Mr. Buffett makes a bet
June 9, 2008 2:22 PM Subscribe
Warren Buffett bets a hedge fund manager $1 million that the S&P 500 will outperform hedge funds over the next 10 years. Buffett has argued vociferously, sometimes using parables, that the smartest way for the average person to invest is to put money in simple no-load index funds. The bet is being overseen by the Long Now Foundation's Long Bets, where previously Ted Danson has won a bet about the Red Sox and Brian Eno one one politics. And there's more on the Long Now blog, which is generally interesting reading.
While investors might not make much from hedge funds over all, the managers make a ton, since they take a portion of the profits when they make money, and lose nothing when they don't. (at least that's my understanding)
posted by delmoi at 2:29 PM on June 9, 2008 [3 favorites]
posted by delmoi at 2:29 PM on June 9, 2008 [3 favorites]
delmoi - that is one of Buffett's core complaints about funds as well. It is called 2 and 20, and it is a rip off.
posted by blahblahblah at 2:37 PM on June 9, 2008 [1 favorite]
posted by blahblahblah at 2:37 PM on June 9, 2008 [1 favorite]
To make a slight correction to the OP, he's actually betting that the S&P 500 will beat a fund of funds, not a hedge fund. A fund of funds basically just adds a layer of fees - they typically charge 1-2 percent simply to take rich people's money and invest it in other hedge funds! So basically, to beat the index, they will have to outperform by at least 5 percent or so, because the hedge fund typically takes 2 percent of assets plus 20 percent of any profits.
Having said that, hedge funds are different than mutual funds (which are well-known to underperform the index, on average). Most notably, hedge funds can use massive leverage and a variety of strategies not open to mutual funds. Some hedge funds do consistently outperform, so it's not a sure thing that Buffett will win.
posted by btkuhn at 2:38 PM on June 9, 2008
Having said that, hedge funds are different than mutual funds (which are well-known to underperform the index, on average). Most notably, hedge funds can use massive leverage and a variety of strategies not open to mutual funds. Some hedge funds do consistently outperform, so it's not a sure thing that Buffett will win.
posted by btkuhn at 2:38 PM on June 9, 2008
So this is what they do with all those fees? Engage in million dollar pissing contests with Warren Buffet? Lots of luck boys, but I'll be keeping my money at Vanguard.
posted by ryanrs at 2:41 PM on June 9, 2008 [1 favorite]
posted by ryanrs at 2:41 PM on June 9, 2008 [1 favorite]
While investors might not make much from hedge funds over all, the managers make a ton, since they take a portion of the profits when they make money, and lose nothing when they don't. (at least that's my understanding)
This sums up everything Wall Street does. Investors loose most of their gains it to overhead and no one shares in the losses.
I'll be keeping my money out of it entirely.
posted by three blind mice at 2:50 PM on June 9, 2008
This sums up everything Wall Street does. Investors loose most of their gains it to overhead and no one shares in the losses.
I'll be keeping my money out of it entirely.
posted by three blind mice at 2:50 PM on June 9, 2008
GavinR:
Probably not until Rupert Murdoch explains why the Iraq war didn't give us 20 dollar a barrel Oil.
posted by Sam.Burdick at 2:51 PM on June 9, 2008 [1 favorite]
Probably not until Rupert Murdoch explains why the Iraq war didn't give us 20 dollar a barrel Oil.
posted by Sam.Burdick at 2:51 PM on June 9, 2008 [1 favorite]
AvP Voice Over: "Whoever wins...we lose"
posted by 2bucksplus at 2:52 PM on June 9, 2008
posted by 2bucksplus at 2:52 PM on June 9, 2008
Some hedge funds do consistently outperform, so it's not a sure thing that Buffett will win.
Give a million people a quarter each to flip twenty times and its very likely (~85%) that at least one of them will flip 19 heads in a row. Sure, it's easy to pick out some hedge fund after the fact that has outperformed the market, but can you tell me right now which one will do so in the future?
posted by Pyry at 2:53 PM on June 9, 2008 [2 favorites]
Give a million people a quarter each to flip twenty times and its very likely (~85%) that at least one of them will flip 19 heads in a row. Sure, it's easy to pick out some hedge fund after the fact that has outperformed the market, but can you tell me right now which one will do so in the future?
posted by Pyry at 2:53 PM on June 9, 2008 [2 favorites]
for some reason I read that as "AP Voice Over" and was even more afraid....
since when has the AP done voice overs and why is it so damn sinister?!?
posted by Sam.Burdick at 2:54 PM on June 9, 2008 [1 favorite]
since when has the AP done voice overs and why is it so damn sinister?!?
posted by Sam.Burdick at 2:54 PM on June 9, 2008 [1 favorite]
Give a million people a quarter each to flip twenty times and its very likely (~85%) that at least one of them will flip 19 heads in a row. Sure, it's easy to pick out some hedge fund after the fact that has outperformed the market, but can you tell me right now which one will do so in the future?
