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(CNBC)   Warren Buffet made a $1M bet that a low-cost S&P 500 ETF would beat out the picks of hedge fund experts over 10 years. Let's check in and see how they're doing   (cnbc.com) divider line 119
    More: Amusing, Berkshire Hathaway, Warren Buffett, ETF  
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30345 clicks; posted to Main » on 24 Jan 2013 at 3:23 PM (1 year ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-01-24 02:26:39 PM
It's vindication, at least so far, of Buffett's long-held argument that over a number of years, the "experts" aren't able to outperform the overall stock market. It's the basis of his belief the fees "helpers" charge investors usually aren't justified.

Nate Silver touched on that in "The Signal and the Noise."

It's funny listening to stock analysts say Silver is stupid and they're smart, because they've seen technical analysis totally work... sometimes. Talk about missing the point of the entire damn book, but I digress.
 
2013-01-24 02:27:33 PM
ETF's always win in the long run.  Everything else has too much of a gambling element to it.

Plus, you don't have to think about ETF's.
 
2013-01-24 02:39:14 PM
 
2013-01-24 02:39:16 PM

impaler: It's vindication, at least so far, of Buffett's long-held argument that over a number of years, the "experts" aren't able to outperform the overall stock market. It's the basis of his belief the fees "helpers" charge investors usually aren't justified.

Nate Silver touched on that in "The Signal and the Noise."

It's funny listening to stock analysts say Silver is stupid and they're smart, because they've seen technical analysis totally work... sometimes. Talk about missing the point of the entire damn book, but I digress.


The problem with predicting the stock market rests in the idea that the stock market is rational.  Apple's stock is tanking today because they only made $13B last quarter.
 
2013-01-24 02:46:00 PM

Tarkus: You're better off leaving your stock picks to a cat than a stockbroker.


That study was skewed. 2012 was an excellent year for box-makers. I bet in an average year, the cat would only match the stockbroker.

catinabox.org
 
2013-01-24 03:03:31 PM

GAT_00: Apple's stock is tanking today because they only made $13B last quarter.


I feel just awful for this guy.
 
2013-01-24 03:18:29 PM
Does Buffet put his money in low cost ETFs?
 
2013-01-24 03:28:26 PM

EvilEgg: Does Buffet put his money in low cost ETFs?


better than low cost ATMs
 
2013-01-24 03:30:17 PM

EvilEgg: Does Buffet put his money in low cost ETFs?


LBFMs, I think.
 
2013-01-24 03:30:18 PM

EvilEgg: Does Buffet put his money in low cost ETFs?


Almost all of his wealth is in his own company. That's not recommended for the average person - but his point is that most people are better off using a low-cost ETF for their invested dollars, since the fees of hedge funds or "funds of funds" outweigh any edge on the market over the long haul.

Plus, he donated $320,000 of his own money to fund the $1 million charitable bet. It's hard not to like the guy.
 
2013-01-24 03:31:31 PM

machoprogrammer: EvilEgg: Does Buffet put his money in low cost ETFs?

better than low cost ATMs


Rich people still suffer the indignity of the out-of-network ATM fee.

i48.tinypic.com
 
2013-01-24 03:31:56 PM
Protege believes that since there's a big difference between the returns of the top hedge funds and the average ones, "funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay."

This is the 1% version of "If you hard enough, you can be rich like me too"
 
2013-01-24 03:32:03 PM
A million dollars will buy a lot of Cheeseburgers in Paradise!
 
2013-01-24 03:34:38 PM

Snarcoleptic_Hoosier: Protege believes that since there's a big difference between the returns of the top hedge funds and the average ones, "funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay."

This is the 1% version of "If you hard enough, you can be rich like me too"


If you WORK hard enough

/Me no brain gud today
 
2013-01-24 03:35:15 PM

impaler: It's vindication, at least so far, of Buffett's long-held argument that over a number of years, .


First time in 5 years that he is in the lead.
Not sure how that is "vindication".
 
2013-01-24 03:40:08 PM

tenpoundsofcheese: First time in 5 years that he is in the lead.
Not sure how that is "vindication".


Clearly Buffett won the bet. It's not like the stock market will change in 5 years.
 
