[simias]

I mean, given how hard cryptocurrencies crashed this year is it really a surprise? The only way for him to make money would probably have been to short everything continuously but seeing how irrational and easily manipulated the cryptocurrency market has been in the past that seems rather foolish.

Given his pedigree you'd think he'd know better than to bet on something that's 99% pure unbridled speculation and 1% actual technology. It's like knowingly investing in a Ponzi scheme, what did you expect?

[AznHisoka]

One of the best kept secrets in the hedge fund/financial industry is that most people really dont have a clue what they are doing. Sure they make bold predictions, appear on CNBC and use industry jargon. But at the end of the day, they arent much better than you or me at managing large amounts of money.

[misiti3780]

to back this up, read the expose in the economist this week about family offices and how they all divesting from hedgefunds because the fees are ridiculous and they are doing no better than the S&P, usually worse when you take into account the onerous fees those mgrs are charging.

[dragontamer]

To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money.

$100 million isn't much different from $108 Million (8% gains over the year)... or even $500 Million. In both cases, its still more than enough money to live on for the rest of your life. The S&P 500 has dropped 50% in the past (ie: 2008), and it doesn't make sense to risk that much money on that.

You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into?

Answer: things that don't grow as quickly as an S&P500 fund. Things that are safer: municipal bonds, international (German, Japan) bonds to hedge the dollar, and US Bonds. Maybe some high-quality corporate debt, like Apple's debt, and maybe a real-estate project or two.

All of which probably returns less than the stock market. But your $100 Million will still be there in the next crisis. That's not necessarily true for an S&P500 fund.

------------

Finally, the average volume of Vanguard Total Market ETF is only ~3-million (at a price of ~130 or so). Which means that Vanguard Total Market ETF only has ~$300 Million changed each day.

If you pump $100 Million into an ETF with only $300 Million worth of daily average volume, what do you think will happen? You'll over-centralize the price and get a bad deal. Its not easy to move $100 Million, even into a major fund like Vanguard's Total Market ETF, without a manager.

At $100 Million+ size portfolios, you need to start thinking of Dark Pools of Liquidity (ie: somewhat hiding the order book). So that when you execute the buy order, the wolves of Wall Street won't own you.

$100 Million+ accounts don't work the same as a normal account. Pump that into the market in one day, and the price will rise dramatically. Sell that in one day, and the price will drop dramatically (losing a % of your value on both legs of the transaction). Having an expert guide you, so that you can minimize Bid/Ask issues, is essential.

[dgacmu]

Vanguard's AUM grew by about 1 trillion last year. This hypothetical 100M is 1/3rd of a day of that - and one almost certainly doesn't move all of it in a single day. Nor is one likely to keep all of it in a single fund. Once you have a bog-standard stocks/bonds/cash/maybe RE split, 100M isn't moving the market. I think you're off by an order of magnitude.

Where you're right, of course, is that 100M justifies considerably greater attention to the money management. But the biggest focus is tax efficiency, not the micro details of the market.

[trevyn]

>You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely.

Not that it’s a good idea, but there are other ways to insure cash than the FDIC.

One example, apparently Massachusetts offers unlimited insurance for banks: https://en.m.wikipedia.org/wiki/Depositors_Insurance_Fund

(Also, 100M / 200k = 500, not 5000)

[thaumasiotes]

Massachusetts?

> Q: Is the DIF a federal or state agency?

> A: No. The DIF is a private, industry-sponsored insurance company and is not backed by the federal government or the Commonwealth of Massachusetts.

[module0000]

Other side of the coin here..you can take that 1 million USD and dump it in a single order into the ES - you won't move it more than 1, 2, or maybe 3 ticks. This assumes you are using full day margin rates - if you are using overnight rates, you won't move it a single tick. Securities and ETF's are amateur hour for real sums of money. You'll need hundreds of millions, or billions, to move markets with the depth of the ES, ZB, TN, and other commodity futures.

[TuringNYC]

>>> You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into?

Interestingly, there is a way to easily do that. The first project of my career (back in 2002, and still active!) was at a FinTech startup (https://www.promnetwork.com/solutions/depositors) with a product (https://www.cdars.com/) that does this transparently by opening up all the bank accounts and doing the map-reduce for you! Single statement, fully FDIC insured.

...and there are always t-bills

[wpietri]

> To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money.