Yes, I'd be willing to bet anything that the Renaissance Technologies Medallion Fund will do so by a significant margin for the next 10 years. It has returned an average of 35 percent a year since 1989. The problem is, the average person can't invest in this fund. I don't know the history of this fund of funds, so I can't make any predictions about Buffett's bet, however.
posted by btkuhn at 3:03 PM on June 9, 2008
Is this the sort of thing I would have to have a million dollars to gamble in order to care about?
posted by Astro Zombie at 3:07 PM on June 9, 2008 [1 favorite]
posted by Astro Zombie at 3:07 PM on June 9, 2008 [1 favorite]
I'm sure they could invent some sort of exotic derivative in order to do the bet 'legally' even if direct gambling was illegal. For example, Buffet and the other guy could sell each other option contracts on the two securities
posted by delmoi at 3:08 PM on June 9, 2008 [1 favorite]
posted by delmoi at 3:08 PM on June 9, 2008 [1 favorite]
"Give a million people a quarter each to flip twenty times and its very likely (~85%) that at least one of them will flip 19 heads in a row. Sure, it's easy to pick out some hedge fund after the fact that has outperformed the market, but can you tell me right now which one will do so in the future?"
Well, that's exactly why the hedge fund manager went for a fund of funds - his reasoning is that the best hedge funds will outperform the index and that because the fund of fund manager will be able to reallocate to those funds which are perceived as being more successful. He reckons that this reallocation process will create enough excess returns to justify the extra layer of fees.
posted by patricio at 3:20 PM on June 9, 2008
Well, that's exactly why the hedge fund manager went for a fund of funds - his reasoning is that the best hedge funds will outperform the index and that because the fund of fund manager will be able to reallocate to those funds which are perceived as being more successful. He reckons that this reallocation process will create enough excess returns to justify the extra layer of fees.
posted by patricio at 3:20 PM on June 9, 2008
> Isn't this sort of gambling illegal in the US?
I was going to point out that it goes to charity, but I see you already noticed.
What's more interesting to me, though, is how blurred the line gets between "gambling" as most people would think of it, and certain types of futures products. The "predictive markets" seem awfully close to pari-mutuel wagering to me, the only real difference being that it's clothed in financial language, and with the ostensible purpose of making predictions, rather than the ostensible purpose of entertainment. (In both cases I have a feeling that the vast majority of the participants do it because they think they can make a buck, rightly or wrongly.)
It seems odd that you can buy shares in a predictive market that hinge on the outcome of a political contest, but in many states it would be illegal to place an outright bet on the same event from an oddsmaker.
posted by Kadin2048 at 3:20 PM on June 9, 2008
I was going to point out that it goes to charity, but I see you already noticed.
What's more interesting to me, though, is how blurred the line gets between "gambling" as most people would think of it, and certain types of futures products. The "predictive markets" seem awfully close to pari-mutuel wagering to me, the only real difference being that it's clothed in financial language, and with the ostensible purpose of making predictions, rather than the ostensible purpose of entertainment. (In both cases I have a feeling that the vast majority of the participants do it because they think they can make a buck, rightly or wrongly.)
It seems odd that you can buy shares in a predictive market that hinge on the outcome of a political contest, but in many states it would be illegal to place an outright bet on the same event from an oddsmaker.
posted by Kadin2048 at 3:20 PM on June 9, 2008
While the big boys toss around all kinds of money, the rest of us think about whether to buy gas or food.
posted by Dave Faris at 3:24 PM on June 9, 2008
posted by Dave Faris at 3:24 PM on June 9, 2008
This is not just about big boys tossing around money. Everyone should pay attention to this.
Well over half of all Americans are directly invested in the market, either through savings or retirement plans. And, while hedge funds target only the rich, the contrast between "lazy investing" in indexes vs. other approaches such as high-load mutual funds or stock picking works the same way as it does with hedge funds.
And if you think of hedge funds in this bet as the very best active investment vehicles (like mutual funds, or stock-picking strategies), then this is an interesting race between two very different investment strategies that are meaningful to hundreds of millions of Americans.
My prediction: Buy a no-load fund or ETF.
posted by blahblahblah at 3:54 PM on June 9, 2008 [2 favorites]
Well over half of all Americans are directly invested in the market, either through savings or retirement plans. And, while hedge funds target only the rich, the contrast between "lazy investing" in indexes vs. other approaches such as high-load mutual funds or stock picking works the same way as it does with hedge funds.
And if you think of hedge funds in this bet as the very best active investment vehicles (like mutual funds, or stock-picking strategies), then this is an interesting race between two very different investment strategies that are meaningful to hundreds of millions of Americans.
