tag:blogger.com,1999:blog-17232051.post3637523758576677752..comments2024-03-18T22:32:52.802-04:00Comments on Noahpinion: Of course "hedge funds" lose moneyNoah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-17232051.post-3672972213663540242013-09-18T13:59:26.720-04:002013-09-18T13:59:26.720-04:00Hedge funds are riddled with insider trading and b...Hedge funds are riddled with insider trading and backroom deals. I do think that holding everyone responsible for insider trading would go a long way into correcting this behavior. There was an article about this somewhere on https://www.hedgefundresearch.com/ but i cant seem to find it. I'll reply to this post if I can locate it. Anyway, the practice as it stands is not good for the economy and something has to be done.Anonymoushttps://www.blogger.com/profile/15219046401291917031noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-75282709840942804862013-06-21T12:30:52.460-04:002013-06-21T12:30:52.460-04:00What if doesn't make money because predictions...What if doesn't make money because predictions based on his hard-money ideology don't come true?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-84796612303308510952013-05-15T14:01:05.180-04:002013-05-15T14:01:05.180-04:00This is an excellent question, and goes deeper tha...This is an excellent question, and goes deeper than you may realize...how can risk <i>ever</i> be known ex ante??Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24803478795752224712013-05-15T11:52:14.952-04:002013-05-15T11:52:14.952-04:00Noah,
I'm just wondering how you can decide (...Noah,<br /> I'm just wondering how you can decide (from the outside) what risk the hedge is actually taking. If there is no way of knowing the real risk, why is it relevant in evaluating results.reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55307160051314648052013-05-14T09:53:33.249-04:002013-05-14T09:53:33.249-04:00"If the hedge funds have a higher Sharpe rati..."If the hedge funds have a higher Sharpe ratio than the passive portfolio, you can leverage up until your risk is the same as the passive portfolio but your return is higher." Good Lord, you think that's the causality?john personnahttps://www.blogger.com/profile/16449440713042469202noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-74098943813699047142013-05-13T07:06:16.385-04:002013-05-13T07:06:16.385-04:00Golden Horse Wealth Management (GHWM) is a private...Golden Horse Wealth Management (GHWM) is a private equity firm that also runs its own hedge fund with a successful track record in derivatives, currencies and commodities.<br /><br /><a href="http://www.fastsmsf.com.au/" rel="nofollow">Setup SMSF</a>John Blazehttps://www.blogger.com/profile/16044886347776543551noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-85760003955844545002013-05-12T17:15:44.242-04:002013-05-12T17:15:44.242-04:00[S]uper-expensive hedge funds have done terribly o...<i>[S]uper-expensive hedge funds have done terribly over the last decade, when compared with a simple low-cost diversified portfolio of stocks and bonds.</i><br /><br />There's a paradox here that I've been wondering about for a while. Based on the efficient markets hypothesis, you'd expect hedge funds to perform no better than a tracker fund. But, if the market were overwhelmed by tracker funds, there would be nothing to connect a company's fundamentals to its share price.<br /><br />(There's an obvious snarky response that hedgies aren't much good at that either, but I'll let that rest for now...)<br /><br />You'd expect this to lead to a sort of cyclical relationship. Hedge funds feed off the difference between market price and fundamentals-based price, until the difference between the two gets too small for much profit to be made. At that point, tracker funds move into the ascendant, feeding off the flow of information the hedge funds have created. Until eventually the number of active funds drops off enough that the market price decouples from the fair value again, and the cycle repeats.<br /><br />One possible conclusion is that we're not being fair to the hedgies here. If we measure performance at the right point in the cycle, we can trivially make them look worse than passive funds. If we picked another point in the cycle, they would look better.<br /><br />However, another possible conclusion is that, since the hedge fund boom seems to be pretty much permanent, there is something interfering with this dynamic. For example, I can imagine that investors might have a strong preference for active funds because of gambler-style cognitive biases.<br /><br />I've been thinking about this for a while, but it's all very speculative. Does anyone know if this is something that real economists have previously looked into?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-8918496749825867632013-05-12T11:20:00.646-04:002013-05-12T11:20:00.646-04:00you seem to semi-defend the 'good hedge funds&...you seem to semi-defend the 'good hedge funds'. <br /><br />be aware that if you compare a hedge fund index to a broad stock-bond index, that is fair. But if you are going to select only the 'good' hedge funds - then you should select on the 'good' segments of the comparable stock-bond index.<br /><br />Said another way, hedge fund investors will argue that THEIR hedge fund beat the broad index --- but many, many ETFs are beating the broad index too. it means nothing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-49419192439330308542013-05-12T01:02:34.149-04:002013-05-12T01:02:34.149-04:00And:
"The incentives are clear. If you make ...And:<br /><br />"The incentives are clear. If you make a bunch of money you get personally wealthy. If you lose then you just go home and look for a new job.<br /><br />Losing lots of money is hardly the career ender that outsiders imagine. If traders lose big then they will get fired, but they will now have experience. If one loses really big then one has almost a badge of honor. One could not be allowed to lose $1 billion unless one was really important.<br /><br />Wall Street is littered with traders who have “blown up” at multiple establishments or funds. There are enough to fill up a town about the size of, well, Westhampton.<br /><br />Here is a more conventional blueprint to personal wealth via Wall Street.<br /><br />Join a business that has an established track record. Start small, building up a few solid years of making decent profits. Do this for six or seven years. It’s called “milking the franchise.” Soon you will have respect and, most of all, expanded limits on what you can trade. Wait for a year when everyone is bullish. Then swing big. Really big. Don’t take judicious risk; take the most risk the firm will allow you. Follow the momentum, piling into trades others are doing.