2013-01-24 03:41:19 PM

impaler: It's vindication, at least so far, of Buffett's long-held argument that over a number of years, the "experts" aren't able to outperform the overall stock market. It's the basis of his belief the fees "helpers" charge investors usually aren't justified.

Nate Silver touched on that in "The Signal and the Noise."

It's funny listening to stock analysts say Silver is stupid and they're smart, because they've seen technical analysis totally work... sometimes. Talk about missing the point of the entire damn book, but I digress.


Its also an idea somewhat touched upon in Surowiecki's The Wisdom of crowds

In other words, the aggregate intelligence and best-guesses of a group as a whole will almost always outperform the experts of the group
 
2013-01-24 03:42:41 PM

GoodyearPimp: tenpoundsofcheese: First time in 5 years that he is in the lead.
Not sure how that is "vindication".

Clearly Buffett won the bet. It's not like the stock market will change in 5 years.


yeah, Buffet's PR team must have worked overtime to put this out "quick, he is in the lead for the first time in 5 years, let's get this in the news!"
 
2013-01-24 03:43:02 PM

FishyFred: GAT_00: Apple's stock is tanking today because they only made $13B last quarter.

I feel just awful for this guy.


Don't.
 
2013-01-24 03:43:18 PM

FishyFred: Rich people still suffer the indignity of the out-of-network ATM fee.


shiat, I thought that was a typo/bug. Quicken once hiccuped and told me I had $1 quadrillion in checking. I grabbed a screen cap and put in on Facebook because I thought it was funny.

Some people might actually have $100M in a liquid account. And that $400 he just took out didn't really even make a dent. Unreal.
 
2013-01-24 03:44:13 PM
My retirement fund is in Beanie Babies. They're coming back, believe me - big time.
 
2013-01-24 03:44:32 PM

tenpoundsofcheese: impaler: It's vindication, at least so far, of Buffett's long-held argument that over a number of years, .

First time in 5 years that he is in the lead.
Not sure how that is "vindication".


Considering the bet is for 10 years, we have time to see.
 
2013-01-24 03:46:55 PM

tenpoundsofcheese: impaler: It's vindication, at least so far, of Buffett's long-held argument that over a number of years, .

First time in 5 years that he is in the lead.
Not sure how that is "vindication".


What could have possibly happened in 2008 that might have caused that?

/I just got my 401k that year
//bought low!
 
2013-01-24 03:47:38 PM
The whole notion of pitting an ETF against a hedge fund is absurd on its face.

You know, they call them HEDGE funds for reason. You know that, right? Of course you don't, because you have an IQ of 68.

Why do you imagine they call them HEDGE funds? What is their m.o.? How would their m.o. impact their ability to compete in an ROI contest?

Just dumb.
 
2013-01-24 03:48:16 PM

Fano: EvilEgg: Does Buffet put his money in low cost ETFs?

LBFMs, I think.


============

LSMFT?
 
2013-01-24 03:53:34 PM

Fuggin Bizzy: My retirement fund is in Beanie Babies. They're coming back, believe me - big time.


I'll trade ya for some pogs.

/also coming back
 
2013-01-24 03:53:49 PM

Tarkus: You're better off leaving your stock picks to a cat than a stockbroker.


The problem with those sorts of articles is that if a dozen journalists think of the idea of doing something like this, all it takes is one lucky cat/monkey/dart in one experiment and the article gets printed, meanwhile there could be a number of others where the stockbroker won handily and the article never gets published.

There are better statistical tools out there to judge the effectiveness (or not) of ways of investing.
 
2013-01-24 03:54:45 PM

SevenizGud: The whole notion of pitting an ETF against a hedge fund is absurd on its face.


Why?

First off, it was more about average market performance VS managed investment performance. For that, they used an ETF and some hedge funds.
 
2013-01-24 03:55:02 PM

Fuggin Bizzy: My retirement fund is in Beanie Babies. They're coming back, believe me - big time.


===================

I do know a guy that has a retirement plan of saving "collectables". Sports cards, "antiques" and he also purchased several thousand dollars' worth of Beanie Babies.

/silly me, I invested in IRAs, stocks and Bonds
//I should have gotten that$400.00 Princess Di Bear
 
2013-01-24 03:55:24 PM
Where's the farker who was arguing with me about Netflix stock a few weeks ago? He kept ranting about Reid Hastings. I'd like to point and laugh at him today.