My prediction: Buy a no-load fund or ETF.
posted by blahblahblah at 3:54 PM on June 9, 2008 [2 favorites]
Is this the sort of thing I would have to have a million dollars to gamble in order to care about?
Actually, it's the exact opposite of that.
Buffet's long argued that while investing in specific, individual stocks makes sense for people like him, who have the time/skills/resources to heavily research companies, buy controlling interests in them, and influence their behavior, normal people like you and me without a million bucks to invest shouldn't waste time picking stocks and should just buy shares of a well-rounded mutual fund that tracks an index.
In other words, it's investment advice from a super-successful guy saying hey, my strategy only works if you have vast sums of money to throw around - if you're just putting away for your retirement, go straight to Vanguard and don't be tempted to try to time your AAPL or GOOG purchases. And now he's putting his money where his mouth is on that argument.
posted by Tomorrowful at 3:55 PM on June 9, 2008 [4 favorites]
Actually, it's the exact opposite of that.
Buffet's long argued that while investing in specific, individual stocks makes sense for people like him, who have the time/skills/resources to heavily research companies, buy controlling interests in them, and influence their behavior, normal people like you and me without a million bucks to invest shouldn't waste time picking stocks and should just buy shares of a well-rounded mutual fund that tracks an index.
In other words, it's investment advice from a super-successful guy saying hey, my strategy only works if you have vast sums of money to throw around - if you're just putting away for your retirement, go straight to Vanguard and don't be tempted to try to time your AAPL or GOOG purchases. And now he's putting his money where his mouth is on that argument.
posted by Tomorrowful at 3:55 PM on June 9, 2008 [4 favorites]
A sort of edit since I goofed a bit:
He's also saying that anyone else who's trying to make money by timing purchases in your name - eg, a fund manager - might, maybe, possibly, outperform the market average... but even if they do, the amount they skim off to pay themselves drops your earnings below the market-average level.
posted by Tomorrowful at 3:56 PM on June 9, 2008 [1 favorite]
He's also saying that anyone else who's trying to make money by timing purchases in your name - eg, a fund manager - might, maybe, possibly, outperform the market average... but even if they do, the amount they skim off to pay themselves drops your earnings below the market-average level.
posted by Tomorrowful at 3:56 PM on June 9, 2008 [1 favorite]
It's not just 2 and 20. It's a bunch of fund-of-funds, so it's 2 and 20, and then another 1 and 10 taken out.
I'd bet that a number of the FOHFs go into liquidation before the 10 years is up.
posted by milkrate at 3:59 PM on June 9, 2008
I'd bet that a number of the FOHFs go into liquidation before the 10 years is up.
posted by milkrate at 3:59 PM on June 9, 2008
Warren Buffett bets a hedge fund manager $1 million
Buffett's net worth is something like $62 billion. Him betting a million on anything would be on par with me betting my co-worker $5 that he couldn't fit his fist into his mouth.
At that level, a million dollars is pocket change.
posted by quin at 4:00 PM on June 9, 2008
Buffett's net worth is something like $62 billion. Him betting a million on anything would be on par with me betting my co-worker $5 that he couldn't fit his fist into his mouth.
At that level, a million dollars is pocket change.
posted by quin at 4:00 PM on June 9, 2008
Is this the sort of thing I would have to have a million dollars to gamble in order to care about?
No. Merely any pitiful amount of paper with dead presidents on it that you hope to trade in for food or rent any time between now and when you die in an elder care facility... or on the cold mean streets, as the case may be.
posted by tkchrist at 4:06 PM on June 9, 2008
btkuhn -- "I'd be willing to bet anything that the Renaissance Technologies Medallion Fund will do so by a significant margin for the next 10 years. It has returned an average of 35 percent a year since 1989. The problem is, the average person can't invest in this fund...."
No, the problem is they've been getting a lot of press recently. Like this Yahoo! Finance article discussing Simons' strategy: "small-cap stocks priced under $10 with low debt and lots of cash."
Now everyone looking for a new angle will be working Simons' niche. Before, when times were good everyone had their own angle. Lots of cash was flowing into alternative investments (i.e., "Hedge Funds"). Now that ain't the case. In fact, these days not only are lots of funds are directly losing money, many investors are actively disinvesting. This means managers are looking for new angles, new ideas, anything to attract new cash, or keep the business they've already got. Folks are fighting over a shrinking pie.
These stories are just mainstream picking up on chatter industry has been talking about for a while. Simons' had a good run, sure. But the waters he fishes in are about to get crowded.
And why do you think the average person can't invest in this fund? Has nothing to do with qualified investor or any of the other SEC mandated criteria for investing in a hedge fund.
$30 Billion is a lot of cash to be tossing into small caps. Simons' strategy don't scale. He can't run $100 Billion, so he probably closed it to new investors. And his strategy - simultaneously executed by a number of imitators - won't work well either.
