Comments on: A Hedge Fund That Returned 80% in 2008 http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/ A personal finance blog written by Preet Banerjee Sat, 11 Feb 2012 16:22:10 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Labour Day Beaches and Air Show – LinkStuff – Sept 6 http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4063 Labour Day Beaches and Air Show – LinkStuff – Sept 6 Fri, 02 Oct 2009 01:43:54 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4063 [...] talks about a hedge fund that returned 80% last year.  And it wasn’t run by Bernie [...] [...] talks about a hedge fund that returned 80% last year.  And it wasn’t run by Bernie [...]

]]> By: Labour Day Beaches and Air Show – LinkStuff – Sept 6 « Daily News http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4062 Labour Day Beaches and Air Show – LinkStuff – Sept 6 « Daily News Sat, 19 Sep 2009 19:58:54 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4062 [...] talks about a hedge fund that returned 80% last year.  And it wasn’t run by Bernie [...] [...] talks about a hedge fund that returned 80% last year.  And it wasn’t run by Bernie [...]

]]> By: Preet http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4061 Preet Wed, 02 Sep 2009 14:55:59 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4061 @Ink Stained Gorilla - you can put me in that camp too. @Ink Stained Gorilla – you can put me in that camp too.

]]> By: Ink-stained gorilla http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4060 Ink-stained gorilla Wed, 02 Sep 2009 14:48:47 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4060 My general rule of thumb is if you can't understand how it derives its returns - no matter how brilliant - it's probably not the right investment for the majority of investors. It's certainly not for me. My general rule of thumb is if you can’t understand how it derives its returns – no matter how brilliant – it’s probably not the right investment for the majority of investors. It’s certainly not for me.

]]> By: Preet http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4059 Preet Wed, 02 Sep 2009 14:01:54 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4059 @Jordan - I'm not disagreeing with you, but in the interests of information, the other fund you are talking about (I think) is the REIC fund, which is an institutional fund designed to have a capacity of $100 billion - in order to do that they had to change the duration of the trades and some other parameters. So it's a different fund strategy - although, I believe it still outperformed the S&P500 by 4 to 6% or something (although still negative absolute performance). @Jordan – I’m not disagreeing with you, but in the interests of information, the other fund you are talking about (I think) is the REIC fund, which is an institutional fund designed to have a capacity of $100 billion – in order to do that they had to change the duration of the trades and some other parameters. So it’s a different fund strategy – although, I believe it still outperformed the S&P500 by 4 to 6% or something (although still negative absolute performance).

]]> By: Jordan http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4058 Jordan Wed, 02 Sep 2009 09:01:19 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4058 Even with 80 Ph.D's it can't all be roses, according to a NYPost article last year one of their other funds went from $28b the previous year to $15b. At least when your investment is nearly cut in half the managers don't get their 44% bonus :P According to Wikipedia the Medallion fund doesn't even invest in common stock, it's in commodities futures, currency swaps and bonds. I'll make a wild guess that their ~70% gross returns must use a huge amount of leverage. If the computer algorithm gets it wrong or high volume trading is further vilified for taking advantage of other investors things could get nasty. Even with 80 Ph.D’s it can’t all be roses, according to a NYPost article last year one of their other funds went from $28b the previous year to $15b. At least when your investment is nearly cut in half the managers don’t get their 44% bonus :P

According to Wikipedia the Medallion fund doesn’t even invest in common stock, it’s in commodities futures, currency swaps and bonds. I’ll make a wild guess that their ~70% gross returns must use a huge amount of leverage. If the computer algorithm gets it wrong or high volume trading is further vilified for taking advantage of other investors things could get nasty.

