Nevada’s public employee pension fund invests passively and beats peers (2016)

https://www.wsj.com/articles/what-does-nevadas-35-billion-fund-manager-do-all-day-nothing-1476887420

by cpncrunch • 2 years ago

348 464 2 years ago

wsj.com

cpncrunch2• 2 years ago

https://archive.is/hmkdj#selection-4317.0-4320.0

jonahbenton2• 2 years ago

(2016)

cpncrunch2• 2 years ago

Updated title.

decasia• 2 years ago

I'm curious if this is demonstrably an optimal strategy for individual investment too... I haven't had much success getting any clear data about whether active management demonstrably produces better results.

windwindow• 2 years ago

There's strong data supporting passive investment. I've found the stats in Andrew Hallam's book, "Balance: How to Invest and Spend for Happiness, Health, and Wealth" (https://www.amazon.ca/Balance-Invest-Happiness-Health-Wealth...) quite eye-opening.

cornstalks• 2 years ago

There’s the famous bet Warren Buffett won against an actively managed fund: https://www.investopedia.com/articles/investing/030916/buffe...

elil17• 2 years ago

Short answer re: investing in active managers (based on my many years listening to rationalreminder.ca) is that, if you eliminate some of the worst active managers, the average returns net of fees are the same. However, eliminating the worst managers is challenging (but not impossible) to do ex-ante. Even then, you’re only getting the same average returns as indexing, not better. Plus, you will experience a higher dispersion with active managers (greater chance of extreme negative or positive outcome), which is not desirable. Because of these two issues, It’s definitely better to pick an index fund.

Re: picking stocks yourself, the answer is also pretty cut and dry. There’s strong evidence no individual trader can expect to beat the market. Active managers can only beat the market gross of fees because they employ large teams of people to do a lot of work to gain a small edge (stuff like predicting retail sales numbers from satellite images of store parking lots).

This is my attempt at summarizing a whole field of research in a few sentences. There are many more nuisances. I highly recommend listening to the Rational Reminder podcast if you’re curious about this sort of thing. They interview a lot of academics.

chii2• 2 years ago

a higher dispersion with active managers (greater chance of extreme negative or positive outcome), which is not desirable.

some people prefer the chance to win the lottery rather than get a steady income stream.

Galanwe13• 2 years ago

There's more dimensions to an investment than average returns.

Volatility adjusted returns (or Sharpe ratio) for instance, will tell you how much returns you have per unit of risk you take. This is important because getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. You can only compare investments at equal amount of risk.

An other factor to take into account is diversification. If you have an alternative investment to compare to your base, and it's average returns is lower than your base, but it is un correlated, then you actually get an increased volatility adjusted average returns by investing in both.

That's just two dimensions to take into account, there are many others, but overall:

- Don't compare investments based on annualized returns alone, it really doesn't make any sense.

- Don't compare investments one against an other, instead look at the addivity of one on top of another.

personjerry• 2 years ago

There’s strong evidence no individual trader can expect to beat the market.

I don't understand that. If you just bought Apple instead of SPY 20 years ago wouldn't you be doing great?

qwytw11• 2 years ago

picking stocks yourself, the answer is also pretty cut and dry. There’s strong evidence no individual trader can expect to beat the market.

Is there? It would make sense if an average individual trader can't expect to beat the market. Claiming that there are no individual investors who did/can do that over a reasonably long period is both objectively false and rather absurd.

asdasdsddd2• 2 years ago

The catch 22 for active management is that if they are actually good then they would just use their strategies to manage their own money.

throwaway3306a• 2 years ago

The catch 22 for this assumption is that they want to be richer than their own money would allow

samus• 2 years ago

They probably do. They just make it their day job by selling their services to others as well.

OJFord3• 2 years ago

They do. But if you offer the service to other people, you get a lot more money to play with (meaning you can do more or different things than you could with less) and get to charge performance fees etc. in addition to your own capital gains.

Really, you could say it about absolutely any job, it's just a bit more direct with managing money. 'If you were any good at writing software you would just sell your own SaaS', etc.

throwaway203721• 2 years ago

But why stress about beating the market? Just be the market with an ETF that tracks the S&P 500 index. Literally, setup auto invest from your paycheck. Go to sleep (Rip van Winkel style). Wake up 40 years later and retire comfortably.

Look at total returns over the last 40 years on the most popular indices in the world. S&P 500 crushes them all. I see a lot of "Internet advice" recommending various MSCI world indices. They are all much worse than the S&P 500.

theK• 2 years ago

Sometimes I wonder whether ETFs that track top valuation will lead to some weird stickyness and overvaluation in say, S&P500.

wcoenen• 2 years ago

Picking the S&P500 over a world index because you think it will outperform, has the same problem as picking individual stocks over an index. You can't actually know which will outperform in the future.

rsynnott• 2 years ago

World indexes are normally somewhat less volatile (they’re typically _much bigger_; MSCI World is 1400 companies, and MSCI ACWI nearly 3000), which may be a useful attribute, depending on what you’re going for.

(Conversely, there are smaller indexes which tend to beat the S&P500, like the NASDAQ100, but there’s a volatility cost.)

wenc• 2 years ago

The common refrain is that "time in the market always beats timing the market".

The implicit assumption in that refrain is that, despite periodic dips, the U.S. stock market always goes up over time. This has been true since the Great Depression (see graph of S&P 500 since 1929)

https://www.officialdata.org/us/stocks/s-p-500/1929

The implicit assumption behind that is that the American economy always invents a way to grow. Buffet famously said, "never bet against America".

For as long as these assumptions match reality, it's likely that passive management will continue to succeed.

gizajob5• 2 years ago

It’s also just capitalism and fiat currency - in a world where the money supply has to inflate, the prices in the market have to go along with it.

3170702• 2 years ago

That is too strong of a condition. The economy doesn't need to grow for passive investing to work.

Even when the economy is flat, passive management works. As long as companies are economically productive, capitalism will hand over a chunk of the profits to the owners of the capital.

Of course, growth increases the size of that chunk year over year, but capitalism doesn't stop when growth stops.

Active investing is when you are looking to exceed this passive margin by timing your trades well. Active investing requires changes in productivity (such as growth).

qwytw11• 2 years ago

time in the market always beats timing the market The implicit assumption in that refrain is that,

Only if you were fine with waiting 50-100 years. The market in 1950 was more or less at the same level in real terms as in 1906, of course dividends were way higher back in those days. If we take that into:

e.g. if you invested 200$ in S&P 500 in 1906 adjusted by inflation in 1950 you would have had ~$1570 in 1950. Which is an average annual return of ~4.7% which is not terrible but you would have made approximately the same by buying high grade corporate bonds just with way less volatility.

jackcosgrove2• 2 years ago

American economy always invents a way to grow

There are various macroeconomic models which attempt to explain the factors of growth, for example the Solow growth model. In this model technological advancement is only one of three factors. The others are the savings rate and the population growth rate.

According to this model, you may not be able to innovate your way to growth if one or both of the other factors are contrary to growth. This may sound academic but there are concrete examples in the last twenty years of countries that have not grown because of a stagnant or shrinking working age population, e.g. Japan and Italy.