Lots of money chasing small caps means the dynamics of that market niche will be changing.
posted by Mutant at 4:17 PM on June 9, 2008
No, the problem is they've been getting a lot of press recently. Like this Yahoo! Finance article discussing Simons' strategy: "small-cap stocks priced under $10 with low debt and lots of cash."
Now everyone looking for a new angle will be working Simons' niche. Before, when times were good everyone had their own angle. Lots of cash was flowing into alternative investments (i.e., "Hedge Funds"). Now that ain't the case. In fact, these days not only are lots of funds are directly losing money, many investors are actively disinvesting. This means managers are looking for new angles, new ideas, anything to attract new cash, or keep the business they've already got. Folks are fighting over a shrinking pie.
These stories are just mainstream picking up on chatter industry has been talking about for a while. Simons' had a good run, sure. But the waters he fishes in are about to get crowded.
And why do you think the average person can't invest in this fund? Has nothing to do with qualified investor or any of the other SEC mandated criteria for investing in a hedge fund.
$30 Billion is a lot of cash to be tossing into small caps. Simons' strategy don't scale. He can't run $100 Billion, so he probably closed it to new investors. And his strategy - simultaneously executed by a number of imitators - won't work well either.
Lots of money chasing small caps means the dynamics of that market niche will be changing.
posted by Mutant at 4:17 PM on June 9, 2008
While the big boys toss around all kinds of money, the rest of us think about whether to buy gas or food.
What are you, some kind of Communist?
posted by Blazecock Pileon at 4:24 PM on June 9, 2008 [1 favorite]
What are you, some kind of Communist?
posted by Blazecock Pileon at 4:24 PM on June 9, 2008 [1 favorite]
Patrick C Burns, whoever you are, you got totally owned.
posted by absalom at 4:30 PM on June 9, 2008
posted by absalom at 4:30 PM on June 9, 2008
I'm with btkuhn if I were a millionaire with a large sum to invest I'd put it in the Renaissance Technologies Medallion Fund. Its consistently high returns over the last couple of decades is the reason why fund manager Jim Simons earned 2.8 billion dollars in 2007.
In general though I think hedge funds are the bane of the economy and I'm hoping that Warren Buffet is proven correct.
posted by electricinca at 4:31 PM on June 9, 2008
In general though I think hedge funds are the bane of the economy and I'm hoping that Warren Buffet is proven correct.
posted by electricinca at 4:31 PM on June 9, 2008
What are you, some kind of Communist?
A communist would want to take their money away and distribute it to the masses, (especially the ones in the politburo.)
posted by Dave Faris at 4:45 PM on June 9, 2008
A communist would want to take their money away and distribute it to the masses, (especially the ones in the politburo.)
posted by Dave Faris at 4:45 PM on June 9, 2008
Sweet I hope you think of that money in RenTech everytime you look at a pack of Merits at the deli. I know I'd want a chainsmoking 65 y/o intrusted with my money for the next ten years.
BTW its a quant fund. You have no idea how much leverage he's used to get those #'s. Also one day their models might (will) breakdown. And then you are back to 0%
Mutant - he does have an "institutionally ready" variant he want to run some ungodly sum in (thinking 100 bil?) but he charges institution style fees - maybe 125bps or something. That gawdawful bberg magazine had a profile of him that talks about it.
125 is still crazy high for that space, but cheap compared to his normal 5 and 30 or whatever it is.
posted by JPD at 4:47 PM on June 9, 2008 [1 favorite]
BTW its a quant fund. You have no idea how much leverage he's used to get those #'s. Also one day their models might (will) breakdown. And then you are back to 0%
Mutant - he does have an "institutionally ready" variant he want to run some ungodly sum in (thinking 100 bil?) but he charges institution style fees - maybe 125bps or something. That gawdawful bberg magazine had a profile of him that talks about it.
125 is still crazy high for that space, but cheap compared to his normal 5 and 30 or whatever it is.
posted by JPD at 4:47 PM on June 9, 2008 [1 favorite]
oh BTW this bet is a joke. the FoF should have asked for odds or something. If I remember correctly if you assume SP500 returns 8% over time a FoF needs to 13% just to stay even. That's a massive gap.
posted by JPD at 4:53 PM on June 9, 2008
posted by JPD at 4:53 PM on June 9, 2008
I'm kind of shocked that the Long Bets site doesn't seem to have a search function.
posted by Dave Faris at 4:53 PM on June 9, 2008
posted by Dave Faris at 4:53 PM on June 9, 2008
At that level, a million dollars is pocket change.
