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Comment by 22c | Hacker News Reader

Anecdotally, I have investments in both traditional managed funds and contrarian managed funds. It seems to take longer for the contrarian funds to "strike gold" and overall they have not done better than my traditionally managed funds, but have still done significantly better than leaving money in a "high-interest" savings account.

Also, on average, my "punter" picks do about the same as the contrarian funds although with more wild swings up and down, so for less hair pulling I am tending to move more and more towards managed funds or industry-based ETFs with the occasional punter picks.

I certainly think that having some investments in the contrarian space makes sense as a diversification strategy, but I tend to leave those stock picks up to someone who has made it their day job.

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It's a bit controversial but there's a lot of evidence that actively managed funds underperform passive ones. "A Random Walk Down Wall Street"[0] is a good read on the topic.

[0] https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

An interesting read is also the well known SPIVA report. It's not flawless, but it's quite obvious many hedge funds are not working for you as much as they work for themselves. Which is also what the guy in the article says, incidentally.

https://www.spglobal.com/spdji/en/research-insights/spiva/

Yes, I've read similar stories and of course Buffet is famous for saying things along similar lines.

For me, I decided to follow Steve Clark's advice of "Do More of What Works and Less of What Doesn't". I invested in a bunch of different things including ETFs, managed funds, futures, individual stock picks, IPOs, etc. and I found managed funds that seemed to work better than ETFs (though 5 years is not really enough time to know for sure), so I pumped more into the managed funds that were working.

Investing only in IPOs seems to work well as well but the hardest part for me was knowing when to sell (which in my case I almost never sell and I often miss the best opportunity to cash out my IPO investments).

I am sure there are some bad managed funds, probably more bad ones than good ones. I'm certainly not saying managed funds are a better choice overall than just going "all-in" on Vanguard, but picking out a few managed funds to try out after doing a couple of hours research is also not a strategy that should be completely written off either, at least in my experience.

One issue with managed funds is that the people in charge of managing can rotate, so a managed fund doing well now in 10 years could be like a whole different fund, since the employees in charge of managing it could have all changed.

Agreed. I know the names of the fund managers I'm invested in and would pay close attention if they ever changed.

The real takeaway from this is not that it's impossible to beat the market consistently (it's not) or that the price movement of securities are random and normally distributed (they're not), but that as an average retail investor (or sometimes as a sophisticated institutional allocator), it is very difficult to find funds that can outperform (which isn't a linear/one dimensional thing btw, more sophisticated analysis is required) that also you can invest in.

When allocating capital to funds you are being adversely selected against: those who can generate returns probably aren't interested in your money (there's a lot more money in the world than profitable trading/investment opportunities).

As such, I normally recommend to people that unless they are professionals and know that they are doing or HNW (say >50mil), they stick to ETFs for the bulk of their portfolio. To be clear this isn't the optimal strategy, but it's easy and it mostly works.

> it's impossible to beat the market consistently (it's not)

Is there any proof of that? Some traders of course will get very rich, just like some lottery-players.

Look up renaissance technologies. More quant than typical investing, but it proves that beating the market is possible

I recently read an interesting German article on them (use Google Translate if necessary) and they paint a more nuanced picture of Renaissance.

https://www.gerd-kommer-invest.de/der-beste-fonds-aller-zeit...

Try actually modelling it. People like to hand-wave the outperformers as luck, but the chance of just one of the top firms existing by chance alone is basically impossible.

Read this piece from 1984 addressing this topic. The core point being if you find a group of people with some proximity and they're all lotto winners, as you put it, maybe there's something else to explain it: https://www8.gsb.columbia.edu/articles/columbia-business/sup...

> Is there any proof of that? Some traders of course will get very rich, just like some lottery-players.

If we're talking about short-term traders, yes. There's firms and traders that make money almost every day of the year.

If we're talking about investors with 4 week+ holding periods, then I agree the evidence is much more flimsy and the luck explanation (or risk premium explanation) can apply very often (or all the time).

What do you recommend that HNW (well, UHNW if you're talking > 50m) do? Why not also ETFs?

All funds, on average, get the market return. The certain difference with actively managed ones is that they charge a fee, and may pay more in liquidity costs. It's not surprising therefore most underperform.

In investing, the first thing you have an influence on is avoiding fees (go passive).

The second thing you have an influence on is time (remain invested).