This has no bearing on the passive vs active debate, as I'm fairly confident that passive investing will always be the better strategy for a retail investor regardless of the growth potential of an economy.

It's just in a country with unfavorable macroeconomic conditions, passive investing may be the way to minimize losses rather than maximize gains.

The assumption of continued growth will probably hold true for the American economy through the end of the century at least, so for everyone here investing in US equities it is academic. But we can try to decompose an economy into factors and use those to check whether we expect growth to occur at all.

throw0101d4• 2 years ago

The implicit assumption behind that is that the American economy always invents a way to grow. Buffet famously said, "never bet against America".

Or you invest in a total world market fund for better diversification.

Diversification would have helped anyone in Japan(-only) in 1990, and anyone in the US(-only) in the 2000s. It's a very easy strategy nowadays:

* https://investor.vanguard.com/investment-products/etfs/profi...

* https://www.vanguardinvestor.co.uk/investments/vanguard-ftse...

* https://www.vanguard.ca/en/advisor/products/products-group/e...

immibis2• 2 years ago

And the assumption that the stock market will go up from now is itself a form of timing the market. It assumes that now is the best buying opportunity in the whole future. I don't like that refrain.

riku_iki• 2 years ago

the American economy always invents a way to grow

I suspect American economy grows slower than stock market. Last 25 years its about printing debt and money supply.

acchow• 2 years ago

The general wisdom is that it’s basically impossible for most people to tell the good fund managers from the bad/mediocre ones.

Except Warren buffet. A lot of people went with Berkshire Hathaway and did very well.

throw0101d4• 2 years ago

Except Warren buffet. A lot of people went with Berkshire Hathaway and did very well.

Buffett has been underperforming the S&P 500 for about twenty years now:

* https://www.linkedin.com/pulse/warren-buffett-has-underperfo...

* https://news.ycombinator.com/item?id=37827101

danielmarkbruce2• 2 years ago

It's sort of self evident - if you are freakishly capable of spotting mispriced securities in a market full of smart hard working people who are paying attention, you can do better than average. If you aren't freakishly capable... you cant.

It's sort of like "does playing pro golf make sense?".

bumby4• 2 years ago

There’s an interesting corollary to this. There’s some evidence that low-volatility strategies can outperform, at least when not using leverage. My working theory is that it is due to an overconfidence bias. People who actively trade assume they can pick better stocks, or else they wouldn’t trade. This manifested in more volume in high-beta stocks, leaving low beta stocks undervalued.

gizajob5• 2 years ago

They’re only mispriced until they’re not though, or they’re priced well until they’re suddenly mispriced. That is the say the market is an evolving system varying on the time axis - that things are mispriced assumes that time isn’t rolling along and new events don’t happen and new information doesn’t arrive. Everything’s price today is just a guesstimate until tomorrow’s guesstimate following some new data. Granted it’s not like the past where whole companies were sitting there underappreciated because of a lack of analytics, but at the same time coming out of covid companies like Rolls Royce (makes aircraft engines) had their prices crash completely, then were demonstrably “mispriced” for ages and are still recovering now air travel is back to 2019 levels. But the price wasn’t mispriced when the planes weren’t flying, just cheap to those who believed covid would get sorted eventually and the debt RR took on to survive would get repaid.

llelouch• 2 years ago

Active does better much better. If you know how the price moves you can easily beat the market.

abbadadda• 2 years ago

Source?

taraparo• 2 years ago

It is the opposite. Market timing does not work reliably. Active management produces worse results on the long run. no individual trader or active manager can consistently beat the market. however active fonds may have periods (even several years) where they out perform.

for private investors buy-and-hold of highly distributed ETFs is the best way to do it. The easiest way to get started is a one ETF portfolio like e. g. Vanguard FTSE All World or SPDR MSCI ACWI IMI. They perform internal rebalancing automatically and you virtually have nothing to do. buy them and don't look at them for the next 20 years.

TrainedMonkey• 2 years ago

Noting that it is possible to beat market, with strategies / algorithms that are generally non-public. For example medallion fund, see https://posts.voronoiapp.com/markets/Jim-Simons-Medallion-Fu... . Note that these crazy performance stats are after the steep fixed + performance fees.

pizzalife• 2 years ago

Yes, read "The little book of common sense investing" by Bogle.

graemep4• 2 years ago

On average yes. An index tracker will get the average market return ignoring fees, so its returns will be those of an average active fund.

However, the active find will charge higher fees.

aantix• 2 years ago

Take a look at the automated systems that have resided on Collective2 for more than 2 years.

https://collective2.com/grid

There are only a couple that has a large history of trades, fairly even equity curves, older than two years, and small(ish) drawdowns (< 30%).

In other words, it's difficult but possible.

hindsightbias• 2 years ago

Fund was up to $55B in 2022, but they made him take a roomie

https://thenevadaindependent.com/article/lawmakers-approve-d...

nxobject• 2 years ago

Oh, that's funny... apparently to reduce the risk of there just being one person.

Cthulhu_3• 2 years ago

Which is fair, see https://en.wikipedia.org/wiki/Bus_factor

djkivi2• 2 years ago

Fidelity: Successful investors forget they have an account:

https://www.bogleheads.org/forum/viewtopic.php?t=146347

BurningFrog• 2 years ago

That's pretty much how I did it.

I didn't actually forget, of course, but I didn't get around to looking at the numbers every year. And when I did, I hardly ever changed anything.

Of course, buying Apple in 1997 was also an important factor.

heresie-dabord• 2 years ago

Of course, buying Apple in 1997 was also an important factor.

Had the fare, boarded the right train at the right time.

geodel• 2 years ago

Funny. Just today I receive main from Fidelity to review my account. The only thing I wish to but can't afford to change is retirement age to an earlier date.

pants2• 2 years ago

In crypto, successful investors get their funds stolen and then later recovered (MtGox, Gemini Earn)

cm2187• 2 years ago

Or go to jail and only get to sell on their release

AuryGlenz• 2 years ago

Mine were just stolen by the government and not given back. Btc-e.

I’m not bitter or anything.

kalium-xyz• 2 years ago

Heh i had this with bittrex

Mistletoe3• 2 years ago

Those are the lucky ones that get paid back in kind in the crypto currency they had. Some like the FTX folks are unfortunately paid in the dollar value of their account at the time.

Bitcoin was like 15-20k at the time of the FTX collapse and is now 60k again like the highs in 2021.

blcknight• 2 years ago

Until it gets liquidated and the cash put into state lost money accounts because of escheatment rules. You should still login once a quarter or so.

https://www.investopedia.com/ask/answers/110415/what-are-dor...

Mathnerd314• 2 years ago

The dormancy period for IRAs cannot begin until the account owner reaches the age at which one must begin taking required minimum distributions. As of 2023, the required minimum distribution age is 73.

So not until you retire.

recursive• 2 years ago

I've been harboring a suspicion for several years that I've forgotten an account or two. Maybe I'm one of the fidelity investors.

TeMPOraL• 2 years ago

Subscription fatigue.

