Sergey Brin’s $100B Private Fiefdom (2022)
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Is assume you'd have non-negligeable effects on what you invested in/effects in the intermediate levels (like putting too much money through the order book)? S&P 500 market cap is 32 trillion. 100 billion is 0.3% of that.
- empirically incorrect (the idea that very few people beat the index)
- but repeatedly constantly with unbelievable confidence by people who don't know the subject well
- while misunderstanding the reasons why someone with that level of wealth wouldn't want to buy the index even if it gave them statistically good returns
Yep, definitionally 50% of stock market capital outperforms the market index average. People recommend index because you don't know who / what will outperform (funds will charge you fees like 1% so random dart choosing a fund means on avg. you get market index - 1%).
Even without that, still no. There is an implicit assumption in your math that bad and good investors aggregate funds in the same amount. They don't.
And, depending on exactly how strictly you are defining EMH - I mean, does anyone believe it in it's strictest form? It's a crazy idea.
50% of of returns, over all investors, beats the median (not average) returns over all investors, by definition, but the annual median returns over all investors is much smaller than the average annual index return. A very small number of people/investors (1) have beaten the average annual S&P returns over the long term.
(1) https://www.amazon.com/Four-Pillars-Investing-Building-Portf...
Empirically incorrect? The 'index fund strategy' stated under another name is essentially the same as efficient markets theory, which multiple economists have won Nobel Prizes for. This is mainstream economic theory today.
But even worse - to my knowledge even skeptics of efficient markets theory don't deny that few people beat the index. They think they can pick them of course - but they never claim that most people outperform the market (the same thesis, restated).
So your comment is, bluntly stated, empirically incorrect, because no serious academic (to my knowledge) denies that very few people beat the index. The reason incidentally is because index funds have zero fees, and active investors have nonzero fees, and long term they converge - so the zero fee lower cost basis strategy wins out. And if you're claiming that average investors with "zero fees" generally outperform the market... that is empirically, provably, incorrect.
Stated with unbelievable confidence... yes, the confidence that the papers that the economists who won those Nobel Prizes instilled, which has now become economic orthodoxy, which also helped spur the creation of index funds in the first place.
There is a strong connection between efficient markets theory & those funds very existence: because if active investors underperform the market, then the best strategy is just to hold the market, a strategy which got repackaged and named as 'index funds.'
A good book on the topic:
https://www.amazon.com/Trillions-Renegades-Invented-Changed-...
Yes but you can't pick the winning monkeys in advance, can you? Picking winning monkeys is just as hard as picking winning stocks.
* Achieve the mean
* Add some kind of noise to that
You have a chance of beating the mean.
But I think when people say "beat the market", they mean a better than 50% chance due to some secret sauce.
Or, beat the market repeatedly, which variance is unlikely to do (if chance of beating the market one year is 50%, chance of beating it 10 years running is only ~0.1%)
To be fair, EMH is mainstream econometrics from the 70s...
I don't think there exist more than a handful of academics in 2020 that would defend a strong form of EMH.
The whole current quantitative finance industry is based on the factor model theory, and behavioral finance.
Factors have been proven to S3account for consistent abnormal returns for decades, on multiple asset classes.
Stronger than factor form of inefficiencies, such as PEAD, have also been common knowledge for decades.
Behavioral finance, for which there has been Nobel prizes as well - post 70s :) - would even go as far as telling you that there is most likely a self realization effect of factors in the market. Eg. "Quality exists because people trade quality because they believe it exists"
The commenter is almost certainly stating they think Bayshore has <50% chance, but not some tiny number. Most people on stating "i'll bet x" intend for such bet to be priced at even money. If they stated they were laying generous odds, that might imply with confidence. And it might still be reasonable because it is reported widely, and people like Warren Buffett have won bets by betting on such underperformance. No one is saying that no one beats the market.
Buffett himself has said that upon his death there is a fund for his widow which will be 90% sp500 index. I'm not sure how much we are talking about, and it will be less than $100 billion, but I'm not sure it makes much difference, if any.
You might disagree with someone like Buffett on things like this, but the idea that the original comment is naive or stupid is plainly wrong. He's basically repeated what one of the best investors on the planet has stated.
You don't invest your money in what has the highest return. You invest it on what has the risk profile of your liking.
The (stock) market is considered risky, both in terms of volatility (~15-20% annual), and in terms of exposure.
Most quant hedge funds target ~10% realized annual volatility as a sweet spot for most investors.
I read no such thing, but I have practical real world experience speaking to and reviewing investment decks for institutional investors, ranging from pension funds to insurance companies, banks and funds of funds.
And these are what we call "non sophisticated investors". Yet even at that level, none of them would just "do anything" or "just look at returns".
The idea that "we are the smart money" at places like you mention isn't accurate. Almost every single person at an insurance company, bank, fund of funds, pension fund wishes they were at the VC, PE, Hedge fund etc who is actually doing the investing. But they can't get a job there.
You are mixing investors (the one having money to invest) and investment managers (the ones having an investment product).
The objective function of both are very different, because an investor accumulates multiple investment managers in its portfolio.
An investment manager can be very focused on a single purpose, because ultimately he will sell his investment strategy to an investor that will blend him with others in his portfolio to respect his risk profile.
We are talking about investors here, not investment managers.
> The idea that "we are the smart money" at places like you mention isn't accurate
That's not what I said. I'm working in the asset management side, and I was talking about investors.