<br /> <br />If you win, since you followed the herd, Wall Street will be flush with cash and you will get paid well, tens of millions well. If you lose you may get fired, but since everyone lost they will understand.<br /><br />This strategy is certainly not in the long-term interest of the firm, but it’s the smartest strategy to benefit the trader."<br /><br />At: http://blogs.scientificamerican.com/guest-blog/2013/02/27/why-its-smart-to-be-reckless-on-wall-street/?print=true Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40520967715453612412013-05-12T01:01:54.996-04:002013-05-12T01:01:54.996-04:00And there's this too, from an actual former tr...And there's this too, from an actual former trader (hat tip Mark Thoma). Think about what this does to the risk-return trade off for the investor: <br /><br />"Here is a guaranteed way to get paid well if you work on Wall Street. Find a best friend at a competing bank or hedge fund and take opposite sides of the same large bet. In one year’s time one of you will have a huge profit and get paid well. The other person will have lost and perhaps be fired. The sum of both your profits will be zero, but the sum of what you get paid will be positive. Split the pay.<br /><br />This scheme is one of the more fanciful ways to exploit Wall Street’s compensation structure that pays absurdly well in the good years and just okay in the bad years. Losing money never means having to give anything back.<br /><br />That asymmetry in pay (money for profits, flat for losses) is the engine behind many of Wall Street’s mistakes. It rewards short-term gains without regard to long-term consequences. The results? The over-reliance on excessive leverage, banks that are loaded with opaque financial products, and trading models that are flawed."<br /><br />At: http://blogs.scientificamerican.com/guest-blog/2013/02/27/why-its-smart-to-be-reckless-on-wall-street/?print=true Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-10293637925239049562013-05-11T09:25:10.712-04:002013-05-11T09:25:10.712-04:00Sounds like the Chicago school too... if you'r...Sounds like the Chicago school too... if you're right you're a genius and deserve the Nobel prize, if you're wrong there's clearly a nefarious government intervention at work. <br /><br />They overlap a little with neocon right (but not strictly equivalent)<br />CurmudgeonlyTrollhttps://www.blogger.com/profile/02004282752334460717noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-75801336738066008352013-05-11T08:43:47.627-04:002013-05-11T08:43:47.627-04:00Another classic tactic of the left (and neocon rig...Another classic tactic of the left (and neocon right):<br /><br />If a money manager who advocates responsible monetary policy makes a killing by front-running and shorting the Fed's ridiculous policies, then he's a hypocrite because he gets rich off of soft money.<br /><br />Conversely, if a money manager who advocates responsible monetary policy underperforms the QE-steroid-pumped market (often because his philosophy is to avoid its soft money-induced volatility), then he's an idiot and not qualified to criticize anything to do with finance.<br /><br />Such is the left (and neocon right's) genius for sophistry.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-45549069132659859802013-05-11T08:38:03.982-04:002013-05-11T08:38:03.982-04:00As an addendum to my last comment:
"Those wh...As an addendum to my last comment:<br /><br />"Those who can, do. Those who can't, write for The Atlantic."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-8407869019408707342013-05-11T07:54:16.185-04:002013-05-11T07:54:16.185-04:00They are not leveraged more because their Sharpe r...They are not leveraged more because their Sharpe ratio would then be lower and not as attractive to investors. Additionally every hedge fund manager has a risk profile that he/she feels comfortable with and that dictates their leverage to a large extent. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-22209105615785284222013-05-11T00:12:13.761-04:002013-05-11T00:12:13.761-04:00Side-note, but it looks like Abe has backed off on...Side-note, but it looks like Abe has backed off on reforms of Japanese labor laws. Not surprising - when the economy appears to be turning up, why bother pushing for something that might kick people into unemployment?Bretthttps://www.blogger.com/profile/05741738070067590221noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-7962530407646186732013-05-11T00:01:44.767-04:002013-05-11T00:01:44.767-04:00Fees are definitely the biggest issue there, and t...Fees are definitely the biggest issue there, and they tend to be a hazard with all actively managed funds. You're technically not getting ripped off since you're still making money off of it (hopefully), but it can still be worst than the passive fund. Bretthttps://www.blogger.com/profile/05741738070067590221noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55084610631091487752013-05-10T22:58:09.259-04:002013-05-10T22:58:09.259-04:00I read it and have never heard of such an Army. Lu...I read it and have never heard of such an Army. Luny comments don't countAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-23372415239149170962013-05-10T21:19:45.820-04:002013-05-10T21:19:45.820-04:00If buying a hedge fund on leverage would, in an ex...If buying a hedge fund on leverage would, in an ex-ante foreseeable way, consistently increase your returns at a tolerable level of risk, why didn't the hedge fund use more leverage itself? This seems to hinge on a superiority of insight on the part of the buyer compared to the HF manager, in which case maybe he should just be managing his own money directly.<br /><br />Another thing though: hedge funds typically manage enormously large sums of money, which introduces major complications when it comes to buying and selling securities in bulk. Hedge funds constantly need to be on guard not to get front-run by more agile market participants when they place their bets. This probably eats into their profitability in non-negligible ways.RDMKRhttps://www.blogger.com/profile/00547758189555842953noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24980008446109855762013-05-10T18:15:46.191-04:002013-05-10T18:15:46.191-04:00"A money management company is not a nation-s..."A money management company is not a nation-state".<br /><br />You're forgetting the Rothschilds, man. The Federal Reserve, too. I heard Bernanke has his own army. Read Zero Hedge much?Ashok Raohttp://ashokarao.comnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-24663931251895742652013-05-10T17:41:45.896-04:002013-05-10T17:41:45.896-04:00That last line is the money shot.That last line is the money shot.Anonymousnoreply@blogger.com