I sometimes worry if I have a forgotten paid subscription on an e-mail of mine I don't check, that slowly drains a bank account I forgot I have. There's just Too Many Accounts, and Too Many Subscriptions.

throw0101d4• 2 years ago

Your link has John O'Shaughnessy being interviewed by Barry Ritholtz (two respected folks in finance), and O'Shaughnessy later corrected himself:

* https://twitter.com/jposhaughnessy/status/115517108366392524...

While I do believe set-and-forget passive investing is best for the vast majority of people, last time I checked that Fidelity study does not actually exist, and the story is apocryphal (no one seems to be able to actually link to it).

If you ask Fidelity about it, they'll tell you it does not exist:

* https://www.morningstar.com/columns/rekenthaler-report/archi...

djkivi2• 2 years ago

Thank you.

There are too many of these apocryphal stories out there of various kinds. Sorry that this one appears to be too.

AlbertCory• 2 years ago

“Doing nothing is harder than it looks”

He means that when people are screaming at you to do something because the market's tanking, you earn your salary by yawning and saying, "No, I think we're good."

dclowd99012• 2 years ago

Reminds me of that scene in The Long Short where Michael Burry is hemorrhaging money on the bet against CDSes and basically everyone has completely turned on him.

jbs7892• 2 years ago

*The Big Short, for anyone curious.

sameerds• 2 years ago

Completely off-topic. The article is paywalled, and for once I decided to go down the subscription rabbit hole. I am viewing this in Firefox on Windows. But every "subscribe" button on the WSJ page points to an Apple store page for the "app". WTF?!

rty32• 2 years ago

Unfortunately Firefox is often treated as a forgotten child.

I say this as a mostly Firefox user on every platform. When the Firefox experience sucks too much, I switch to Chrome or Samsung Internet.

(Well, Firefox itself has a number of open bugs that haven't been fixed for a long time)

thevillagechief3• 2 years ago

It was Richard Thaler's Misbehaving: The Making of Behavioral Economics book that finally broke through my thick, anxiety ridden skull and convinced me to stop reading economic news everyday and just forget the the retirement accounts existed. If I'd read that book earlier, I'd be up 3X on my positions.

ChrisMarshallNY3• 2 years ago

I haven't touched my 401(K) in over 30 years. It's done 9-20% per year. It's not super aggressive, but will take a hit, on really bad markets (the only year it actually lost money, was 2020 -and it has completely made up for that. It even made some money in 2008).

I ignore the Fidelity calls. Every time a new broker rotates in, they try to get me to move my money around.

benrapscallion2• 2 years ago

Is it invested in an index fund?

throwaway203721• 2 years ago

I don't work for Interactive Brokers, but I do periodically shill for them here on HN! Their market access diversity and rock bottom fees are very hard to beat. It should be possible to transfer a 401k in-whole with zero tax consequences nor booked trades.

usaar333• 2 years ago

the only year it actually lost money, was 2020 -and it has completely made up for that. It even made some money in 2008

How did you manage to not lose money in 2022? Almost every asset class was negative then.

dralley3• 2 years ago

I've done well (39% annual returns) investing in 2-3 individual stocks in addition to index funds for the rest of my investments. More than that would be IMO too much to pay attention to.

Admittedly my choices for stocks are a bit on the high-risk side, but it's worked out well so far. Picking up lots of AMD in 2017, and Rivian 6 weeks ago, seems to have been decent calls.

zeroonetwothree• 2 years ago

Sorry but I never believe these online claims given with no evidence about ridiculously high returns. It’s not to say you are lying but it’s easy to miscalculate these things.

throwaway203721• 2 years ago

Have thought to start your own fund? If what you say is true (which I doubt), you can make squillions in fees.

ghaff23• 2 years ago

Great read. I actually recommend it over Nudge. I had him as a professor at Cornell for a couple courses before "behavioral economics" was a term.

EVa5I7bHFq9mnYK2• 2 years ago

It depends. I had a pension plan that grew x2 in 17 years (don't know what they invested into). My own investments grew much faster than S&P though.

thevillagechief3• 2 years ago

I should have clarified, this is a 401K, not a pension plan. So it's just passive index funds. I don't even think of pensions as a thing anymore.

throwaway203721• 2 years ago

Is that pension plan defined benefit or defined contribution?

embwbam• 2 years ago

What about the book made the difference? I'm 100% convinced that it's better to do as you say, and forget about the accounts, and also unable to resist the temptation to check them every day. I'm constantly tempted to make changes.

stavros4• 2 years ago

This might help:

https://www.thesummarist.net/summary/misbehaving/

thevillagechief3• 2 years ago

The full analysis is too long to go on here, but on the chapter "Narrow Framing on the Upper East Side has this conclusion: "The implication of our analysis is that the equity premium - or the required rate of return on stocks - is so high because investors look at their portfolios too often. Whenever anyone asks me for investment advice, I tell them to buy a diversified portfolio heavily tilted toward stocks, especially if they are young, and then scrupulously avoid reading anything in the newspaper aside from the sports section. Crossword puzzles are acceptable, but watching cable financial news networks is strictly forbidden." Of course there's the usual caveat about rebalancing as you approach retirement, basically the target date strategy. Really, the book gives great context into just how irrational we humans are. It has lots of studies, examples and anecdotes on behavioral economics. It was the book that actually helped me make sense of sunken cost fallacy.

rr808• 2 years ago

In general avoiding fees is definitely a good thing. Its one of those things that hindsight finds the best strategy and they were kinda lucky about the crazy bull market in the USA in this time.

If you were a Pension fund in France, Australia, UK, Japan, China etc and put all your money in the local passive index tracker you'd maybe double your money in the last 20 years but way under perform S&P which is like 6x in that period.

immibis2• 2 years ago

This is true. Of course, when you have many indices, with random returns, some of them will perform well, but past performance doesn't guarantee future results.

throwaway203721• 2 years ago

Except the performance of S&P 500 isn't random. Over a long horizon, it is explained by economic policy and resulting economic conditions. There is a reason that most EU and LatAm nation indexes have done so much worse in the last 25 years: Worse economic policy. I still have high hopes for China equities.

emacdona3• 2 years ago

To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund:

We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big.

If you don't beat the index (within the time frame), you make up the difference (so I get the return to the index).

jppittma• 2 years ago

I feel like some creative use of beta could make this a very lucrative deal for a patient, but unscrupulous fund manager.

Findeton4• 2 years ago

Fundsmith for example has beaten the market for a long time (not this year though). I can also mention another Spanish fund that I know: Tercio Capital.

https://markets.ft.com/data/funds/tearsheet/charts?s=GB00B4Q... https://www.finect.com/fondos-inversion/ES0174115057-Cinvest...

cjblomqvist3• 2 years ago

There are some research (instead of cherry picking/anecdotes). I don't have any links right now but basically half of the funds lose compared to the index (by law of nature - averages and all that). Furthermore, taking fees into account, just a few percentages make anything more (over time) - which is probably within scope of randomness.

abound• 2 years ago

An important component of a bet like this: you should base the win/lose calculation on returns after accounting for fees. The index fund likely has fees that are two orders of magnitude lower than the active fund. Otherwise, a random fund may beat a broad index just by chance.