What's your evidence for that? Sure, they don't want to lose, but nobody does. And if anybody likes to get richer, it is pretty clearly rich people. Even the charity-focused ones want to keep increasing their resources, as that lets them have more impact.

[dragontamer]

> What's your evidence for that?

The worldwide bond / debt market exceeds $100 Trillion. While the worldwide stock market is only $69 Trillion (sum of top 60 exchanges)

https://www.visualcapitalist.com/all-of-the-worlds-stock-exc...

It is clear that Bonds are more popular than Stocks, by a factor of ~50% or so. The rich are buying up debt in far greater numbers than stocks. And EVERYONE knows that Bonds make less money.

I know some of it is cultural. My Chinese friends tend to own real-estate. But it seems like around the world, all major investors favor the lower-risks of Bond investing compared to Stocks.

[wpietri]

Your evidence for what wealthy individuals do is... the total size of the global markets? What evidence do you have that their portfolio weighting matches that?

[ecshafer]

This is literally what vanguard has been saying doe 40+ years and is their main business model.

[wpietri]

An opinion shared by Warren Buffett. He bet a hedge fund guy $1m that an index fund would beat a portfolio of hedge funds. Buffett won handily: http://longbets.org/362/

[vec]

I'm a complete layman whose only knowledge of the financial system is derived from podcasts and magazine articles, and hindsight is always 20/20, but wasn't this always an obvious sucker bet?

As I understand it, a hedge fund is supposed to be, well, a hedge. It's not supposed to make more money than the market when the market's doing well. It's supposed to be uncorrelated from the rest of the market, with the hope that it can maintains or even gain value in the event that the rest of the market tanks. An asset class that could reasonably be expected to substantially outperform both a bull market and a bear market isn't a hedge against anything, it's just a strictly superior asset class and we're pretty good at arbitraging those out of existence in relatively short order.

With that in mind, doesn't this basically devolve to a bet that at least a whole decade's worth of economic growth was going to be consumed entirely by a massive recession? That's not wholly unprecedented, admittedly, but it is a lot rarer than I'd be comfortable putting any money on at flat odds.

What am I missing?

[ianferrel]

"hedge fund" is kind of a misnomer these days. They started out as actual hedges, but now refer to basically any fund that makes use of complicated securities and active management.

But, yeah, it was likely a sucker's bet.

[SatvikBeri]

Yes, it was a sucker bet. The funds Protege picked were actually funds of funds that basically had a .6 correlation to the S&P 500. So Buffett was almost guaranteed to win if the markets went up over 10 years, and lose if they went down. And it's very rare for the market to be down over a 10-year period.

Honestly I have no idea what Protege was thinking.

[Simon_says]

Probably he was thinking that there was small chance that the hedge funds would outperform the S&P, and in that case, it'd be a hell of a PR move, which he could leverage to get more AUM. From a game-theoretic point of view, it's possible the bet had a positive expected value for him even if he knew he'd likely lose.

[user5994461]

And Warren Buffet was wrong. The hedge fund manager made more money than what the customer would have done in an index fund.

[wpietri]

I'm not following. Buffett won the bet. The portfolio of hedge funds did worse.

If you're saying the hedge fund managers themselves make money, sure. That's Buffett's exact point: they pocket money, but that money isn't going to the customers, which is why the hedge fund portfolio's rate of return ends up lower than the index fund.

[user5994461]

I'd say the exact opposite. One of the best kept secrets in the industry is that people know exactly what they are doing.

There are plenty of positions that are stable and low risk. Like running the exchange itself, all sort of middlemen and some form of arbitrage.

A hedge fund is mostly about funneling as much of customer money as possible to the fund manager. It's a fairly straightforward and risk insensitive business.

[SatvikBeri]

The strategies that tend to work are boring and low capacity, so they don't get much advertising, and people don't hear about them.

There's a massive saliency bias in that the strategies people are most likely to hear about are ones with some excitement behind them – that gives people a massively distorted view of hedge funds.

[mv4]

I am beginning to wonder, seeing the increased rate of hedge fund liquidations this quarter.

[paulie_a]

It's always sad when I get my upwards of 10 percent by professionals. I personally get 500-1000 percent return year over year. I'm working with small amounts of money that if I lost entirely wouldn't be the end of the world. But some years they barely beat inflation.

[mikkom]

> I personally get 500-1000 percent return year over year.

Numbers like this are always quite funny to me. What does year over year mean in this context? 5 years? 10?