>Anecdotally, I have investments in both traditional managed funds and contrarian managed funds. It seems to take longer for the contrarian funds to "strike gold" and overall they have not done better than my traditionally managed funds, but have still done significantly better than leaving money in a "high-interest" savings account.

How have they done against the S&P?

I don't invest in US markets, but of the equivalent index here, the contrarian fund this past financial year has certainly outperformed the index.

Though it almost seems like luck. If you had asked me 2 years ago, my contrarian funds were in the red.

I think the pandemic has really created both good contrarian opportunities as well as good value investment opportunities; both strategies seem to be working well at the moment.

Spitznagel’s entire strategy is designed to lose all of the money allocated to it unless there is an extreme market event, hence why it should be a small allocation in a larger portfolio. It’s pointless to compare it to SPY or whatever.

Depending on the fund, returns of the S&P could be irrelevant and not a suitable benchmark. Evaluating a fund isn't as easy as "does it beat the S&P?". There's a lot of other factors to consider.

Not sure about OP, but Spitznagel's fund returned 4,144% in Q1 2020. It averaged 105.2% annually from 2009 to 2019.

https://news.yahoo.com/mark-spitznagel-univesa-cio-on-risk-m...

https://www.institutionalinvestor.com/article/b1nhg4w9k5hjp0...

This is incorrect and keeps being repeated. Universa's marketing clearly struck gold.

They made 4000% on the premium paid in, not on capital. No practitioner uses such concept because it's not useful.

Imagine you insure your car worth $20000 and pay $1000 a year in premium. Your car gets totaled and the insurance pays out $10000. You are not going to say "woah my insurance paid out 1000%", as it's a meaningless number. You are going to say: "my insurance paid out 50% of the original car value".

This is the same case, but of course Mr Spitznagel doesn't mind that silly numbers are flying around his fund.

> They made 4000% on the premium paid in, not on capital. No practitioner uses such concept because it's not useful.

Since they were able to invest only the premium paid in, I don't see why this isn't a useful metric. If they return 4000% on every dollar I give them but I only choose to give them 1% of my wealth, then the lower aggregate returns are on me.

Dividing by a higher notional amount would be justified if the Universea funds could cause investors to lose more than their initial investment, in the same way that futures contracts have a notional value far in excess of their face value. However, I do not think the Universea funds work in this way.

> Since they were able to invest only the premium paid in, I don't see why this isn't a useful metric. If they return 4000% on every dollar I give them but I only choose to give them 1% of my wealth, then the lower aggregate returns are on me.

I feel there's a misunderstanding of what Universa is and this keeps confusing people.

Universa is not an alpha fund. You don't give money to Universa with the aim that they'll generate steady income, or even any income. They are basically an insurance product. If nothing happens for 10 years, they'll just steadily lose money (this is expected) in the form of the premium. In fact, in absence of market crashes, the expected value of Universa is negative.

>Dividing by a higher notional amount would be justified if the Universea funds could cause investors to lose more than their initial investment, in the same way that futures contracts have a notional value far in excess of their face value. However, I do not think the Universea funds work in this way.

That's not at all how you think of a tail protection fund like Universa.

The premium is just a constraint, not a risk metric. Say your portfolio makes 10% a year and you are willing to invest 1% of that in protection. That 1% premium spending is your constraint, nothing more. But your risk metric is the capital that you wish to insure, not the premium. It then follows that you should calculate the Universa return as a % of the capital you want to protect, not the premium you spend to protect it.

Exmaple: you have assets worth $100 and you want to spend $1 on protection (Universa). You determine that in a 2020 style market stress event you'd be expected to suffer a 20% drawdown. Beyond protection efficiency analyses, you really don't care what your return on premium is, you care that for the 1% premium spent, your protection is expected to earn enough as a % of your assets that your total drawdowns become manageable. The premium just puts a ceiling on the overall insurance level you can afford for your portfolio, but again for this you need to think in terms of % return of your portfolio value.

This is totally backwards. They are not insurance. They don’t guarantee anything in a downturn. They don’t gain their profits from premiums or from ratio of customers paid out.

Just like other managed funds don’t make promises but market themselves along a certain strategy. They market themselves along a different strategy.

Universa is a fund. They returned 100%+ on every dollar invested. End of story. You can think of them ‘like insurance’ or ‘like a casino’ but it’s ridiculous to pretend they are.

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