Maybe I'm too biased (in Buffett's favor) but this reads like Seides saying: Sure I lost but Buffett only won because he was lucky.
>> "My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory." <--- Reeks of the Gambler's fallacy.
Gambler's fallacy has to do with independent uncorrelated events. The stock market is no such beast. I have no love for seides, but this is atrocious timing for him. To a certain degree your yield on the s&p depends on timing. I know many people who were hired when the s&p is high and fired when it crashed. For the hoi polloi, i.e. "not Warren Buffett", the s&p is often life-procyclical and they get screwed.
Atrocious timing? It seems to me that he got supremely lucky. Within the first 14 months of the bet he had the largest bear market in nearly a century. Isn't this where the "risk management" advantage of hedge funds comes in? And he still lost.
Oh, and his piece is littered with false comparisons (picking benchmarks post facto despite knowing he'd be compared to the S&P500 index total return) and falsehoods (international stocks, see VTIAX, have provided a positive return over the period he describes); hard to take him seriously at all.
Exactly this. Seides and Buffet are saying Buffet will win "unless they get a market crash" (the second in the 10-year period).
Yes, hedge funds seek to hedge their bets against bear markets, but if you require two major crashes in 10 years to break even with passive investing, the smart money should go elsewhere.
Yeah but not a sensible bet to take even odds on. It would be about a 20% chance assuming a Poisson distribution (probably entirely false, but you get the point).
Yea, he got the greatest gift he could ever hope for at the beginning of the bet, and couldn't remotely come close to holding that lead. How often in 10 years do you expect a market correction of that size?
He's spewing nonsense now because he got caught with his pants down. His livelihood depends on convincing people that "hedge funds" outperform, no facts to the contrary will ever be accepted by him. He will always mark it up to being unlucky.
It really was a terrible bet for Ted, because it has heavily publicized his fund of funds incompetence to his customers and potential customers.
"How often in 10 years do you expect a market correction of that size?"
These days it feels like the answer to you question is "one, on average"
Moreover, each peak will tend to exceed the previous, so it's unsurprising that Buffet's side is going smoothly. I believe in a universe run on the principle of maximal irony, so I foresee Seidel losing the bet, but by about 3-4 months.
2008 was arguably the biggest market crash since 1929, it was nearly a 50% drop in less than a year. 1973-74 and 2000-2003 were nearly as bad over longer periods, but nothing else comes close.
Seidel literally got a market crash that occurs maybe once every 25 to 50 years and still couldn't win this bet. If he got two crashes he'd still lose because his hedge funds are rowing backwards 4% a year due to high fees.
I think you also missed a part of my point, which is that if you're not warren buffet or a programmer that has a steady six figure job, employment can be procyclical. You can more easily get jobs and pay hikes when the market is up, so your ability to invest peaks during the tops of the cycle, and you are at risk of things like unemployment at the bottom of the cycle.
Yeah hedge funds suck because they have high fees, but there's this Buffet-worshipping 'common man' implication that 'common man' should not be jealous of the rich man that has access to hedge funds because the S&P is just as good.
> Gambler's fallacy has to do with independent uncorrelated events. The stock market is no such beast.
Maybe I'm not remembering correctly, but wasn't there a bit of research a few years ago that showed that most investors performed worse than throwing darts randomly at a dart board (of stocks)?
EDIT: Obviously, I know next-to-nothing about the stock market (etc.).
Fallacy could confuse either side of that bet: the gambler's fallacy if he lost, the hot hand fallacy if he won.
It seems like he had a reasonable justification for expecting a reversal of fortune in this case-- the US bull market cannot continue forever, and hedge funds traditionally outperform in bear markets and beat the S&P when global markets are stronger than the US.
If he thought he needed the market to produce returns in the bottom 10-20% of it's average decade returns, it was a terrible one, he's a 4-1 or 9-1 dog. Or maybe he thought the market was overvalued and that it was closer to 50-50 that it would have a bad decade. But that's still a 50-50 bet, no big edge for him.
And in both cases the reality is that he's giving up 3-4% a year in fees to the index. That's a huge edge for the index, he'd need the worst decade in history to beat that.
Anyone who has every analyzed long term hedge fund returns comes away convinced they are terrible. Those fees are just far too high to overcome for 95% of the funds.
>> "My guess is that doubling down on a bet with Warren Buffett for the next 10 years would hold greater-than-even odds of victory." <--- Reeks of the Gambler's fallacy.