[lbo-talk] hedge funds

Matt lbo4 at beyondzero.net
Thu Dec 20 06:09:04 PST 2007


On Tue, Dec 18, 2007 at 05:05:30PM -0800, Dennis Claxton wrote:


> So for a long time now playing the market has been presented as if
> anybody can do it. Since you have a better chance of becoming one of
> 600 odd major league baseball players than one of a far smaller
> number who can beat the market, isn't it a problem to let people
> think otherwise?
>
> You can say that people have to take some responsibility for being
> dupes, but what about turning down the hype?

Wait, hype about what? Who or what are we actually talking about?

I agree with Jordan's "So?". Doug's post stated that when lots of Hedge Funds were indexed, they didn't outperform the market as a whole. Isn't that a tautology? Correcting for fees, they (collectively) may or did underperform a fund that tracks the S&P500. Again - that's a tautology, no?

These Hedge Funds are pretty exclusive; aside from the occasional pension fund that invested in one, the "average" working-class investor (I am thinking of 401K contributors) isn't getting into them.

The "hype" we get at my place of employment is to contribute a certain percentage to get the company match - and that's about as much "free" money as one can hope for. If I put in 4% I get a 100% match, and on the next 4% another 50% match. I can leave that in a stable value fund that will underperform the S&P500 index but has no risk, and if I consider that extra 6% my return, it sure as hell beats a savings account. We aren't hyped to do that though, we are hyped to use one of the blended funds which adjust their risk/return approach as the retirement decade approaches (and are relatively conservative).

On the other hand, a slight majority of people do not contribute at all ("I don't want to lose my money like those people at Enron") or make decisions based on the equivalent of anti-hype: panic. A friend just moved tens of thousands of dollars out of a Money Market fund (stable value) into bonds (riskier, non-insured!) because he read the Money Market had some "mortgage backed securities" (prime borrowers of traditional 30 or 15 year fixed loans) and we are having a "mortgage crisis" (for sub-prime loans traded as CDOs)!

And to put this in context, salaried-exempt people in my age group (34) and younger have been forced to opt-out of the pension program so our 401K is basically all we get (from our employer). Still some don't (or can't) contribute.

Matt

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