Blogger Wisdom Questions

Tadas Viskanta is on a well-deserved vacation. He asked some finance bloggers a few questions. Here’s Monday’s query with a sample of some answers:

Question: Let’s say Warren Buffett re-ups his famous decade-long bet. (He’s not.) He takes the S&P 500. What would you take (and why)?

Jeffrey Miller, A Dash of Insight, @dashofinsight:
I would take a group of managers with a proven method as well as good results. Eddy Elfenbein and Bill Miller are examples, but there are others. The fees must be modest – no 2 and 20. I would also favor managers who pay attention to risk. There will be another recession in the next ten years. Anything you can do to avoid it will help a lot.

Eddy Elfenbein, Crossing Wall Street, @eddyelfenbein:
I would still take the S&P 500. Fees are obviously an issue but another reason is that it’s basket of five hedge funds. I believe that plain old stock-picking can beat the market, but I don’t trust five managers making macro bets inside a black box to beat the index.

Cullen Roche, Pragmatic Capitalism, @cullenroche:
This is a more interesting bet now. In the 5 years prior to the 2008 bet the US markets had only compounded at about 9% vs the 13% rate of the last five years. But I’d throw in a caveat. Comparing the nominal returns of the S&P 500 to a hedge fund index over 10 years is stupid. The Protege team should have known better than to take that bet. Given how stable the equity market has been in the last 8 years I’d require that we split the bet into two separate bets. Half the pot goes to the nominal return winner and the other half goes to the risk adjusted return winner based on Sharpe ratio. That way we’re creating a bit more balance with the bet since hedge funds are judged in large part not by how much return they generate but by how they generate it. Interestingly, with low yields, stretched stock valuations and excessive fees in hedge funds I have to admit that neither the hedge fund nor the 100% S&P 500 portfolio looks all that great to me if you’re putting your money where your mouth is….So, if I were making this bet with Buffett – well, over a ten year time horizon I’d feel pretty comfortable taking the S&P 500 with 10% leverage. Over any 10 year period the high probability bet is that the stock market will rise so if you want to beat Buffett then just beat him with a higher beta bet than he has going on. Lame, yes? Smart, Yes.

Posted by on October 16th, 2017 at 4:44 pm


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