Can Funds Outperform the Market?

[SIUYA 11]

After a few recent discussions about funds, out performance, random markets and efficient markets, rather than bog other threads down with diversions, maybe this thread could deal with the question.

Can funds outperform the market?

 

a few helpful starter packs....

 

http://www.hedgefundprofiler.com/Documents/154.pdf

http://perspectives.pictet.com/wp-content/uploads/2011/01/Trading-Strategies-Final.pdf

http://www.scribd.com/doc/31824474/Performance-and-Persistence-of-CTAs-Parametric-Evidence

http://www.turtletrader.com/GL-SwissHedge.pdf

http://www.intercontilimited.com/mfutsarchive/perf_persistance_in_alternate_invest.pdf

 

I quite like the last one....but I think the conclusion will be inconclusive!

Edited December 4, 2011 by SIUYA

[Adrian 10]

Some nice references SIUYA, but why start up the same thread again when it was already answered in the prior thread? You know you will never convince the people who don't want to know or those who don't wish to admit to reality. You only open yourself up to people who will come in and criticise ther evidence without any real evidence. For traders who are experienced and profitable, well they already know the answer. It is obvious quite frankly. There are many people in the funds management business though (just like any business) who really do not understand what they are doing. Some get lucky occasionally, but mostly end up failing over time. To determine which are which though involves watching their performance numbers through a full market/commodity cycle or even longer.

[MightyMouse 12]

Siuya,

 

The research you have posted points to either under-performance or inconsistent performance. Most of the links explore other facets such as hf vs cta vs fohf comparisons, fees, a managers ability to duplicate performance, etc, and only casually examine whether a fund out performs the asset class they trade. Under-performance makes sense too since trading is a combination of anticipatory and reactionary actions and frequently, the reactions are late, and what is anticipated frequently does not happen.

 

You ask: what are we doing here then?" in the joke of the day thread I posted a joke:

 

Two lawyers are walking through the woods and they hear the roar of a lion. Lawyer #1 starts running and stops when he sees that #2 is sitting on the ground. Frantic, #1 says to #2, "What are you doing?" #1 calmly replies" I am putting my running shoes on." #1 then says," what are you crazy? you can't outrun a lion!" While tying his last shoelace, #2 looks at #1 and says" I don't have to outrun the lion. All I have to do is outrun you."

 

Similarly in trading, when we take money from the market we take it from other traders. I focus on where I expect other traders to be willing to lose money and if they are there on a particular day to take money from them. If there aren't traders there who are willing to lose, then I am out of luck if I try to take money from them. Generally and personally, I make the most money when weak traders are stubborn and stuck short or stubborn and stuck long. There are certainly days when I do beat the market, but for me, beating the market is a windfall profit and not a goal. I care less about the market, sentiment, etc and more about the current direction and the potential for order flow to continue in that direction. All that should matter to a trader is that he can take money from other traders and not if they can beat the market.

 

As a trader, one needs to determine if that money that he can make is enough to warrant trading for a living or if he would be better off giving his money to someone else to trade, etc, etc. All of which are personal decisions.

 

We see a lot of traders consuming their efforts with trying to determine tomorrows newspaper. I am focused on where these guys will be willing to cough up their cookies when they are wrong.

 

The research that implies consistent out performance of the market is generally industry propaganda. Lots of people fall for it.

 

MM

[SIUYA 11]

Some nice references SIUYA, but why start up the same thread again when it was already answered in the prior thread? You know you will never convince the people who don't want to know or those who don't wish to admit to reality. You only open yourself up to people who will come in and criticise ther evidence without any real evidence. For traders who are experienced and profitable, well they already know the answer. It is obvious quite frankly. There are many people in the funds management business though (just like any business) who really do not understand what they are doing. Some get lucky occasionally, but mostly end up failing over time. To determine which are which though involves watching their performance numbers through a full market/commodity cycle or even longer.

 

I think you will find...regardless of your thoughts on others peoples mental capacities....it was not answered....plus it is a different question as to if markets are random. That is all.