Based on what I have read, the average stock portfolio is worth around 5K - most investors are small investors. This scares me a bit, because the more I learn about finance, the more I think the deck is stacked against regular people: Mutual fund managers take a cut from the mutual fund business even though they don't supply expertise any better than random guessing, trading fees get involved when you self-direct, the taxman is never far away, and your bankers get a cut out of practically every transaction. It took me watching my "professionally managed" mutual funds (which are barely even in the black over the short-term) to realize that. Combine those factors with the notion that most people choose strategies that are the exact opposite of what they should be doing ("oil is through the roof, I need in!"), and fall for scams like investing in boxes full of Iraqi banknotes - it is really tough to make money other there.
The message behind Buffett's success is to me, that discipline, research, logic, and reason will get you further in the market than expert news, tips, or advice from practically any other source. I don't think Buffett's endorsement is necessarily worth that much, at least by the time it reaches guys like me - but he still presents a good model. People see the million dollar bet and go "wow, what a risk taker!" but he is really only putting up a small part of his fortune... and his bet really doesn't fit the model he presents for financial success.
posted by Deep Dish at 4:55 PM on June 9, 2008
Based on what I have read, the average stock portfolio is worth around 5K - most investors are small investors. This scares me a bit, because the more I learn about finance, the more I think the deck is stacked against regular people: Mutual fund managers take a cut from the mutual fund business even though they don't supply expertise any better than random guessing, trading fees get involved when you self-direct, the taxman is never far away, and your bankers get a cut out of practically every transaction. It took me watching my "professionally managed" mutual funds (which are barely even in the black over the short-term) to realize that. Combine those factors with the notion that most people choose strategies that are the exact opposite of what they should be doing ("oil is through the roof, I need in!"), and fall for scams like investing in boxes full of Iraqi banknotes - it is really tough to make money other there.
The message behind Buffett's success is to me, that discipline, research, logic, and reason will get you further in the market than expert news, tips, or advice from practically any other source. I don't think Buffett's endorsement is necessarily worth that much, at least by the time it reaches guys like me - but he still presents a good model. People see the million dollar bet and go "wow, what a risk taker!" but he is really only putting up a small part of his fortune... and his bet really doesn't fit the model he presents for financial success.
posted by Deep Dish at 4:55 PM on June 9, 2008
JPD -- "Also one day their models might (will) breakdown. And then you are back to 0%"
I hadn't seen that Bloomberg article, but I'd been told earlier Simons' was doing stat arb and playing both sides of the trade. Curious - what did Bloomberg say about his strategy?
posted by Mutant at 5:02 PM on June 9, 2008
I hadn't seen that Bloomberg article, but I'd been told earlier Simons' was doing stat arb and playing both sides of the trade. Curious - what did Bloomberg say about his strategy?
posted by Mutant at 5:02 PM on June 9, 2008
Mr. Buffett is wagering that he will live to see the conclusion of this wager.
posted by geekyguy at 5:07 PM on June 9, 2008
posted by geekyguy at 5:07 PM on June 9, 2008
Hey, anyone know where you can get historical stock quote data in order to train your own statistical arbitrage models?
posted by delmoi at 5:07 PM on June 9, 2008
posted by delmoi at 5:07 PM on June 9, 2008
As you might expect, not much. I'm pretty sure he isn't doing some small-cap only strategy though. He runs WAY too much money for that.
posted by JPD at 5:08 PM on June 9, 2008
posted by JPD at 5:08 PM on June 9, 2008
0 is probably harsh. But you could certainly seem something like AQR happen to them.
posted by JPD at 5:09 PM on June 9, 2008
posted by JPD at 5:09 PM on June 9, 2008
What I really like are the two pictures in link one. Buffett looking old and crotchety and drinking cherry coke, vs the butter-wouldn't-melt-in-their-mouths s**t-eatin' grinnin' young'uns who look about as trustworthy as the guys running a three card monte operation (albeit way more slick).
Though perhaps I do them an injustice? Looks can be deceiving.
posted by IndigoJones at 5:09 PM on June 9, 2008
Though perhaps I do them an injustice? Looks can be deceiving.
posted by IndigoJones at 5:09 PM on June 9, 2008
Jim Hamilton of Econbrowser has an interesting post here that explains why even a long track record like Medallion conceals the huge risks they are taking in order to get their returns. All you have to do is make highly leveraged bets against events that are relatively unlikely to occur, for example selling put options against big market drops. As long as that market drop never occurs, you collect the option price as free money and you can report high returns every year. Of course when the inevitable black swan event occurs you are totally wiped out including all of those big gains. So the hedge fund folds, the shareholders are screwed, the option buyers are screwed, but the managers keep their billions in fees earned over the years.
