whatever) for the next 30 years tomorrow crush is not important as proven by the table Warren shows in the video. So yes, hedge fund reduce risk during crisis and high volatility times as proven by the table during year 2008 but in the long run is not as important. The main problem with what Buffet is saying is that most people don't have the mental coolness to keep the index fund during a crash (which of course is not Buffet's problem and neither does it prove him wrong)
Hedge funds are not really meant to make money? They are supposed to not lose money. Basically they invest in "both sides of a bet". For example there's the Ark Innovation fund and there's a fund that's "anti-Ark Innovation". Hedge funds invest in both. When one goes down, another goes up.
Hedge funds and the S&P index are comparable. However, looking at the returns alone is a wrong way of comparing the two. It is possible that the index got a higher return because it's composed of more riskier stocks. Since hedge funds hedge away risks, then returns would tend to be lower as well but the returns should be higher relative to the amount of risk taken. There are proper ways to compare the two tho. Using ratios or measures that take into account the risks taken for a given return should do the job.
It's called a Sharpe Ratio. Even though the original idea of hedge funds was to hedge away risk, that is not how they function these days (largely because the fee structures incentivize more risk taking). Most "hedge" funds are much riskier and have lower Sharpe ratios than the S&P index or the Vanguard Total Stock Market Index Fund.
He doesn't explain why the other half "have" to do worse: it is because, if both as a group have to get the average return, the group with lower transaction costs will do better.
2020: many investors left or wanted to leave Jim Simmon's funds, his algo's did terrible, sold during the corona and hedged the recovery, double mistake by the algo's
@@rm1201 There are 2 funds managed by renaissance, one is for regular investors and one is locked for regular investors. The one that is inferior experienced the drawdown, the medallion fund is still giving usual returns.
From what I understand, even though Simons returned more on average, his algos only worked for $10billion or less. Buffett manages an enormous amount hence is less flexible. Thats my amateur explanation.
The industries oversea has loss as well as chemical industries. As home future bad no income could be can not sale and export to oversea or by bad weather that cause farms damaging.
Isn't this a bit misleading without accounting for risk? Is it possible the hedge fund risk was much lower than the index risk? Shouldn't we be looking at risk to return rather than just return?
Pal I'm not against the value investing but but but..... If you really want to compare take best of both sides ,let's compare Berkshire Hathaway with Medallion hedge fund
If they earn big and lie on report because the fail make their gain in the option and they not report as in the 2nd column. Hedging earning other type other income if oversea fail. These can not be in the team.
@ken macdonald the problem is with the system that lets people abuse tax refunds. If they didn't have tax refunds taxes wouldn't be as high to make up for the loss and the irs wouldn't have such a high overhead saving more money for the government.
The reason people don't trust this advice is partially because they see guys like Buffet and Burry (played by Bale in The Big Short) who invest in individual stocks. The thing common people have to realize is that if you are not an expert you should stick to index funds. And sometimes even the index funds fail and sometimes the experts fail - but it something goes to shit it feels better to know at least you didn't waste your money of fees.
I love WB, but this is a bit misleading.. all you people saying hedge funds are terrible based on the performance of an index of hedge funds... That's like saying all stocks are great because the S&P got such and such return. If you take a basket of any group in the market, you'll have winners and losers.. together, they average out. Different funds have different investment goals, and their optimal performance may not be linearly linked to the S&P performance. Plenty of funds are consistently doing exceptionally well. There are probably just alot more funds that are underperforming.. but the same is true with any stock index.
Is there a way to short hedge funds? We can buy S&P Index fund as a hedge and make money from the arbitrage over a longer period, because hedge funds will always lag Index (barring 1-2 year exceptional years).
@@everynameistaken567 Thanks. He is also saying fund managers don't do any better than the market so we should just buy the S&P. But that is only true in his example of a "fund of funds" where the gains of any one fund are averaged away. Then it is worse than the market due to the subtraction of their fees. However, many fund managers due very well, just like Buffet does. Yet he criticizes the endowments that use managers who return much more than their fees.
@@amansiddiqi1 that is correct but the odds of getting one of the high performing funds are low, not to mention they may not perform the same way for many years to come, so he is saying overall you are better off with the S&P over the long run. Berkshire is basically an index fund in a sense anyway because of how many different stocks they own
The large free to spend on advice and data from other fail report (the lager fees}. We must earn big in return. If we are not earn big we loss principles and we put ourselves bankruptcy
sad thing is now hedge funds are doing better because thanks to technology, hedge funds utilize high frequency, high speed trading algorithms. Hedge fund managers still don't have to do shit still though as they just press a button.
Too bad the hedge bet didn’t pick Medallion Fund, Eliot Capital Management, Bridgestone, all of which were up 20-100% net in 2008 and 10-40% each year since. I agree the point is hedge funds are ripoffs. Their fees are like negative dividends. Buffet did society a service pointing this out. Also, it was a big bull market after 2008 but hedge funds by definition are for hedging inflation so might’ve done better then
The only people that make money in the markets, that isn't due to luck are the liquidity providers/bookies, they make billions a year from the people who are active in the markets like hedge funds!