Warren Buffett's very similar bet was done this way.

Scarblac• 2 years ago

You won't have any guarantee that they will be able to make good on their promise and won't just go bankrupt.

bandyaboot2• 2 years ago

You’re probably aware that no fund manager would accept your offer. But it doesn’t prove that they don’t think they can beat the market (as misguided as that belief might be), it just means they’re not willing to take on an absurd amount of risk to prove it.

cjblomqvist3• 2 years ago

Exactly. No point being the one taking the risk - if the professionals don't dare take the risk then any non-professional (fund buyer) shouldn't either (under normal circumstances).

PS. Furthermore, an accurate comparison is not beating the index, it's beating it enough to cover the salary/compensation of the fund manager + some (with less risk! Risk = cost!)

emacdona3• 2 years ago

I don't think the risk is "absurd". Or, at least it's no different than the risk they ask any investor to take by charging them 1% of their portfolio for it to be "actively managed".

Plus, they are being compensated. I'm offering 90% of the returns above the index :-)

mort962• 2 years ago

I mean it does mean that they don't have faith in their ability to beat the market on average across significant time spans.

the_cat_kittles• 2 years ago

it points out the inherrent bullshit to the current arrangement

hhmc2• 2 years ago

Why would anyone take the other side of this bet? It's an incredible financial instrument, that anyone on the buyside would buy in an instant (as formulated -- ignored fees/tcosts etc).

stavros4• 2 years ago

If I can consistently make more than 10% on your money, I'll take the other side.

stouset4• 2 years ago

Why would anyone take the other side of this bet?

People accept this bet every single day… when they buy actively-managed funds.

Actually they accept a worse bet. Instead of taking 100% downside risk and being taxed on anything above the index, they’re taxed on both gains and losses.

You’re right that it’s an incredible financial instrument. Actively-managed funds are extremely profitable… for fund managers, who get paid out of investors’ assets in bad years and also get to skim off the gains in good years.

paxys• 2 years ago

Where will they find the money to pay you if they lose?

cess113• 2 years ago

If they don't they'll enter bankruptcy proceedings and their assets get sold and divided between creditors.

otoburb• 2 years ago

Sounds similar to recently launched buffer ETF products, specifically BlackRock and Innovator that hedge 100% of downside while capping your upside across different time horizons indexed to the S&P500.[1]

[1] https://www.bloomberg.com/news/articles/2024-07-01/blackrock...

dmurray• 2 years ago

They don't guarantee you zero downside compared to investing in the index, though, but compared to putting your money under the mattress.

It's relatively easy to achieve a return profile like these promise with some combination of Treasuries and index options (at least while Treasuries pay 5%!), and the ETFs are doing this kind of financial engineering rather than promising to beat the market through stock-picking skill.

ProjectArcturis• 2 years ago

The point of actively managed funds is not so much to "beat the market", it's to provide diversified returns via strategies that are uncorrelated with the market.

On average, the S&P500 has returned about 7% annually. If I had a strategy that returned 5% on average but was totally uncorrelated with the S&P, then you'd get the best overall long-term returns (maximize the geometric average of annual returns) by investing in a combination of my strategy and the S&P.

dv_dt2• 2 years ago

Well then you could establish a simiar pay critera that beats the s&p 500 during recessionary moves of the index. Im guessing you wouldn't get many takers

daedrdev• 2 years ago

My impression though i that most of these firms are highly correlated with the market despite their attempts at otherwise

dukeofdoom• 2 years ago

Is the 7% post inflation?

bityard5• 2 years ago

I want to agree with you, except that almost all of the salescritters for these products promote them as "beating the market." They _have_ to sell them this way because if their customers had any idea what the whole-market returns actually were, they wouldn't pay extra for the privilege of a far riskier (and lower-performing, on average) investment.

And the S&P 500 returns more like 10% per year. A bit higher if you cherry-pick your start and stop dates. I've only seen people use 7% for portfolio value estimation purposes, after adjusting for an assumed 3% inflation.

Maxatar5• 2 years ago

This is a kind of revisionism that mostly took off after Warren Buffet won his bet that hedge funds would not outperform the market over a 10 year time period.

The original goal and selling point of hedge funds was to produce consistent results regardless of the market's performance by using long and short positions to provide absolute returns in any market environment.

With that said, even if you accept the revisionism, it's untrue that actively managed funds are uncorrelated with the market. What is true is that selection bias makes it seem like they are since when interest rates rise and markets go through a down swing, the majority (and yes I mean more than 50%) of hedge funds go out of business. As such the only hedge funds that remain are the ones that happened to weather the storm so to speak.

pipes• 2 years ago

I find this really hard to believe. I could be wrong but all the alpha type funds don't seem to advertise themselves as this.

gosub100• 2 years ago

so there are investors who want to lose? I'll happily lose money on their behalf :D

financltravsty2• 2 years ago

You are not an UHNW individual/institutional investor, so no "fund managers" of any note are going to waste their time on this wager.

"Beating an index" is really easy. Up to $10MM you can choose most any financial instrument class in the U.S markets and have a good probability of finding alpha for a long time (that would beat the S&P500 18.40% YTD). Many proprietary trading firms, or market makers, or quantitative trading shops do this regularly. Discretionary and systematic funds? Usually not. If their processes worked consistently, they would have no need to take outside capital and deal with relationship management. They could simply use more leverage (not exactly, but simplified for the general reader).

This is also ignoring the fact there are no details in TFA about actual portfolio compositions or returns -- i.e. this is a PR piece.

If your NW is under <$100MM, you should be focusing on hyper-growth strategies -- and not mentally limiting yourself on what is basically financial propaganda.

dkekenflxlf3• 2 years ago

++1!!

archagon• 2 years ago

What are “hyper-growth strategies”?

toomuchtodo• 2 years ago

https://longbets.org/362/

“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”

Predictor: Warren Buffett | Challenger: Protege Partners, LLC

https://longnow.org/ideas/warren-buffett-wins-million-dollar... (“Warren Buffett Wins Multi-Million Dollar Long Bet”)

KMag• 2 years ago

Disclaimer, I work for a market-neutral fund, and have close friends high up in prop shops.

Presuming all strategies have a curve of diminishing marginal returns as assets under management increase, you would not expect any fund accepting outside money to have expected returns beating the market, but you would expect many of them to have a combination of correlation to the market and expected returns that would make them an attractive component in a basket of broad index ETFs and market-neutral funds. (Assuming risk-adjusted returns are the utility function being optimized. If variance is their preferred risk metric, this results in optimizing Sharpe ratio via mean-variance optimization, MVO.)

It's fair to assume that any fund manager is optimizing the sum of returns from their own personal investments in the fund plus fees from outside investors. They pick the place on the volume/risk-adjusted-returns curve that still keeps their fund attractive enough to outside investors, and maximizes their personal profits (personal returns plus fund fees).

If that optimal point on the volume/risk-adjusted returns curve for their particular strategy is at a point where risk-adjusted returns beat the market, then they maximize their returns by either never accepting outside funds (prop shops) or by not accepting additional funds and gradually buying out their investors (such as RenTech's famous Medallion fund).