There is a way for common investors to win and that is to pay the lowest management fees possible. This guarantees that you will make the market return minus a tiny fee. How low a fee? Well, Vanguard charges 0.07% per year -- just $70 for a $100,000 investment in the Total Stock Market Index. Out of this $70 fee they pay for maintaining your account, mailing statements, answering your calls and otherwise servicing your account. A couple of mailings and a couple of phone calls and they just about break even. You keep all of the fund returns.
posted by JackFlash at 5:24 PM on June 9, 2008 [1 favorite]
There is a way for common investors to win and that is to pay the lowest management fees possible. This guarantees that you will make the market return minus a tiny fee. How low a fee? Well, Vanguard charges 0.07% per year -- just $70 for a $100,000 investment in the Total Stock Market Index. Out of this $70 fee they pay for maintaining your account, mailing statements, answering your calls and otherwise servicing your account. A couple of mailings and a couple of phone calls and they just about break even. You keep all of the fund returns.
posted by JackFlash at 5:24 PM on June 9, 2008 [1 favorite]
delmoi -- "Hey, anyone know where you can get historical stock quote data in order to train your own statistical arbitrage models?"
Sure, a public source like Yahoo! could give it to you, but I've got a couple of other sources of equity data linked off my profile. I've also got links to a wide variety of non equity data, if you need a source of this information as well.
In any case, before you trade live you'll definitely need to corroborate data across multiple providers (its not unknown to find problems even with exchange traded securities pricing data, provided by paid for services).
Of course the real information you'll need will be data on the sensitivities of each security you've selected to specific factors. For example, if you're looking at Bank of America, Citigroup and Wachovia and have decided to track changes in the stocks price with respect to, for example, changes 3M T-Bills and trade accordingly when prices diverge (of course you'd probably want to incorporate multtiple factors), you more than likely will have to regress this data and calculate your own coefficients.
If you've got access to a University library, DataStream can definitely provide the needed time series. After that its a pretty simple (although somewhat laborious) exercise. Either RATS or Eviews can do this (Excel could as well, but let's not).
In the early 90's we were getting sensitivity data like this from Advanced Portfolio Technologies in New York, but I'm not sure if they still sell it or not. They'd break it down to 15 or 20 sensitivities, and provide daily updates.
JPD -- thanks for the link.
posted by Mutant at 5:26 PM on June 9, 2008 [1 favorite]
Sure, a public source like Yahoo! could give it to you, but I've got a couple of other sources of equity data linked off my profile. I've also got links to a wide variety of non equity data, if you need a source of this information as well.
In any case, before you trade live you'll definitely need to corroborate data across multiple providers (its not unknown to find problems even with exchange traded securities pricing data, provided by paid for services).
Of course the real information you'll need will be data on the sensitivities of each security you've selected to specific factors. For example, if you're looking at Bank of America, Citigroup and Wachovia and have decided to track changes in the stocks price with respect to, for example, changes 3M T-Bills and trade accordingly when prices diverge (of course you'd probably want to incorporate multtiple factors), you more than likely will have to regress this data and calculate your own coefficients.
If you've got access to a University library, DataStream can definitely provide the needed time series. After that its a pretty simple (although somewhat laborious) exercise. Either RATS or Eviews can do this (Excel could as well, but let's not).
In the early 90's we were getting sensitivity data like this from Advanced Portfolio Technologies in New York, but I'm not sure if they still sell it or not. They'd break it down to 15 or 20 sensitivities, and provide daily updates.
JPD -- thanks for the link.
posted by Mutant at 5:26 PM on June 9, 2008 [1 favorite]
"Whoever wins...we lose"
Please explain this sentiment.
posted by Eideteker at 5:41 PM on June 9, 2008
Please explain this sentiment.
posted by Eideteker at 5:41 PM on June 9, 2008
I'm kind of shocked that the Long Bets site doesn't seem to have a search function.
Dave, I'm sure you can find whatever you want in the next 10,000 years.
posted by lukemeister at 6:20 PM on June 9, 2008
Dave, I'm sure you can find whatever you want in the next 10,000 years.
posted by lukemeister at 6:20 PM on June 9, 2008
eideteker, it's conceivable that one might "outperform" the other by dropping 50% as opposed to 55% - which certainly would be a situation where "we" lose
posted by pyramid termite at 6:35 PM on June 9, 2008
posted by pyramid termite at 6:35 PM on June 9, 2008
I enjoyed reading the comments on the Red Sox thread, especially the ones that talked about the mathematical likelihood of the Red Sox winning the world series vs the U.S.A. winning the world cup.
While the math there seems accurate, doesn't it assume that there is a level playing field in both sports? For example, while it is true that it is mathematically possible that next year's Kansas City Royals might be experience a World Series win, the .03 chance of this happening as described by Mr. Randall in the comments can only be applied if all other variables are equal. For example, if the Royals continue to be outspent by just about every other team in the league, the other teams will continue to have strong players and better coaches.
Ergo, the odds the Royals face are considerably more grim than .03.
Similarly, the odds that an American team trying to win the World Cup face are probably considerably more grim than even the .007 that Mr. Randall proposes due to our lack of a lengthy professional tradition of soccer in the U.S.A.