This doesn't surprise me when you have 'experts' on Bloomberg who extol the virtues of a stock one day yet 3 months later are telling you to sell the same stock!!
If you already have millions or billions to invest, who cares if you're only making market returns? I mean i can understand if they're looking for wealth preservation and less volatility. But spending millions on clowns who will only make you an extra 2% is insane to me.
If they actually did make you an extra 2% that would be amazing and I'd gladly pay money for that. Someone that says "only" an extra 2% is someone that clearly doesn't grasp the magic of compound returns. An extra 2% a year makes a MASSIVE difference in your total returns over 30-40 years.
@@2011blueman I understand, but my point was most of those clowns can't even beat the market and these people are risking their money with them. Those who are consistent and successful of course deserve your capital.
@@Viper4ever05 Which ones are those? Even the sequoia fund that Buffett mentions in the video made a massive mistake by heavily investing in Valeant, which destroyed the firm's legacy and long term return record. Most of the people that have shown long term results have turned out to be frauds of some kind (Madoff, Steven Cohen, etc.). How exactly are people supposed to find the Buffetts of the world versus the clowns?
@@2011blueman They never really know, they just have to do your own research and trust them. But the good ones are few and exclusive to extremely wealthy people. Ray Dalio is one of the greats but he only manages the money of the top 1%.
@@Viper4ever05 Ray Dalio's Bridgewater Associates has massively underperformed the S&P 500 throughout most the past decade now and only has an annualized return of 12% since 1991.
But the stock market's existence is merely a compilation of those meaningless fretting of those hyper-activists only. Long ago people have ceased to valuate the ownership of interest (stocks) with respect (albeit all the hypes of reports presumably telling so) to the firm's financial performance; it's unduly based based on two harming attitudes - greed and unfounded expectations. The other half (dormant one) too should be thankful to the fretting half for their stocks value appreciation. Of course the value appreciation is tangible and realizable only when they realize it through selling. Whatever other means of en-cashing their values render them to the other half, funny though.
there is a lot conflict of interest in the financial markets. What suited me the best was having no middlemen with COI and doing everything by myself, all the analyses, fundamentals, macro,micro, quantitative,qualitative..balancing my own portfolio combining trading and investing...reinvesting profits to get even more. That worked for me. Just me and my beliefs, underlined by my rationale. Why do I, personally, think this stock will go up in the future.
His thesis serves to cut down competition with his holdings. While the advice is sound under many circumstances, he himself will tell you that diversification is not the path to good returns (above average). (SPY being an ultimate diversification). So as they say they know there are legit better investors than say a pension plan can get, but theyre suppressing competition with advanced investors, meaning they only need to beat the pool of index funds. So in my theory here they simply select the companies that retail (not institutional pools) beat down in a mania, and want less competition during those times with a more intelligent investor backing large institutional sums. Is it harmful advice? No not really, unless its used to convince a talented individual or someone who knows of one, that they can't achieve above average returns; but is it self serving advice? sure it is
@@oregonistoowet are you suggesting that 5% doesn't do business all over the world? Or are you suggesting you want to own part of a booth at a rural chinese wet market
Dkouts57 that's because he's an active trader. He out performs the S&P 500 because he's Warren Buffett. He's saying if you're not an expert and can't do it yourself it's easier to invest in an unmanaged index fund, compared to paying a hedge fund manager to do it for you as the hedge fund manager will out perform the market but the charges they place on you will make you personally under perform
Thomas Harman14 perfectly explained. Also, warren buffet does practice what he preaches. He has said that in his will, he specified his inheritance to be invested in a low cost index fund. So if he didn’t believe in index funds I don’t think he would leave his own legacy to an index fund.
Yes, that's true. He calls it investing for 'no-nothing' investors. And he includes his wife in that category, and has her told to do exactly that, when he's no longer around. It's the best way for the ordinary Joe, who knows nothing about investments. Obviously Buffet and Munger are not in that category.
He literally just buys companies and reaps the profit nowadays. His average is about ~20-30% PER YEAR or some similarly obscenely high number. Do you think regular people have the clout to swing 4 billion dollars for an Israeli metalworking company? If they did (Bill Gates) would they even be able to discern which companies are good? Bill Gates is intelligent, passed Math 55. Yet he has someone he trusts manage Cascade Investments for him. The point is, normal people usually are unable to do the things that Buffett does on both monetary and financially intelligent levels. He's giving the *layman* the best advice possible. Now, there is a caveat... if too many people invest in index funds, some shit's going to happen.
for me the problem with hedge funds is more or less the same as someone that plays with the aim not to lose ... they arent losing as much in the bad times but in the good ones they are not really winning ... same as teams for example in football that try not to lose ... maybe they wont concede as much goals but in order to win you need to score goals