Discussions are discussions....if they are --" I am right you're an idiot end of story".....then despite your 30 yrs in the industry you have not learnt a thing

[Adrian 10]

@SIUYA? Are you going off the rails as well? What on earth are you on about when referring to other peoples mental capcities? Are you taking your own thread off topic already? LOL I thought you created this thread to discuss the same topic that was discussed in the prior thread? And people wonder why they have difficulty making money in the markets LOL. I'm sorry you feel the question as to whether markets are non-random wasn't answered in the other thread, but in fact it was, and extremely clearly to those who chose to keep an open mind and read what was written, rather than all the other smoke and mirror posts by people.

If this thread is 'Can funds outperform the market" then yes, with 100%+ certainty. I can name hundred of funds that out perform the markets, both short term, medium term and long term. Any markets. Although strictly speaking I have no idea which markets you are referring to as there are literally tens of thousands of them out there. May I suggest you reask your question but in a more defined manner, as clearly the answer is rather absurdly obvious. Just as there are many funds that underperform the 'markets'. So what? I'm sure you have a higher goal in asking such a question. But unless you tell us then, there really is nothing to discuss, as your thread question was just answered.

[SIUYA 11]

Siuya,

 

The research you have posted points to either under-performance or inconsistent performance. Most of the links explore other facets such as hf vs cta vs fohf comparisons, fees, a managers ability to duplicate performance, etc, and only casually examine whether a fund out performs the asset class they trade. ..............

The research that implies consistent out performance of the market is generally industry propaganda. Lots of people fall for it.

 

I agree thats why they are an example for discussion .....point being that so far these seem to be the only ones offered as studies for either argument. Can you furnish a published study that shows one way or the other?

particularly one that backs your point of view? Same for Adrian...

 

well then lets see the proof......and equally so, not just some "academic Propaganda"

 

You ask: what are we doing here then?....

 

As a trader, one needs to determine if that money that he can make is enough to warrant trading for a living or if he would be better off giving his money to someone else to trade, etc, etc. All of which are personal decisions.

 

MM

 

I can agree with aspects of this, but the question is still the same.

If you cant/no one can beat the markets on a consistent basis - why trade?

Even with your thoughts of just beating others, you may as well just borrow and invest in the market.....

[MightyMouse 12]

 

I can agree with aspects of this, but the question is still the same.

If you cant/no one can beat the markets on a consistent basis - why trade?

Even with your thoughts of just beating others, you may as well just borrow and invest in the market.....

 

I am not suggesting that no one can make money trading or that no one can beat the market. I am certain that there are people who can beat the market, and I am certain that we all can't beat the market. I personally do fine with the amount of risk I am willing to take. Buy and hold, for someone like myself is far too risky even if in the long run I would, possibly, be better off.

 

What happens in the long run, may or may not correlate with what the market does during the period of my lifetime or yours.

[SIUYA 11]

@SIUYA? Are you going off the rails as well? What on earth are you on about when referring to other peoples mental capcities? Are you taking your own thread off topic already? LOL I thought you created this thread to discuss the same topic that was discussed in the prior thread? And people wonder why they have difficulty making money in the markets LOL. I'm sorry you feel the question as to whether markets are non-random wasn't answered in the other thread, but in fact it was, and extremely clearly to those who chose to keep an open mind and read what was written, rather than all the other smoke and mirror posts by people.

If this thread is 'Can funds outperform the market" then yes, with 100%+ certainty. I can name hundred of funds that out perform the markets, both short term, medium term and long term. Any markets. Although strictly speaking I have no idea which markets you are referring to as there are literally tens of thousands of them out there. May I suggest you reask your question but in a more defined manner, as clearly the answer is rather absurdly obvious. Just as there are many funds that underperform the 'markets'. So what? I'm sure you have a higher goal in asking such a question. But unless you tell us then, there really is nothing to discuss, as your thread question was just answered.

 

no not off the rails...it was a dig (that you obviously missed ) at your " You only open yourself up to people who will come in and criticise ther evidence without any real evidence."....dont sweat it

 

and you are right....the question is too open ended. My bad.

Yes there are funds that do outperform, yes there are those that under perform - what ever market you wish to decide and what ever benchmark and what ever time frame you choose.

 

However.....just because you can find some funds that beat the market for a period of time.

the question should be.....

 

Do you have evidence that over the long run that most funds will NOT revert

back to the mean return for whatever markets they trade - as claimed by MM?