So, (assuming diminishing marginal returns) it's not rational to simultaneously accept outside investment and beat the market on a risk-adjusted basis.

I suspect that many market-neutral funds could reliably beat the market on a risk-adjusted basis, but their volume/risk-adjusted-returns curve shape and their fee structures make it optimal for them to operate at a point on that curve where their expected returns are below the market.

Note that this rational self-interest optimization below market returns isn't bad for the investors. Under most fee structures, it ends up being close to maximizing total investor returns. Increasing percentage returns would mean kicking out some investors.

RenTech's Medallion Fund and many prop shops, and funds that are currently slowly buying out their investors seem to indicate there are at least some strategies where the optimal volume/returns trade-off is above market returns. You would expect all funds that are currently open to more outside investment to either be young and lacking capital or else have an optimal point on the volume/returns curve that is below market returns.

Note that as previously mentioned, a simple mean-variance optimization on a basket would allocate funds to both index ETFs and market-neutral funds returning a bit under the market on average. It's entirely possible that both fund investors and fund managers are being perfectly rational.

Of course, there are also plenty of people out there who fool themselves into thinking they know what they're doing. The world certainly isn't perfectly rational.

I'm just saying that in a perfectly rational world, assuming (1) utility function of risk-adjusted-returns (e.g. Sharpe ratio, resulting in mean-variance-optimization) (2) declining marginal returns on investment, you would expect all funds accepting outside investors (except for young funds desperate for money) to under-perform the market in expected returns.

Now, everyone talks about Sharpe ratio on the outside, but the particular risk models actually used internally by any fund are almost certainly not just variance of returns. I presume all funds simultaneously apply a mixture of commercially available risk models and internally developed risk models. Sharpe ratio is far from perfect, but it's a good least-common-denominator for discussion, and doesn't give away any secret sauce.

Side note: it would be rational for someone to take you up on your proposal and simply use index futures to take a highly leveraged position on your benchmark index. As long as they had enough money to make you whole in the case of bad tracking error and large downturns, their expected returns would be large. However, you wouldn't be very smart to take such an agreement instead of just getting leverage yourself. This demonstrates why risk-adjusted returns are usually more important than expected returns.

HFguy2• 2 years ago

There is a similar but different product (without the downside protection).

A fund manager can replicate the index with derivatives and overlay their alpha on top of it.

Google “alpha overlay” or “portable alpha” for more info.

These types of products were more popular about 10-15 years ago.

Firms typically charge just for the alpha for these strategies.

You are asking for the manager to sell you an option.

fooker• 2 years ago

You are asking for the manager to sell you an option.

For free. This is why no one will agree. But if you price this as an option, and pay for the contract I can this working out.

lumb63• 2 years ago

Something I don’t see talked about enough is the extent to which the rise of passive investing increases the extent to which passive investing is the best strategy. Passive investing is predicated entirely on either freeloading off of the decisions of actively managed portfolios, who will adjust the market prices of securities efficiently, therefore resulting in passively managed funds automatically owning the “best” stocks because the bad ones will fall out of the indices; or it is predicated on what is effectively a Ponzi scheme wherein if everyone passively invests the same, then that form of passive investing will yield the best returns.

For analogy, consider school students trying to get all the questions right on the test. The first scenario is equivalent to one student studying hard to find the right answers. The rest of the class copies his answers and benefits from his efforts. The other scenario is no student trying hard, them all failing, but succeeding because the teacher curves the grades.

Note that both of these scenarios, especially the second scenario, results in stock prices which become increasingly detached from the economic reality of companies in proportion to the extent to which passive investing becomes prevalent.

For instance, assume stock XYZ is a bad investment but is in the S&P 500. If 90% of funds are actively managed, maybe they can sell a sufficiently large amount of it to push it out of the S&P 500 and save the passive investors from owning it. But if 90% of funds are passively managed, even if XYZ is hot garbage, the 10% of passively managed funds cannot possibly sell enough to make up for the fact that 90% of the market participants are indiscriminately buying a terrible stock.

Passive investing breaks the market to some extent. The free market system is predicated on having rational participants, not zombie participants.

hankchinaski• 2 years ago

What you describe can be measured with return dispersion, as more people invest with passive index more opportunities arise for active investors. So they balance each other

citizen_friend3• 2 years ago

This sounds clever but many funds did exactly that. What’s your point?

S&P + nvidia was better than just S&P over the last 5 years.

Dylan168075• 2 years ago

The challenge is to beat the market in the future and put your money behind that. Not to beat the market in the past.

You're giving an example of beating the market in the past, which is not useful. You can do that with blind luck.

Beijinger• 2 years ago

All this is true, and there are many good comments in the thread here. But this "hey dude, stock picking is for idiots and all non idiots but index funds" should be treated with caution. Index funds are an extremely clever idea but were never meant to be used on such a scale.

To give you some ideas:

https://www.forbes.com/sites/chriscarosa/2024/04/02/index-fu...

tossandthrow• 2 years ago

There are a lot of unknown for the markets in the future. Also the 0 or negative interest rate environments we will probably enter (again).

IMHO we need to rethink or tweak the financial system sooner rather than later.

nerdponx• 2 years ago

On the contrary, that article makes it seem perfectly fine to invest in index funds.

jacobsimon7• 2 years ago

One of my big brain investing ideas is to pick the stocks at the top of the index instead of buying the whole index. If index funds continue to rise in popularity, the stocks that are at the top will benefit most from passive investment volume.

Plus, index funds follow a kind of Pareto principle where the top stocks contribute disproportionately to the total return anyway.

As I’ve gotten older though, one of my realizations is that the tax-free rebalancing of index ETFs is their most valuable property, rather than their actual choice of equities.

jackcosgrove2• 2 years ago

I had an active manager reach out to me with exactly this strategy.

I didn't look at the fees or rebalancing schedule super closely, because I didn't want to invest with the guy, but IMO his market-beating claims were due to increased concentration during a bull market (risk) which could go sideways fast if he didn't rebalance at opportune times.

Mistletoe3• 2 years ago

https://www.aqr.com/Insights/Perspectives/Value-Spreads-Back...

I’d be cautious that you are about to get a wicked mean reversion.

WillPostForFood• 2 years ago

There is an old strategy that is kind of the inverse of this this called Dogs of the Dow where. You buy with stocks with the highest dividend-to-price ratio (implicitly underperforming), looking for the rebound.

https://en.wikipedia.org/wiki/Dogs_of_the_Dow

Etheryte3• 2 years ago

Hint: this idea has been around for as long as index funds have been around, if it actually worked well, everyone would be doing it. Alas, a big part of why index funds work well in the long term is diversification, and when you cherry pick a subset you also lose out on diversification. It's one of those strategies that looks clever if you don't delve into it, but actually the returns are worse. As an example, if you take the SP100 it might outperform the SP500 on single year performance every now and then, but in the long term, SP500 has consistently outperformed it.

humansareok16• 2 years ago

100% you're just adding additional volatility for higher returns. Backdate the strategy, doubtful you're beating the overall index on decade timescales.

bityard5• 2 years ago

Index funds are not some clever hack, they are just tracking the combined productivity of the publicly traded companies that make them up. Whole market, or the top 500 as a representative slice, whatever. When you buy the whole US market for example you are saying, "I strongly believe that the overwhelming majority of companies in the US want to make shitloads of money and pass it down to themselves and their shareholders."

