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Comment by mbesto | Hacker News Reader

I have such a hard time understand investing on this scale. Who the heck are these investors that continue to put money in these funds? Are there really that many wealthy people/organizations that are duped into the fallacy of hedge fund returns?

This also reminds me of the idiots who paid into the Groupon investment just so they could pay off the original investors (who happen to be largely the Groupon CEO): http://www.bloomberg.com/news/2010-12-30/groupon-has-raised-...

When a market is littered with this much "loss" doesn't it eventually adjust?

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The idiots are eventually the public. Pension funds are major investors into hedge funds.

Well, just like the average retail investor buys last year's hot mutual fund in the hopes that (usually lucky) outperformance persists, institutional investors also got sold the "look how well my fund did last year" spiel.

But before we think to ourselves "I'd never do that - I know that past performance doesn't have predict future returns..." look at the performance of the super popular Fidelity Contrafund (FCNTX) vs the S&P over the last ten years:

60.09% FCNTX 13.58% .INX (S&P500 Index)

You know that investors every day are being sold this fund using this stat, and (the data shows) buying it.

This also reminds me of the idiots who paid into the Groupon investment...

You link to an article where they invested at a $4.5B valuation, and now the company is worth $11.5B. It seems your hindsight isn't 20/20, or you think 250% returns in 12 months is low.

> You link to an article where they invested at a $4.5B valuation, and now the company is worth $11.5B.

Can they sell their $1B without the stock tanking, though?

See http://en.wikipedia.org/wiki/Greater%20fool%20theory .

Yes, the poor performers who pay their employees more than they contribute go out of business -- or get bailed out and stay in business.

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