Seeing as how even in 2002, the Red Sox fortunes were on the rise, I would propose that the Red Sox actually had a greater than .03 chance of winning the WS sometime this decade than nearly every other team in MLB.
Mr. Danson made a wise bet and one that ultimately made his charity a small amount of money.
I propose a second bet. Specifically, the Kansas City Royals will win a World Series before the U.S.A. wins a World Cup. The odds are closer, but ultimately the baseball bet is somewhat more likely to come to fruition in our lifetime.
posted by Joey Michaels at 6:53 PM on June 9, 2008 [1 favorite]
While the math there seems accurate, doesn't it assume that there is a level playing field in both sports? For example, while it is true that it is mathematically possible that next year's Kansas City Royals might be experience a World Series win, the .03 chance of this happening as described by Mr. Randall in the comments can only be applied if all other variables are equal. For example, if the Royals continue to be outspent by just about every other team in the league, the other teams will continue to have strong players and better coaches.
Ergo, the odds the Royals face are considerably more grim than .03.
Similarly, the odds that an American team trying to win the World Cup face are probably considerably more grim than even the .007 that Mr. Randall proposes due to our lack of a lengthy professional tradition of soccer in the U.S.A.
Seeing as how even in 2002, the Red Sox fortunes were on the rise, I would propose that the Red Sox actually had a greater than .03 chance of winning the WS sometime this decade than nearly every other team in MLB.
Mr. Danson made a wise bet and one that ultimately made his charity a small amount of money.
I propose a second bet. Specifically, the Kansas City Royals will win a World Series before the U.S.A. wins a World Cup. The odds are closer, but ultimately the baseball bet is somewhat more likely to come to fruition in our lifetime.
posted by Joey Michaels at 6:53 PM on June 9, 2008 [1 favorite]
These are great bets. Thanks for the post!
posted by cowbellemoo at 7:10 PM on June 9, 2008
posted by cowbellemoo at 7:10 PM on June 9, 2008
Omigosh:
By the year 2040, AI will appear on computer viruses that will communicate with each other using a universal Internet language and will be programmed to fuse together and mutate into Computer Organs that will later be controlled by powerful search engines (Systems) diffused through out the Internet.
John Connor, we need you!
posted by cowbellemoo at 7:18 PM on June 9, 2008
By the year 2040, AI will appear on computer viruses that will communicate with each other using a universal Internet language and will be programmed to fuse together and mutate into Computer Organs that will later be controlled by powerful search engines (Systems) diffused through out the Internet.
John Connor, we need you!
posted by cowbellemoo at 7:18 PM on June 9, 2008
I like the idea, and I am as much a fan of Warren Buffett as one who would philosophically prefer restraint of individual acquisition can be. But I can't help thinking, no matter what it is, once "everybody's doing it", the profit will go out of it. Why wouldn't this be the case for simple no-load index funds? Why wouldn't this investment strategy spawn a raft of sleazy finance guys to suck up the yokel dollar, just like every other one?
"Invest now! Everyone is! You don't want your CHILDREN to have to SELL your BONE MARROW to buy FOOD, do you? Give us your money! We have a magic box called a NO-LOAD INDEX FUND to put it in! Totally NOT like the INTERNET STOCKS box or the HOUSING box! WARREN BUFFETT says GIVE US YOUR MONEY! Do it NOW!" and so on.
posted by aeschenkarnos at 8:06 PM on June 9, 2008
"Invest now! Everyone is! You don't want your CHILDREN to have to SELL your BONE MARROW to buy FOOD, do you? Give us your money! We have a magic box called a NO-LOAD INDEX FUND to put it in! Totally NOT like the INTERNET STOCKS box or the HOUSING box! WARREN BUFFETT says GIVE US YOUR MONEY! Do it NOW!" and so on.
posted by aeschenkarnos at 8:06 PM on June 9, 2008
i hope buffett wins this bet but i don't think the bet will 'prove' that one investment option is better than the other. firstly it is highly likely that the worse option could win purely on luck. secondly investors are probably more concerned about their expectation over a period of time than whether a fund is more likely to outperform another fund. for example a fund that goes busto 20% of the time but exceeds the index 80% of the time by a small amount is probably not good.
posted by drscroogemcduck at 8:56 PM on June 9, 2008
posted by drscroogemcduck at 8:56 PM on June 9, 2008
Aeschenkarnos:
What would happen if no-load index funds became a craze is that, being relatively low-yield overall, every possible permutation of "just like [standard-bearer for no-load index funds] but with better returns!" would spring up overnight.
Essentially, no-load index funds would become the baseline against which everything else was measured, and people trying to beat that will, as always, get fleeced.
Right now, Buffet's probably correct. I've been trying to figure out what to do with my money since pulling it out of small caps 3 months ago (I cashed out not a week before what would have been my portfolio dropped 25%), and Vanguard's Euro stock index is looking very tempting.
posted by Ryvar at 8:59 PM on June 9, 2008
What would happen if no-load index funds became a craze is that, being relatively low-yield overall, every possible permutation of "just like [standard-bearer for no-load index funds] but with better returns!" would spring up overnight.
