[–]TheRealAntacular 29 points30 points  (15 children)

What’s remarkable is that the three “superstar” funds that did beat the market by more than 2 percentage points a year for 45 years, spent, on average, a third of the time underperforming the market on a rolling three-year basis.

Who are these people that expect market beating performance, regardless of strategy employed, EVERY single year?

[–]bozwood 15 points16 points  (6 children)

The executives and boards at most mutual funds and clients in hedge funds, for the most part. And, especially, on a 3 year time horizon. Underperform in this day and age on a 3 yr basis and your job is likely gone, if you even make it that long.

It should be noted, though, that if a fund is underperforming the market but doing well against peers, then the manager is safe.

[–]TheRealAntacular 6 points7 points  (1 child)

LOL It was more of a rhetorical question, poking fun at ridiculous short term horizons.

[–]bozwood 4 points5 points  (0 children)

Well, it was more of a rhetorical answer.

[–]Iagos_Beard 5 points6 points  (3 children)

That shortsightedness/impatience is not exclusive to executives and BODs at mutual funds. Many angel investors are the same way (at least in my experience in silicon valley). If you don't hit massively optimistic and aggressive growth projections in very short timelines you lose funding. People want to see return quicker than ever, and if your business doesn't look like its going the way of Salesforce or Airbnb then you're a 'bad investment'.

[–]bozwood 2 points3 points  (2 children)

I think it pervades everything now. I think of it as Twitter envy or Facebook envy or LinkedIn envy. All are compared to the "elite." Look at blurbs of general advice given constantly: only hire the best, you are the average of the 5 people you hang around with the most, etc., etc.

[–]Iagos_Beard 1 point2 points  (1 child)

And they really really follow that too... I've worked for a few startups around here. One in particular was insane about being apart of the 'elite'. They were meticulous about hiring. I think on average we conducted 150 interviews for every single hire (and this is for entry level). They only looked at resumes from what they considered elite colleges, Cal and Stanford primarily. Hiring criteria was someone that was smart, motivated and most importantly 'fit into the company culture' (drank the company koolaid and wouldn't be a voice of dissension). That last one was crucial, they'd rather have someone less capable that would give their life to the company without complaint. Due to the state of the job market, there was no shortage of applicants so they got what they wanted and their salaries were below market with the promise of a huge equity payout when they IPO'd. Still waiting for that... I was actually told on numerous occasions, "we know your salary is lower than your peers in the industry, but when you factor in the expected value of your equity you're making much more than them".

[–]bozwood 2 points3 points  (0 children)

That's crazy. But, I believe it and probably vast majority of companies doing it the same way.

It's hugely inefficient in terms of picking the right people. It all reminds me of a hedge fund manager who quit at the "top" and wrote a farewell letter from which I'll quote a relevant part.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

[–]porncrank 7 points8 points  (2 children)

A very good question. But they seem to make up most of the market.

[–]huginn 2 points3 points  (1 child)

Black Swan.

the losers exist, you'll just never hear them promoting their losses.

[–]MrSceintist 0 points1 point  (0 children)

that is so true

[–]Kupotea 2 points3 points  (0 children)

Try every single quarter...

[–]sayitlikeyoumemeit 2 points3 points  (0 children)

It's like expecting your favorite sports team to win every single quarter/period ... who cares? It's the ending Win-Loss record that counts.

[–]Quantli007 1 point2 points  (0 children)

Generally the higher the frequency the system (with HFT being one extreme and value investing being the other extreme) the better the Sharpe Ratio, ie good returns from quarter to quarter, or for HFT, they expect to win most days.

With value investing, at the other extreme the expectation is to be in a waiting game. So horrible Sharpe Ratios.

[–]nckmiz 1 point2 points  (1 child)

You realize when articles compare hedge funds and other actively managed funds to index funds this is how they compare them, right.

They don't look at CAGR over say 10-20 years, it's literally did you beat the index in year 1? Yes, you can stay to play for year 2. No, get off the list.

[–]TheRealAntacular 2 points3 points  (0 children)

Of course. And it's absurd.

[–]Sparkybear 7 points8 points  (0 children)

Good investing is knowing how to evaluate the rush that is acceptable and if the return worth it to you and to understand that if that fails and you lost your principle, that you still made the right call by doing your evaluations correctly