Index funds will never bring down the market as long as individuals and companies are allowed to trade individual stocks at prices of their choosing. There will _always_ be someone who thinks a particular stock is overvalued or undervalued. Those people set the prices.

dukeyukey4• 2 years ago

Something I've wondered is how index funds effect companies entering the index for the first time.

Like, let's say there's a company (TryerCo) that is the 501st biggest in the US. Big, but still one step away from being in the S&P 500.

Then, one of the S&P 500s collapse. They exit the index, and TryerCo enters the index at position 500, despite no material change since the day before.

Doesn't this mean a whole _heap_ of index funds will suddenly start buying TryerCo stock, sending it up thanks to the arbitrary number 500?

TheRoque• 2 years ago

So in the end, what's the key takeaway regarding global economics ? If (some of) the most well-paid people cannot guess the market, then doesn't it mean that they are useless ? Then why are we paying their services ?

weard_beard• 2 years ago

Same reason we pay the TSA.

yieldcrv• 2 years ago

In private equity you are employing the managers to create opportunities

And during bear markets I’ve seen some managers create the most onerous terms far beyond what I could think of, and that's paid excessive dividends for me

I think that’s the real hedge that’s overlooked here

The performance of private funds is also not a complete picture, individual limited partners have different profit and loss than whatever metric the whole fund is subject to, someone that joined as an LP after any trade doesn’t have their capital allocated to that prior or existing positions, only the subsequent ones. so its not really possible to judge performance of fund managers in comparison to indices the way that it is popularly compared. Unless LPs are showing their own performance in a scatterplot, nobody knows anything. and LPs are typically subject to NDAs.

I just think it’s too reductive to say nobody can beat the index, then move the goal post to longer and longer time frames. You only need to be successful once, in any time frame but specifically shorter ones

Cthulhu_3• 2 years ago

Alright, how much of this is hard science and how much is just survivorship bias?

deepnotderp• 2 years ago

Whenever the topic of index funds come up, people should remember:

1. The benchmark for hedge funds is not the sp500, it’s the bond market

2. Because the sp500 is inherently a bet, that America’s top few companies will perform well. This is not a purely risk free, hands off bet.

If you bought the Japanese Index fund, the Nikkei, even today it hasn’t returned to its 1980 peak

You might say “I’ll just get a global index”- in which case congrats, you’ve underperformed hedge funds!

3. There are more factors than just investment returns- ie volatility (Sharpe), drawdowns, etc

So despite what HN seems to think, the hedge fund industry is not in fact, full of idiots.

santoshalper• 2 years ago

I don't think most of us think the hedge fund industry is full of idiots. Speaking only for myself, I think it's mostly full of grifters.

kgwgk• 2 years ago

1. The benchmark for hedge funds is not the sp500, it’s the bond market

There is not _a_ benchmark for "hedge funds" as they are not really _a_ thing.

In some cases S&P 500 may be an appropriate benchmark. Unless Bill Ackman is not a true hedge fund manager, I guess. "In 2023, Pershing Square’s 20th year, Pershing Square Holdings generated strong NAV performance of 26.7% versus 26.3% for our principal benchmark, the S&P 500 index."

dkekenflxlf3• 2 years ago

So, for SURE it is possible to beat "the market", but:

- strategy is limited up to max 1mio per account (well, maybe 2 pr 3)

- you need a tailored software, tools like MT/et al wont help you

- with a leverage of 5-10, its possible to achieve gigantic returns

- system needs to be capable of going short as well

- your individual application should abstract-away all dauly charting&news noise: what counts is statistics and propability only, do not check CNN et al

EDIT: - this approach cant be done by ANY institutional corp due to regulations, so they are not doing it

jbs7892• 2 years ago

Can you elaborate on the regulations preventing corp implementation here please?

dkekenflxlf3• 2 years ago

Sure, thanks for this question!

In case of public funds:

Depending on the jurisdiction, funds are allowed to invest only in certain securities, like stocks or bonds. In most countries, they are not allowed to use all available products; esp all products which offer high leverage (and highlosschances) are not allowed for institutionals.

A private prop trading company may do it, though they are not managing billions (as the pension fund in the article); and those prop traders in reverse can not that easily attract "other people money"

enahs-sf• 2 years ago

The macroeconomic read between the lines takeaway for me from this is, these pension funds are big time LPs in VC firms. If that well dries, it has substantial downstream effects for the startup ecosystem and raising capital.

thoughtstheseus• 2 years ago

Private equity has not, as an asset class, had excess returns since around 2006. Prior to that, private market companies were systematically undervalued relative to public. Post-2008, an accommodative equity market has supportive private equity as a volatility dampener for portfolios. Volatility is often used as a proxy for “risk”. There are still many private market firms generating excess returns. It’s a competitive market now and many players are getting eliminated.

akira25012• 2 years ago

The title was correct yesterday. Why is the title editorialized today?

"What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing"

This is the actual title of the article, the page, and the printed version. There was no reason to have edited this except for optics. If true, that's absurd, dang.

nick7376182• 2 years ago

Because on HN we like titles to have information and not be click-bait. The WSJ title is prime click-bait.

akira25012• 2 years ago

So, clickbait is fine, as long as we just editorialize the title? That's an unusual standard.

Dylan168075• 2 years ago

It's an accurate summary with no glaring missing pieces. Your definition of "prime click-bait" is way off.

Thorrez2• 2 years ago

He doesn't literally do nothing, does he? So I don't think it was exactly correct. And it was vague because it didn't explain what the article was actually about.

ilamont• 2 years ago

There most definitely is a reason to edit titles: to reduce clickbait or shorten titles.

The system even automatically removes certain clickbait elements, for instance "How" is stripped out of submitted titles.

Sparkyte• 2 years ago

Always better to invest and just let the market over time take care of it, the make quick cash never works.

grepLeigh• 2 years ago

Disclaimer: I'm not a financial advisor.

Whenever I'm tempted to buy individual high performing tickers (e.g. NVDA, TSLA, AMD), I restrict the purchase to no more than 2% of my portfolio and I only allow myself to bet on 2-3 "race horses" at a time. I think this fulfills the desire to gamble a little and see 100-200% YoY returns. NVDA cracked 300% cost basis when I finally sold, which is wild.

The reason I can do this is because the rest of my portfolio is a boring mix of low-fee ETFs that track major US and international indices. As a retail investor, it's good to remind myself that if I actually had the skills to invest professionally, someone would probably be paying me to do it for them.

khuey• 2 years ago

Every share of an S&P 500 index fund you hold is already 6-7% NVDA, so a lot of investors already have substantial bets on some of these "race horses".

MobileVet2• 2 years ago

True but this misses the core point about agency. Some of us would like too think we know something more and ‘gamble’ on that knowledge.