]]> By: Preet http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4057 Preet Wed, 02 Sep 2009 01:48:27 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4057 @Jordan - I agree with your conclusion, however note he has managed a compounded return of over 35% since 1989. I'm not against active management, and I think that if someone could understand why exactly this fund has had such a spectacular return then they may want to consider learning (if they were allowed to invest), because they should understand the risks and if they want to invest so be it. Of course, with 80 Ph.D's behind the strategy, chances are not many people would have the ability to understand it - so therefore your original conclusion stands - they would be solely performance chasing. It is quite possible that whatever they are exploiting adapts to their strategies going forward (and thus nullifying their advantage). Who knows. I wouldn't be surprised if he kept pumping out incredible numbers, and I wouldn't be surprised if he didn't. @Jordan – I agree with your conclusion, however note he has managed a compounded return of over 35% since 1989. I’m not against active management, and I think that if someone could understand why exactly this fund has had such a spectacular return then they may want to consider learning (if they were allowed to invest), because they should understand the risks and if they want to invest so be it. Of course, with 80 Ph.D’s behind the strategy, chances are not many people would have the ability to understand it – so therefore your original conclusion stands – they would be solely performance chasing. It is quite possible that whatever they are exploiting adapts to their strategies going forward (and thus nullifying their advantage). Who knows. I wouldn’t be surprised if he kept pumping out incredible numbers, and I wouldn’t be surprised if he didn’t.

]]> By: Jordan http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4056 Jordan Tue, 01 Sep 2009 23:36:12 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4056 I think this is a pretty good test to see what kind of an investor you are. It's dangling a huge carrot on a stick in front of your face. If you read this and your first response is "Damn I need to be making 80%/year, how can I invest?" I think you should be cautious with yourself, 2 years of great performance is awesome, and we all wish we had been there. But the past is the past, and trying to get in on the latest and greatest investment is risky. That one investment was just 1 out of 50,000 possible choices, your odds of getting it right are slim. I bet you've got better odds picking the fund that lost 80% each year. Personally when I read this I think it's more akin to winning the lotto. I wouldn't go buy lotto tickets because I saw someone else picked the winner last night. Slow and steady win the race for the average personal investor I think. I think this is a pretty good test to see what kind of an investor you are. It’s dangling a huge carrot on a stick in front of your face. If you read this and your first response is “Damn I need to be making 80%/year, how can I invest?” I think you should be cautious with yourself, 2 years of great performance is awesome, and we all wish we had been there. But the past is the past, and trying to get in on the latest and greatest investment is risky. That one investment was just 1 out of 50,000 possible choices, your odds of getting it right are slim. I bet you’ve got better odds picking the fund that lost 80% each year.

Personally when I read this I think it’s more akin to winning the lotto. I wouldn’t go buy lotto tickets because I saw someone else picked the winner last night.

Slow and steady win the race for the average personal investor I think.

]]> By: Preet http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4055 Preet Tue, 01 Sep 2009 14:05:39 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4055 Of the 200 people involved in running the fund (including research), over 80 of them have Ph.D's - mostly in math. The Medallion Fund basically looks at arbitrage across multiple markets and instruments (stocks, options, futures, etc.), high-frequency trading and using mathematical models to determine what price movements are not random and exploiting them. That's my understanding anyways. It's very secretive. Of the 200 people involved in running the fund (including research), over 80 of them have Ph.D’s – mostly in math. The Medallion Fund basically looks at arbitrage across multiple markets and instruments (stocks, options, futures, etc.), high-frequency trading and using mathematical models to determine what price movements are not random and exploiting them. That’s my understanding anyways. It’s very secretive.

]]> By: Brian http://wheredoesallmymoneygo.com/a-hedge-fund-that-returned-80-in-2008/#comment-4054 Brian Tue, 01 Sep 2009 13:53:33 +0000 http://www.wheredoesallmymoneygo.com/?p=1230#comment-4054 Apparently the the company uses complex computer-based mathematical models. Quite impressive none the less. http://www.traderslog.com/jimsimons.htm Apparently the the company uses complex computer-based mathematical models. Quite impressive none the less.

http://www.traderslog.com/jimsimons.htm

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