What’s a hedge fund? It’s not an asset class, it’s a compensation scheme.
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Having a mutual fund management company is like having a toll booth on the George Washington bridge all for yourself.
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One of the astute things I was taught is that on average, the average investor does average before fees, and below average after fees.
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Passive management does not give investors the return of the index; it gives them the return of the index less costs. So, the longer they have their money passively managed, the greater their underperformance will be relative to the index.
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Beating the market averages, after paying substantial costs and fees, is an against-the-odds game; yet a few people can do it, particularly those who view it as a game full of craziness with an occasional mispriced something or other.
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Speculation is a loser’s game. Because of the costs, it has to be a loser’s game.
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If your preference is managed funds, you want a managed fund that, one might put it, is like a sailboat fighting not a typhoon of costs but only a breeze.
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I’ve often said that the efficient market hypothesis, or EMH, has a lot of truth to it, but the CMH — or “cost matters hypothesis” — is eternally truthful to the last penny.
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On average, the average large-stock fund manager produces average returns before fees and below-average returns after fees. So compared with after-fee returns, an index fund is superior.
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If all that can be promised is an average result, how can managers expect to be paid large fees for providing that average result?
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