Having 5% to personally assign can scratch that itch without resulting in an overexposed or vulnerable position

ghaff23• 2 years ago

Whenever I kick myself a little about not owning any/enough of the "race horses" I content myself that there's probably a lot scattered around my portfolio. So you missed out a bit but your index funds actually benefited.

MobileVet2• 2 years ago

This is great advice. You follow the best rule of thumb for individuals, ETF w/ dca and set it and forget it, but allow a bit of fun to scratch the itch.

I do something similar but honestly allow too much to go towards the latter. I need to pair back. I am thankful and lucky that my returns have been similar to index funds and not far below (thanks NVDA and NET)

gamepsys5• 2 years ago

As a retail investor, it's good to remind myself that if I actually had the skills to invest professionally, someone would probably be paying me to do it for them.

Don't discount the knowledge you have from being deep into an industry. The higher quality of the CUDA toolkit compared to other SIMD languages, combined with it's increasing relevance in compute (gaming, followed by blockchain, followed by ML, followed by GPT) would have made this an NVDA an easy pick for anyone (of the increasing number of people) that worked in parallel computing from 2006-2023.

Sometimes you can see a company is positioning itself for a great long term position before the entire wallstreet herd takes notice. That's when you add a single stock as part of your diverse portfolio. I keep up to 5% of my stock portfolio as these single stock picks, judged entirely on the product the company sells.

Terr_3• 2 years ago

Don't discount the knowledge you have from being deep into an industry. [...] diverse portfolio

It's worth emphasizing that investing in the same sector that you are employed-in is actually a kind of anti-diversification, and it won't usually show up using "rate my portfolio" tools.

The archetypal example that comes to mind--unusually extreme but illustrative--would be all those Enron employees who invested their 401(k) funds straight into their own employer.

Consider these three scenarios:

1. If your investments plummet but you keep getting wages from you job, you can try riding it out until they recover.

2. If you become long-term unemployed but your investments stay normal, you can sell a little to cover the gap.

3. But if you can't work and your investments plummet, you may be forced to "sell low" quite a lot to cover immediate expenses, and the long-term outcome is much worse.

bell-cot2• 2 years ago

Don't discount the knowledge you have from being deep into an industry.

True...but especially when it comes to investing - the market can stay irrational longer than you can stay solvent.

wslh3• 2 years ago

1000% but when it is the right time (per fundamental analysis). For example around the subprime crisis companies such as Microsoft had a low PE ratio and the average person thought that Microsoft was a loser vs. Apple and Google. Microsoft has a resilience track record that would be the envy of most companies and .NET was a real thing.

I also remember other companies such as Globant that has a lower PE price vs. similar companies after their IPO. It is incredible that some investors try to build very complex models instead of waiting for the right opportunity.

Not against speculation but you should know when you are doing it or fundamental investing.

cinntaile• 2 years ago

This sounds a lot like hindsight bias. Nvidia is a great company but they lucked out on two unpredictable hypes, crypto and AI, that happened in close sequence to each other.

graemep4• 2 years ago

Don't discount the knowledge you have from being deep into an industry. The higher quality of the CUDA toolkit compared to other SIMD languages

Analysts do follow what is happening in an industry and talk to people in an industry. SOme have worked in the industry they follow.

If you want to get ahead of them you need to focus on something ahead of them - something small or specialist at the time.

bregma• 2 years ago

Sometimes you can see a company is positioning itself for a great long term position before the entire wallstreet herd takes notice.

Well, the investment landscape is littered with the rotting husks of companies with great products. Wonderful, amazing products. They had incompetent management. Or the market for their amazing product never took off. Or there was a general downturn in the economy and they couldn't get cash when they needed it.

If the company has demonstrated itself a good investment, you can rest assured the wolves of Wall Street have already picked the carcass clean before you as a retail investor even get a whiff. They run analyses on factors you don't even know about to make their picks, and they do it in large number like you're never likely to see.

Even if you make the right picks, it's often the wrong pick. Consider if you had invested in Oxycodone a few years ago. It was a great product, brought simple, accessible, effective pain relief to the masses. Prescriptions were flying off the shelves like no other drug before it that wasn't a statin. I'm sure a handful of retail investors are smugly crying "inb4" but most of them are left holding the bag on that one. Hindsight investing is mostly a bitter strategy.

hoseja• 2 years ago

That comparative is doing a lot of work.

vitus2• 2 years ago

So you've been invested in NVDA for 15 years? Because that's how long AMD's been trying unsuccessfully to crack CUDA's secret (OpenCL was initially released in 2009 when it was already clear that nobody wanted to use AMD cards for HPC).

Or how about 5-10 years, when it was clear that everyone was using Nvidia for crypto-related purposes? Heck, even start-of-pandemic when high-end graphics cards were nigh impossible to buy without a 3x markup? (A cool 1500% ROI to date)

This is the sort of thing that's obvious to everyone in hindsight, but it's not always clear in the moment, nor is it clear when the stock has peaked (how many people sold in Nov 2021 as the GPU shortage was starting to ease?).

If you bought NVDA on Jan 1 2006 and held it for 10 years, then you'd have about +100% ROI, or about 7% per year. Not terrible (S&P 500 was closer to +50% ROI over that timeframe), but not amazing (compare this to GOOGL which had a +250% ROI, or AMZN which grew 10x over the same timeframe). Amazon was also an obvious winner in that timeframe due to AWS, right? What about Google / Alphabet? What was unique about its circumstances that warranted it growing twice as fast as Nvidia in that timeframe? Google Plus? Android (it didn't grow 10x like Apple did)? YouTube?

It wasn't clear then that NVDA would have been the winner that it is today, and it's similarly not clear today if NVDA has another 10x gains ahead of it, or if it's already peaked. Or, for that matter, what the next big tech winner will be. (I bet it already exists. It might even already be publicly traded.)

edit: also, if I had perfect predictive knowledge of the financial markets, I'd have put $1000 on BTC back in 2011 when it was about $2 a pop, and sold at any of the recent peaks for $3+ million. There is literally no technical justification for those returns other than market speculation.

UncleMeat4• 2 years ago

An extended family member is a software engineer who has worked in wireless networking for decades and decades, including being personally involved in the development of key parts of 5g.

In the 00s there was some company that had great tech. Surely useful for the future. He put a shitload of money in there. On each paycheck he put in more and more. But although the company had great tech, it didn't end up being the market winner for whatever reason. As the stock dropped and dropped he bought more and more. After all, it was the best tech.

He lost a fortune.

It is probably easy to look back and say "well, I knew that CUDA was easier to use than OpenMPI ages ago, it was obvious that nvidia would blow up."

humansareok16• 2 years ago

The higher quality of the CUDA toolkit compared to other SIMD languages, combined with it's increasing relevance in compute (gaming, followed by blockchain, followed by ML, followed by GPT) would have made this an NVDA an easy pick for anyone (of the increasing number of people) that worked in parallel computing from 2006-2023.