 

So far, we seem to have academia and often many institutional investors suggesting they cant - and hence why pay the fees to funds managers, while on the other side you have as MM calls it the hedge fund "propaganda" telling us that active management is not worth it.....

So clearly in the minds of many it is not resolved. ....you might believe in the flying spagetti monster but It would be interesting for any of those actually talking about this to present some evidence backing themselves....and not claims of I have found someone who can/cannot over this so and so period....so therefore I am right.....now thats not a discussion. That a sales pitch.

 

I dont think that markets are random.....but I am not so sure (not 100% convinced) whether or not most active funds can and will outperform the markets they trade in over the long run, or if they will revert to the mean of their markets.

(If you think this is definitively answered then you clearly have zero idea of one of the major debates continually raging in the managed funds area.....its also probably not that relevant to many in a day trading thread, but given people have brought it up)

[SIUYA 11]

fyi......a fluff piece maybe

 

Hedge funds propped up by underfunded pensions - Dec. 5, 2011

[MightyMouse 12]

fyi......a fluff piece maybe

 

Hedge funds propped up by underfunded pensions - Dec. 5, 2011

 

The article makes sense since pension funds are frequently not equipped with staff to take invest in high risk, high leverage, high return investments. The easiest way to do so is to pay someone else with the know how. In spite of their under-funded-ness, they have a lot of money.

 

I do not doubt that a CNN reporter misinterpreted data and wrote an article by a deadline.

[SIUYA 11]

The financial times in the UK.

Has a great supplement every Monday called FTfm about the funds management business.

This Monday the 5th Dec.....

front page... "Active Managers spark row", plus there is another article talking about "innovation", imho topical given why many just benchmark....its is safer.

 

FT.com / FTfm / Current Issue

[MightyMouse 12]

This is the bernanke speech transcript from 2004 when he takes takes credit for the "great moderation".

 

It is such an awesome display or both arrogance and, subsequently, ignorance.

 

FRB: Speech, Bernanke--The Great Moderation--February 20, 2004

[TEAMTRADER 10]

Of course Funds cannot outperform the market - it is the people 'behind' these funds. Funds rely on people with good technical and fundamental abilities.

Fundamentals rely on people telling and writing the truth. Technicals rely on people understanding the indicators.

People are the key, good people, dedicated people and reliable people.

Chose your people with care, not the Fund.

TEAMTRADER

'Trade what you see and not what you hear or Hope'

[Kojak 10]

I think there is a theoretcal answer and an emperical answer. Or let me put it this way: The emperical question would be : Do Funds (on an average) out perform the market ? And the categorocal answer is : They do not. On an average Funds under perform the market. Always.

 

The theoretical question is -which is the one that Siyua poses is: Can Funds (ever?) out perform the market ?. Then the answer is now a categorical: Yes, some funds have been out performing the market. And a few do it consistently. Like some hedge funds and some quant funds. The first quant fund that comes to my mind is the Rennaissance Fund

 

See this quote:Renaissance's leading fund has returned 35%, after fees, since 1989. And D.E. Shaw & Corp., the brainchild of ex-Columbia University computer science professor David E. Shaw, with $23 billion in capital, has netted investors 21% a year for 17 years, without a single losing 12-month stretch. . That was till 2006. 2008 they hit a bad patch, but still it is still spectacular. Thare are quite a few like this -some extremely secretive.

 

The reality is that funds management is getting extremely sophisticated and skewed with long tails. A significant aportion of the extreme portion of the "positive" tail is actually invisible to us.

 

Jose Kollamkulam,

Chennai, India

 

After a few recent discussions about funds, out performance, random markets and efficient markets, rather than bog other threads down with diversions, maybe this thread could deal with the question.

Can funds outperform the market?

 

a few helpful starter packs....

 

http://www.hedgefundprofiler.com/Documents/154.pdf

http://perspectives.pictet.com/wp-content/uploads/2011/01/Trading-Strategies-Final.pdf

Performance and Persistence of CTAs-Parametric Evidence

http://www.turtletrader.com/GL-SwissHedge.pdf

http://www.intercontilimited.com/mfutsarchive/perf_persistance_in_alternate_invest.pdf

 

I quite like the last one....but I think the conclusion will be inconclusive!