/today was a very good day
 
2013-01-24 03:55:46 PM
Warren Buffet was right about something financial? Here is my shocked face - :|
 
2013-01-24 03:59:47 PM
I did let my cat make my stock picks - I'm up on Bumblebee, about even on Acme Squeaky toys and losing money on Catnip Industries.....

And now the farm market report
Beef is up, pork is down and chickens are vacillating...
(obscure?)
 
2013-01-24 04:00:26 PM

cwheelie: I did let my cat make my stock picks - I'm up on Bumblebee, about even on Acme Squeaky toys and losing money on Catnip Industries.....


What about Delco? What's your position on Delco?
 
2013-01-24 04:00:28 PM
This is the premise of The Intelligent Investor by Benjamin Graham, who Buffett is a huge fan of.

The Little Book of Common Sense Investing by Bogle is another great book for those into ETFs.
 
2013-01-24 04:03:13 PM

Tarl3k: Warren Buffet was right about something financial? Here is my shocked face - :|


The thing I really like about Buffet is that he is entirely self made. And his entire investing strategy involves insurance companies (recently), and following Ben Graham's book "The Intelligent Investor." Berkshire makes most of its cash by buying and holding undervalued stocks at privileged rates and reaping fantastic dividends. Buffet is really, REALLY not a fan of speculation.
 
2013-01-24 04:03:58 PM
Protege believes that since there's a big difference between the returns of the top hedge funds and the average ones, "funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay."

Let me see if I can tighten that up for him a bit:  "Please don't stop paying people like me lots of money."  See, wasn't that easy?
 
2013-01-24 04:10:48 PM
Betting against Buffet when it comes to the market seems like a bad idea.
 
2013-01-24 04:14:48 PM

Osomatic: Protege believes that since there's a big difference between the returns of the top hedge funds and the average ones, "funds of funds with the ability to sort the wheat from the chaff will earn returns that amply compensate for the extra layer of fees their clients pay."

Let me see if I can tighten that up for him a bit:  "Please don't stop paying people like me lots of money."  See, wasn't that easy?


The people who pay this guy lots of money are sophisticated investors who know what they want and what they are getting for the fees charged.

Buffett's advice is more aptly imparted to retail investors like us, who are better served by very low cost index mutual funds than paying fees or loads for specialized funds or expert management.
 
2013-01-24 04:20:03 PM

downstairs: ETF's always win in the long run.  Everything else has too much of a gambling element to it.

Plus, you don't have to think about ETF's.


hp6sa: EvilEgg: Does Buffet put his money in low cost ETFs?

Almost all of his wealth is in his own company. That's not recommended for the average person - but his point is that most people are better off using a low-cost ETF for their invested dollars, since the fees of hedge funds or "funds of funds" outweigh any edge on the market over the long haul.

Plus, he donated $320,000 of his own money to fund the $1 million charitable bet. It's hard not to like the guy.


The point of Buffett's bet is not that ETFs are superior to hedge funds. He's betting that the hedge fund managers won't be able to add enough alpha to offset the higher fees and trading costs, compared to a boring, low-cost broad-market index fund. He's said that he estimates there's about a 60 percent chance he'll win the bet over the ten year period.

He's put his wager in the Vanguard 500 Index Fund. Vanguard's ETFs are weird, because they're structured as a different share class of the same fund portfolio used by their equivalent mutual funds. The fund is no longer strictly based on the S&P 500 index any more, because Vanguard is so damn cheap they thought S&P's licensing fee to use the index was too high.
 
2013-01-24 04:24:59 PM

Parthenogenetic: Vanguard is so damn cheap they thought S&P's licensing fee to use the index was too high.


Those are the types of guys you want managing money.
 
2013-01-24 04:25:33 PM

Fuggin Bizzy: FishyFred: Rich people still suffer the indignity of the out-of-network ATM fee.

shiat, I thought that was a typo/bug. Quicken once hiccuped and told me I had $1 quadrillion in checking. I grabbed a screen cap and put in on Facebook because I thought it was funny.

Some people might actually have $100M in a liquid account. And that $400 he just took out didn't really even make a dent. Unreal.


No one with that much money would leave it in a savings account that is only insured up to 250k
 
2013-01-24 04:26:43 PM

Snarcoleptic_Hoosier:
This is the 1% version of "If you hard enough, you can be rich like me too"


So this explains why Ron Jeremy is richer than me...