To rephrase, I said that even non sophisticated investors have an understanding of what is a risk profile, what is an exposure, what is risk parity, and overall efficient frontiers.
> Almost every single person at an insurance company, bank, fund of funds, pension fund wishes they were at the VC, PE, Hedge fund etc who is actually doing the investing. But they can't get a job there.
That's just a demeaning, simplistic, blanket statement. Not even worth arguing that.
Most non sophisticated investors have no clue what risk parity or efficient frontiers are. "Risk profile" and "exposure" are used in various contexts by different folks. Only people from a quant background would think something like this. That isn't a shot at quant, but it's a very specific lens through which to view or do investing.
Fair or not, folks making investment decisions (ie the folks at PE, VC, hedge funds) have little respect for the people at pension funds, insurance, fund of funds etc. It might not be fair, but it's largely true. And it's largely true that one side wishes they were the other.
Because it is in total contradiction to what I see on the field...
I started to reply to your comment but stopped as I can hardly agree with any single sentence you wrote.
Concrete example - Bill Ackman hasn't ever thought about "risk parity". The average small value fund hasn't ever thought of it. Activists dont'. PEs don't. VC's haven't even heard of it. PE and VC also think of their investors as "LPs", not investors.
As for who wants to work where... this is anecdotal but have you ever heard of someone at a PE/VC/HF say "I would really like to work at CALPERS/CPP etc"? I have not
> There are now around 10,000 family offices
On the other hand
> And yet with so much extraordinary client discretion, it can almost feel like this $6 trillion industry doesn’t exist at all.
10,000 family offices x 10 staff on average (made up number, the article mentions 100 people in one of them) = 100,000 people, which is not a small number of people.
How does an industry that is at once so discreet and employs so many people find staff? How could I work for a family office if I had experience in business/management/finance/real estate/etc.? Honest question, where do I find these jobs? Connections, you might say, but I find it hard to believe that 100,000 people could all have personal connections. Surely some of these people must be cold hires, people with no previous connections to the owners.
Like any other hedge fund or private equity fund. There are recruiters and job boards. Many of the aforementioned fund types actually source the majority of their funds from individuals or families, and would actually be considered family offices.
The term is very vague and encompass very different entities. At its core, a family office is a kind of "prop shop" (a company trading with its own money, not client's money) where the original funds are from a single very high net worth person, or family.
There's a lot of them in Asia, as VHNW families/individuals are common (especially in mainland China). It's a little bit less common in US/EU, where people usually employ "wealth managers".
> How could I work for a family office if I had experience in business/management/finance/real estate/etc.?
It really depends on the kind of office. I would say most of the time it would go through connections and networking, but some people will be recruited directly on the job market for rank & file positions.
In the case of the proposition I had, it was a guy whose family is VHNW. The guy was a professor of econometrics at a top US university, so he convinced his family to let him start a shop to manage their money. I was presented to him through connections. I ended up declining, and he ended up hiring 3/4 people through a mix of friend connections & recommendations, and a student he supervised the PhD of.
> Honest question, where do I find these jobs?
In all honesty, family offices are rarely the most interesting jobs. It can pay really well, but you often end up in some small microcosm of politics subject to the desires of the King owner. Would not recommend 90% of them.
'...the family office business has become a huge industry, valued at around $6 trillion, now bigger than the $4 trillion hedge fund business.'.
and
'Investing in venture capital funds doesn’t put enough money to work, this person said, which encourages some family offices to just dump wads of cash into real estate, index funds, and anything else that can actually move enough dough.'
It's hard to imagine this much money in your bank account.
It's an understandable strategy, though also self serving. They could instead aspire to have the largest possible positive impact across all of humanity. This is the basis for the argument that it's not right for any single human to be entrusted with such a disproportionately high amount of discretionary resources.
Edit: My mistake, you posted a nearly identical comment here: https://news.ycombinator.com/item?id=34376436
So sorry for the confusion! Thank you for ensuring the mark of anm89 is uniformly applied.
I'm honestly curious as to what other thread you think I deleted something off.
If I had to characterize it: giving money to charitable causes that benefit you indicates a heternomous will, which in turn voids the act of any moral value. It might be beneficial to society for Brin to plow his money into Parkinson's research, but he gets no particular praise (or fault) for doing a thing that benefits him.
And why the false dichotomy that we must choose our masters at all? We certainly have the bureaucratic capabilities to redistribute extreme wealth without a guillotine or Molotov in sight.
If half of this fund went into the hands of the homeless or food relief for Ukraine, would you say it was any less well invested?
We are frogs, boiling in a world of superyachts and vanity funds. We can do better.
I don’t think the author knows about “family offices”.
The secrecy and nondescript nature is exactly inline with what family offices are, because family’s don’t want other people knowing about their investments.
> Admittedly, the variance between these entities shows how the term “family office” has lost some meaning.
The term "family office" is about as descriptive of a company's line of business as "trust" or "llc."
If you say “family office” to someone in finance, everyone knows exactly what you mean.
One thing I learned from this article is that Musk's habit of naming things after Culture novels is… excessive.
(Also, that book was okay but I prefer A Fire Upon The Deep, the other book about AIs and snotty Usenet posts in space.)
Also, IIRC he tried to portray it as something that was not explained and never could be explained, but then in later books he ended up explaining how post-singularity/sublimated civilizations work anyway.