If you would start with $1000 then in 10 years you would be at approx. 976 million with only lower part of your profits (500%).

[paulie_a]

Its personal investing so I pull profits to use for myself. And find something else to invest in. I usually keep around 500 invested. Not a lot of money but if I lost it all it wouldn't be the end of the world. It's been over the course of 15 years. Sometimes 10-15 trades in a year. But over a two year period with two trades it was 6800%. I'm not attempting to brag, I'm just saying the professionals are not any better than an ametuer. They are bad at their jobs.

[chillacy]

The difference is professionals manage amounts that can buy more than chicken tendies.. some strategies don’t work at scale.

[paulie_a]

And apparently they are terrible at scaling.

[robk]

How??

[wpietri]

You think he'll tell you for free? Nah. To learn the amazing secret to claiming to make a lot of money, you have to send him a lot of money. There are rules.

[Topgamer7]

Or buy this ebook for $9.99. Thousands of dollars in value, only $9.99. Get in on this limited offer!

[module0000]

He'e eluding(likely) to the commodities market. You can make double your money on a mediocre trade. You can also lose 100% of your money on a similar mediocre trade.

[paulie_a]

Nope just straight stock with my Scottrade account. In my younger years 77 dollars of stock ended up paying for a pretty decent copay for a surgery.

[dgacmu]

Alluding. :)

[thesausageking]

> Given his pedigree...

Novogratz is a fun character and a good fundraiser, but he doesn't have a pedigree as an investor. He became famous (and a billionaire) by taking Fortress public. Under his watch, it then went from $35 to down below $2. After he was demoted, he ran a macro fund there which performed awfully and, in 2015, it was shutdown and he was forced into "retirement".

[Alex3917]

I was in his office chatting with him a year and a half ago, on the exact day of June or whenever the market hit its bottom, and he called that that day was the bottom. He does things that don't always make a lot of sense to me, but he wouldn't be a billionaire if he wasn't getting a lot of stuff right also.

E.g. he also bought 500k worth of ETH and sold it for 250M. Paid his taxes, bought a new plane, and donated the rest to charity. His LPs might be nervous, but he's probably doing just fine.

[thesausageking]

Hard to verify what you're saying. June wasn't a bottom for ETH and the most he could've made with that trade was ~4x.

But even if you're right and he did make a great trade, that doesn't make him a genius. He's a gambler and sometimes gets a great hand.

He was super bullish on EOS before it tanked. He very publicly called a bottom[1] for BTC on Sept 13th when it was $6,300 and it's down by ~50% since.

[1] https://twitter.com/novogratz/status/1040288811643809798

[Alex3917]

Ahh I was thinking of July 16th, 1017. ETH went from over $400 in June down to $133 in July.

https://coinmarketcap.com/currencies/ethereum/historical-dat...

[gammateam]

> "Huge gains in production from Texas, California, and Oklahoma quickly eliminated the regional shortages of 1920 and induced a downward trend in bitcoin prices over the next decade, with bitcoin prices falling 40% between 1920 and 1926. The decline in demand associated with advent of the Great Depression in 1929 magnified the price impact of phenomenal new discoveries such as the gigantic East Texas field which began production in 1930. By 1931, the price of bitcoin had dropped an additional 66% from its value in 1926."

paraphrased from https://econweb.ucsd.edu/~jhamilto/oil_history.pdf

Passive retail traders were never in commodities trading. Retail trades stocks. Retail has been trading digital assets like penny stocks. GTFO of the digital commodities market if you don't swing trade supply and demand or actually use it.

[JohnJamesRambo]

I keep rereading this comment, trying to understand what you are trying to say.

[gammateam]

Commodities are volatile and seasonal

Bitcoin is a commodity steered by the same level of supply and demand pressures but held to a higher fictional standard by people that trade and evaluate it like a different asset class (equities)

[tim333]

It's not really a commodity like oil. I feel The Onion was closer in calling it "crazy imaginary internet money" https://www.theonion.com/bitcoin-plunge-reveals-possible-vul...

[gammateam]

Why isnt it also a commodity like oil? it is the fuel for its blockchain. You cant use that public resource without it. It is built to plunge and surge just like oil prices do, based on supply and demand, which also comes in seasons just like oil.

Most commodities have seasonal patterns. Bitcoin trades like those.

It isnt controversial when a conmodity plunges and surges. Its actually better for different parts of the population at different times.