/calling in a viagara Rx
 
2013-01-24 04:27:29 PM
Smoke and mirrors. I don't like thinking about it.

"Aaaand it's gone. Next!"
 
2013-01-24 04:30:40 PM

scubamage: The thing I really like about Buffet is that he is entirely self made.


if having a father who is a successful business person, successful investor and a four time House member, then sure, that makes him self-made....just like Romney.
 
2013-01-24 04:31:42 PM

jst3p: No one with that much money would leave it in a savings account that is only insured up to 250k


If that was his only $100 million, that would be a problem. But David Tepper has something like $5 billion.
 
2013-01-24 04:33:47 PM

jst3p: Fuggin Bizzy: FishyFred: Rich people still suffer the indignity of the out-of-network ATM fee.

shiat, I thought that was a typo/bug. Quicken once hiccuped and told me I had $1 quadrillion in checking. I grabbed a screen cap and put in on Facebook because I thought it was funny.

Some people might actually have $100M in a liquid account. And that $400 he just took out didn't really even make a dent. Unreal.

No one with that much money would leave it in a savings account that is only insured up to 250k


This.

More than likely they would have around 100k in a checking account so it is insured, and anything larger would come from checks drafted against a VERY conservative mutual fund that allows checking. The rest would be tied up in longer term investments.
 
2013-01-24 04:35:18 PM

tenpoundsofcheese: scubamage: The thing I really like about Buffet is that he is entirely self made.

if having a father who is a successful business person, successful investor and a four time House member, then sure, that makes him self-made....just like Romney.


If he denied the advantages that gave him, he would be similar to Romney.
 
2013-01-24 04:37:57 PM

scubamage: jst3p: Fuggin Bizzy: FishyFred: Rich people still suffer the indignity of the out-of-network ATM fee.

shiat, I thought that was a typo/bug. Quicken once hiccuped and told me I had $1 quadrillion in checking. I grabbed a screen cap and put in on Facebook because I thought it was funny.

Some people might actually have $100M in a liquid account. And that $400 he just took out didn't really even make a dent. Unreal.

No one with that much money would leave it in a savings account that is only insured up to 250k

This.

More than likely they would have around 100k in a checking account so it is insured, and anything larger would come from checks drafted against a VERY conservative mutual fund that allows checking. The rest would be tied up in longer term investments.


I know someone who works for a bank that Tiger Woods uses and they said he had about 14 mil in his account. They are able to access all kinds of accounts and frequently see accounts with millions in them....

If you think about it, Tiger probably gets direct deposit and racks up money in a banking account faster than his accountants can put it into investments

/this was awhile ago, before the Tiger Woods cheating scandal crap
 
2013-01-24 04:38:49 PM

tenpoundsofcheese: scubamage: The thing I really like about Buffet is that he is entirely self made.

if having a father who is a successful business person, successful investor and a four time House member, then sure, that makes him self-made....just like Romney.


No, not quite. He made his own money starting as a small boy, which is what makes him fascinating.

"At only six years old, Buffett purchased 6-packs of Coca Cola from his grandfather's grocery store for twenty five cents and resold each of the bottles for a nickel, pocketing a five cent profit. While other children his age were playing hopscotch and jacks, Warren was making money. Five years later, Buffett took his step into the world of high finance. At eleven years old, he purchased three shares of Cities Service Preferred at $38 per share for both himself and his older sister, Doris. Shortly after buying the stock, it fell to just over $27 per share. A frightened but resilient Warren held his shares until they rebounded to $40. He promptly sold them - a mistake he would soon come to regret. Cities Service shot up to $200. The experience taught him one of the basic lessons of investing: patience is a virtue.

Warren Buffett's Education

In 1947, a seventeen year old Warren Buffett graduated from High School. It was never his intention to go to college; he had already made $5,000 delivering newspapers (this is equal to $42,610.81 in 2000)."

http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenbio.htm

You're watching the results of properly managed money from someone who has essentially been saving since he was 6. And that is farking awesome.
 
2013-01-24 04:41:23 PM
Not really surprising when you consider that most hedge fund managers primary objective is to make money off the fund... not for it.

Sure they'll put on a show, and LOVE to make fat performance bonuses, but there are a hundred other ways to siphon the cream off the top.
 
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