Hindsight is 20/20. I highly doubt people in parallel computing, unless they already worked at Nvidia, have done better than anyone else with their portfolios. Other than the standard delta you'd assume since those people are probably savvier investors in general.

csomar• 2 years ago

NVDA cracked 300% cost basis when I finally sold, which is wild.

It's not if you consider the volatility of the stock. It appreciated x10 in less than 2 years and 20-30 times since the pandemic. Volatile stocks have high returns because they have high risks for losses.

throwaway203721• 2 years ago

This is totally reasonable and I support it. When (usually young) people are bored with my advice about index funds, I tell them that it ok to "gamble" with a tiny fraction of their portfolio, but be prepared to lose what you bet!

snarf21• 2 years ago

I also think that if you look at the regulatory environment in the last 20 years and the lack of monopoly oversight from the SEC and FTC, you can just ride the regulatory capture. I can't see anything beating S&P500 + N100 over any 5 year period unless new laws are passed.

UniverseHacker• 2 years ago

It’s not just a matter of skill but of time. Value investing a la Warren Buffet works extremely well, but choosing a single stock with the deep research required for that method is so much work it is a full time job. It’s not worth it unless it is in fact your full time job.

humansareok16• 2 years ago

I like this approach too. My primary investments in index funds continue to grow and I get just enough of a dopamine hit from smaller bets on Nvidia and Crypto that I don't get crushed by fomo and end up betting my mortgage on some far otm call options or some shitcoin.

rybosworld• 2 years ago

As a retail investor, it's good to remind myself that if I actually had the skills to invest professionally, someone would probably be paying me to do it for them.

The majority of supposed "experts" are not beating the market. Its probable that the only difference between them and you is the belief/confidence in their skillset.

xenadu02• 2 years ago

Similar here. My $4k in TSLA's IPO was just a gamble that EVs would not die (per conventional wisdom) but were here to stay.

A few years ago I sold $100k of TSLA and retained the other $100k which is worth more now.

It was just a gamble. I'm not silly enough to think I can pick winners like that all the time.

twoodfin2• 2 years ago

Or you can just make the right friends in high places and get bailed out from poor fund management:

https://www.nbcnews.com/news/amp/ncna1261125

noveltyaccount• 2 years ago

Are the actual holdings of the pension public? Seems like something is like to follow!

bell-cot2• 2 years ago

Interesting analogy -

- A casino's winning business model (at least behind the facade of marketing glitz and amenities) is to set odds that favor the house, make sure its rules are followed, then essentially do nothing as it gets rich on the long-term consequences of those odds.

- It's the inevitible-net-loosers...er, customers, who are the think-they're-smarter and think-they're-luckier busybodies. And always trying new strategies, to build some sort of success out of their occasional sort-term wins.

I suspect that local awareness of this dynamic is why Nevada's business leaders and government tolerate such a boring, passive pension investment strategy.

jl2718• 2 years ago

The original idea behind passive investing was to use the pooled intelligence of many traders guessing the value of cr I think we’re beyond that. Most traders are just trying to get a timing edge over the indices. This introduces the modern concept of passive investing as a positive feedback loop force-fed by monetary supply. The market seems to hate dividends and buybacks, preferring expansion or acquisition, but then what gives it value? It has to be its memetic ability to attract investment, and this can easily eclipse anything on the earnings statement. I’m not sure this can go on forever.

TacticalCoder4• 2 years ago

Yeah. Some are saying passive investment is the biggest bubble of all times. The P/E of so many companies, not just tech ones, makes zero sense.

Mandatory pension funds are a ponzi. And btw the EU is hard at work working on one atm: they re currently thinking hard as to how to capture the wealth of EU citizens and the latest iteration would be a mandatory fund to invest in... State sponsored companies. They ll oc course not be presenting it that way but that s what it is. Then they ll kick the can down the road for years or decades by forcing mandatory contribution from new taxpayers.

Ponzi / pyramidal / state-mandated shenanigans never end well.

FWIW that mandatory fund in the EU shall be used to finance the army, digital transition (supposedly to counter the US but actually to siphon taxpayers money into friends of politicians creating companies that ll never compete with SV) and... Ecology.

I'm not thrilled that in a few months I ll be forced to invest in that.

Rinzler89• 2 years ago

Which EU countries do that?

exclusiv• 2 years ago

I agree and Michael Burry has warned about it. There's no real price discovery on these index funds. Money comes in - buy all in the fund regardless of any fundamental. And many of those stocks aren't that liquid so in an exit and a dump, they will get destroyed.

humansareok16• 2 years ago

Can you explain how it's fundamentally any different from retail investors just buying and holding the SP500 Index Companies' stocks individually?

floundy• 2 years ago

The market seems to hate dividends and buybacks, preferring expansion or acquisition, but then what gives it value?

I've always thought of a stock as a claim on future dividends, but for most of a company's lifecycle they should have a better idea how to invest funds than returning them to shareholders. So ideally only mature large cap companies should pay dividends.

As far as valuations go, international stocks are far more attractive than US stocks right now.

Total US stock fund (VTI): 1.33% dividend yield, 25.1 P/E

Total international stock (VXUS): 2.94% dividend yield, 15.4 P/E

It's been my experience discussing with many US investors that they are loathe to hold any international stocks for a variety of reasons. Personally I think they will have their decade soon. The US market cannot continue eating the world market capitalization without commensurate outsized earnings growth to back it.

opjjf• 2 years ago

The value of the fund is now up to $63B. Here is the latest overview: https://www.nvpers.org/sites/default/files/2024-05/PERS-Inve...

sjducb• 2 years ago

This is incredible from a stakeholder management perspective.

Normally non finance people in the organisation get hoodwinked by investment sales people. Then they pressure the finance guys into perusing a complex high fee strategy.

ProllyInfamous• 2 years ago

Normally non finance people in the organisation get hoodwinked by investment sales people.

Some benefits salesman came to my blue collar office and tried to hoodwink [great wordchoice] our boss into buying employee insurance policies (health, whole life)... but would not allow employees to read the contractual terms until after bossman signed-up.

It was left to employee vote, and I was grateful when my peers listened to my concerns [slick sales guy was out-voted, left frustrated with me about his lack of commission]. Why not just let us see the terms & conditions.?. are you really offering that shitty of a product?! †

†: insurance company's mascot was some waterfowl with a loud two-syllable mouth...

peterldowns• 2 years ago

See: calpers, where everyone in the organization is both non-finance and getting hoodwinked, often by their coworkers, often by their board! Notable for many things, including selling out of their hedge fund positions shortly before the pandemic, as well as becoming an extremely large owner of timber companies across the US for absolutely no good reason.

https://www.nakedcapitalism.com/category/calpers

edit: here's a more specific article that's very related to the OP https://www.nakedcapitalism.com/2023/11/should-calpers-fire-...

jonahbenton2• 2 years ago

He is still in charge. I was expecting him to have been forced out. Very hard to fight shiny.

https://www.pionline.com/pension-funds/nevada-public-employe...

chrisaiv• 2 years ago

Great tool for bypassing paywalled articles. https://routinehub.co/shortcut/19150/

Nevada’s public employee pension fund invests passively and beats peers (2016)

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