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Comment by jellicle | Hacker News Reader

> there are those out there who have an eye for value, and _can_ pick stocks.

There's simply no evidence that is true at all. Every study of this issue says the exact opposite: there's no one out there who can pick stocks.

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Actually, I think the studies generally show that active mutual funds do beat the market, but before fees. Their alpha, while real, is tiny and more than eaten by their fees.

Yet remember that active mutual funds manager fees are close to 1%. If you pay $60M on $900B, we're talking about paying less than 1 bp! So if you have an average active mutual fund manager running your $900B fund for $60M, you might hope to beat the market by a few basis points.

What you also have to appreciate is that the fee scales you mention are for you investing $10,000 with an active manager. If you're investing billions you won't be paying anything close to that. If you have the world's largest sovereign wealth fund you're operating at a scale even larger than that.

In general I've always agreed with this view. But I can't help but wonder how studies like this explain Berkshire Berkshire Hathaway.

Which is funny because BH have literally the opposite bet: http://longbets.org/362/

It seems a bit contradictory, but BH is a holding company versus a hedge fund.

It's not that contradictory. As long as the market for stock pickers overcharges, people can be good at it and a bad deal at the same time.

Right but if you follow the theory if you had alpha greater than fees then you could essentially control all funds available for management (up to the scale where your atrategies stop working). Which is sort of its own reductio ab absurdum.

Berkshire seems to be good at buying and managing companies in order to make money. But not so good at just buying stock:

http://fortune.com/2016/04/29/berkshire-hathaway-stock-warre...

Not sure if this is what you're asking, but if fund returns are random but different, then someone is going to have the best performing fund.

Let's say the best performing fund is (fictional) Xanadu Investments we'd ask, how do we explain Xanadu's performance.

Berkshire Hathaway did well to begin with, but Warren Buffet is able to get really good deals buying companies because he has a reputation as a good manager. Since he is easy to work with, founders sell cheaper.

>Since he is easy to work with, founders sell cheaper.

This requires a source. Many of the companies he purchases are public companies. If they are selling "cheaper" because they like Mr. Buffet, there's a problem.

The important Berkshire acquisitions are entire companies, most of the time private. Sometimes they were public at one point but were taken private before BRK bought them. (ex: Duracell). Sometimes they were public at the point Berkshire bought them (ex: BNSF) but this seems to be the exception.[1]

The public stock acquisitions that they talk about on the 13-F are really a minority of Berkshire's activity, but sometimes he really does get a better price because he's willing and able to negotiate weird deals like the Bank of America warrants.

That's actually not true. A study came out in March of this year that describes a simple screen: low fees + high manager ownership of the fund. Active funds passing the screen beat the S&P 500 55% of the time and have a higher average return over a 20 year time period.

That said, you have to hold for a long time to see that edge. If you don't the odds go negative again.

http://www.investmentnews.com/article/20160318/FREE/16031992...

There are people who beat the market all the time. If that is what you're referring to.

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