Essentially, no-load index funds would become the baseline against which everything else was measured, and people trying to beat that will, as always, get fleeced.
Right now, Buffet's probably correct. I've been trying to figure out what to do with my money since pulling it out of small caps 3 months ago (I cashed out not a week before what would have been my portfolio dropped 25%), and Vanguard's Euro stock index is looking very tempting.
posted by Ryvar at 8:59 PM on June 9, 2008
Mr. Danson made a wise bet and one that ultimately made his charity a small amount of money.
I'm just annoyed that everyone knows it was him. It was supposed to be Anonymous!
posted by rokusan at 10:03 PM on June 9, 2008 [1 favorite]
I'm just annoyed that everyone knows it was him. It was supposed to be Anonymous!
posted by rokusan at 10:03 PM on June 9, 2008 [1 favorite]
"But I can't help thinking, no matter what it is, once "everybody's doing it", the profit will go out of it. Why wouldn't this be the case for simple no-load index funds?"
Because index funds aren't trying to make money by selling to other investors. They make a percentage of the wealth of the companies they're invested in.
posted by kavasa at 2:01 AM on June 10, 2008 [1 favorite]
Because index funds aren't trying to make money by selling to other investors. They make a percentage of the wealth of the companies they're invested in.
posted by kavasa at 2:01 AM on June 10, 2008 [1 favorite]
I like that I only need 320k in order to "bet 1 million".
posted by fistynuts at 2:15 AM on June 10, 2008
posted by fistynuts at 2:15 AM on June 10, 2008
Wow, the long now bets site is awesome. My uncle & I have a bet over ice melting in the arctic (I figured I'd hedge against the fact that everything else I have is invested in climate stability), and I've been wondering how to moderate it. Will we both remember? Etc.
posted by salvia at 7:53 AM on June 10, 2008
posted by salvia at 7:53 AM on June 10, 2008
FYI if anyone is still here:
If you've got access to a University library, DataStream can definitely provide the needed time series. After that its a pretty simple (although somewhat laborious) exercise. Either RATS or Eviews can do this (Excel could as well, but let's not).
Maybe, but I do everything in Excel, it is familiar and I like it. Specifically I'm running models that explore R/S time series analysis and I'm lazy (in both math and in computers). I just want to test if my hypothesis work and I don't like fooling around in cpp with headers and shit to get it done. So, because I'm lazy I use this doc from MSDN on high-performance Excel-Based apps. The best thing of all, if I really need to do something special, Matlab can link into Excel, so really Excel is sort of a giant, ugly database that keeps all my data.
Of course I'm sure I really overspent on hardware, but quad-core processors, memory and space are cheap. At least compared to the time and expense learning a non-MS solution. The key is use whatever is easiest for you, or at least that's my personal philosophy. If I ever get to the point where I simply need more speed and it is cost prohibitive to continue down this route, well I better be making enough money to hire people to figure it out for me or it won't work.
posted by geoff. at 8:19 AM on June 10, 2008
If you've got access to a University library, DataStream can definitely provide the needed time series. After that its a pretty simple (although somewhat laborious) exercise. Either RATS or Eviews can do this (Excel could as well, but let's not).
Maybe, but I do everything in Excel, it is familiar and I like it. Specifically I'm running models that explore R/S time series analysis and I'm lazy (in both math and in computers). I just want to test if my hypothesis work and I don't like fooling around in cpp with headers and shit to get it done. So, because I'm lazy I use this doc from MSDN on high-performance Excel-Based apps. The best thing of all, if I really need to do something special, Matlab can link into Excel, so really Excel is sort of a giant, ugly database that keeps all my data.
Of course I'm sure I really overspent on hardware, but quad-core processors, memory and space are cheap. At least compared to the time and expense learning a non-MS solution. The key is use whatever is easiest for you, or at least that's my personal philosophy. If I ever get to the point where I simply need more speed and it is cost prohibitive to continue down this route, well I better be making enough money to hire people to figure it out for me or it won't work.
posted by geoff. at 8:19 AM on June 10, 2008
Oh and I don't think it has been said, the Renn guy is a genius in his own right. This isn't someone training software at home, but probably one of the top mathematicians in the country. He achieved fame in the academia world then went to quantfin.
posted by geoff. at 8:21 AM on June 10, 2008
posted by geoff. at 8:21 AM on June 10, 2008
I think I would rather shoot myself then try to do it in excel. Any data process I would do in Java.
posted by delmoi at 7:07 PM on June 10, 2008
posted by delmoi at 7:07 PM on June 10, 2008
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posted by patricio at 2:27 PM on June 9, 2008