Category Archives: investing

No Bloomberg, Paul Tudor Jones doesn’t really believe markets will “tank” if Elizabeth Warren is elected.

What does one even begin to make of this?

With all respect to Katia Porzecanski, who is just doing her job, this could not be more wrong. Just as it was wrong to write it when Leon Cooperman said something similar last month. The noise you hear isn’t a market prediction, it is a couple of old blowhards flapping their jaws as if they were in the steam room at the country club trying to get reactions from the other members. Reporters would be wise to ignore.

These guys have trading in their blood. And traders dream of 25% price moves. If Cooperman or Paul Tudor Jones really thought the market would move 25% on a Warren presidency, they’d position their portfolios accordingly and spend every waking hour of the next year getting Warren elected. It is who they are.

Even if you don’t believe me, you should know this sort of dramatic, over-the-top pontification is malarkey. Just as it was less than three years ago when it was said that a win by the current White House occupant was going to cause the markets to plunge. Try as Trump has over the last few years, and damnit it does appear he is trying, the markets are hanging in there pretty well.

The reason is simple: It’s really hard to forecast future price movement. Especially over the short-term. I’ll confidently tell you that over 30 or 40 years the S&P 500 will appreciate significantly. But if I, or Leon Cooperman or Paul Tudor Jones or Warren Buffett or anyone tries to tell you what is going to happen in the next year or 18 months, or what will happen in response to some other event, run away and cover your ears. And the more specific the prediction is, say 25%, for example, the faster you should run.

(Warren Buffett to his credit tries to avoid these sorts of predictions for exactly these reasons.)

The truth is always more complicated than the soundbite. Even if Warren is elected and decides she does want to go pure pinko Venezuela socialism on day one bureaucracy, the courts, gridlock in Congress (including many from her own party) and a million other things will prevent that from happening. And whatever she does want to do, businesses will adjust to it, just as they have attempted to adjust to the current occupant of the White House.

Paul Tudor Jones, Leon Cooperman, and the rest of the gang know that investing is hard. They count on it being hard. That’s how they can justify charging insane investment fees. They know better than anyone that BS predictions like the headline above are, well, BS. Don’t fall for it.

No, CNBC, hedge funds didn’t just beat the S&P 500 for the first time in a decade

Saw this clickbait today…

I’ll save you a click: The article says that a weighted composite average of hedge funds posted a -4.07% return in 2018. That’s 31 basis points better than the S&P 500 with dividends, which returns -4.38%. It’s the first time since 2008 that the hedge fund index beat the S&P 500. Hence the headline.

But wait… That doesn’t mean investors who own the hedge fund index, if that is even possible, would have come out ahead of investors in an S&P 500 index fund. To figure that out, you have to know the expenses. And while we don’t know the exact pound of flesh each of these hedgies extract from their investors, I’m willing to go out on a limb and say the total is far higher than the 0.04% expense ratio that the Vanguard S&P 500 Index carries. I’d even go so far to bet that the difference is more than 31 basis points. If so, the hedge funds might have won, but the hedge fund investors still lost.

But wait, it’s actually worse for the hedge funds than it appears. Investing isn’t just about one random 365 day period. It’s about a lifetime.

Using the handy 11-year graphic comparing returns tweeted by CNBC’s Leslie Picker…

over the last decade plus one year — so even counting the last two years hedge funds actually won — the S&P 500 index has outperformed the hedge funds by a combined 66.24%! So congrats, hedge fund investors. Even if fees are included in the index and you are 0.31% richer than the alternative this year, you are still down HUGE over the last decade.

The best financial advice to come out of this is one simple point: Don’t base your asset allocation solely on what you hear, or read, on CNBC.