How do you justify active management?
Put pods aside because they are market neutral. but serious question. SPY and QQQ go up 20-30% a year with no risk, high sharpe ratio, with huge exposure to themes like AI/Magnificent 7/Nvidia/Smci which go up 50-200% (lol) a year.
meanwhile individual stocks are very volatile, go up and down 5-10% a week with earnings/valuation risk (e.g. stocks -30% on earnings). even many stocks that beat they go down because rates are moving up, which the AI stocks are immune to because of their high cash balance and AI helps productivity.
How does an active manager justify its existence picking "growth/value" or "quality" stocks when the average retail investor can get way better returns outside of it?
I am referring not just to LO/SM HF, but also to PE - none of these PE firms have returns close to the QQQ and way less exposure to AI.
would argue NOT investing in Nvidia, or the index today is "risky" because it is sucking liquidity from other parts of the system, so you are underperforming twice (not invested in nvidia, then your assets are deprecating because nvidia is taking economics from it)
Obviously it makes it harder for funds (market neutral ones included) to get money when risk free is at 5% and equity rally 20%+
However, in your sentences "no risk" and "high Sharpe" are false
2022 was the most recent down year, equity drawdowns are very frequent and can be massive.
Compute yourself the S&P500 Sharpe and you will see that it is under 1, so it is not a good Sharpe.
You also forget that retail are not the main investors in funds, either long only or HF and even less in PE.
Investors are pension funds, sovereign funds, and they have already S&P/Nasdaq ETFs don't worry for them. They will simply never put 100% on this so to diversify they invest elsewhere too.
You've really been upping your trolling efforts. From "PE has no volatility and the earnings are super stable", to the "investment principles" which was just momentum chasing and a quote or two from the OG stock market wizards book... to this post.
But you are def right - you should quit finance altogether, and lever 100p of your PA into NVDA call options. Doesn't make sense to spend time doing much else. QQQ, while 100p risk free, will make you underperform twice, as you miss the opportunity to invest everything into NVDA. I know you said you were worried about single stock volatility, but NVDA has a high cash balance and benefits from AI's productivity, so even if rates go up or the economy takes a turn, the returns should still be pretty rock solid. PE returns, despite being super stable, will miss out because they can't invest in NVDA.
If things turn though, just remember, losers average losers.
not trolling. the investment principles have been 100% correct - look at how NVDA etc have done recently compared to all these small caps that are "cheap" lol. I'm just telling it like it is - easier to follow narrative/momentum than to fight trend with some random turnaround stock that HFs love
lol I've seen ppl like this before. Anyone who talks like this will eventually be humbled by the market. Probably young and has not seen enough drawdowns in their days. Not a matter of if, it's when. "“When a man with money meets a man with experience, the man with experience leaves with money and the man with money leaves with experience.”
Market neutral funds that hedge with Nasdaq or S&P500 by definition beat the markets. If I buy x stock and sell NQ/ES against it then my fund is only profitable if I by definition beat the market.
Sure you may want that long/naked exposure to Nasdaq, but the people who lost 90% of their “risk free” Nasdaq investment during the dot com bubble burst would probably prefer some active manager who doesn’t have exposure to the broad market and prefer a market neutral strategy that will make money regardless whether the market is up or down.
No need to justify it to anyone other than the LP whom is voluntarily exchanging services for fees
If the kids on WSO or the buzzfeed opinion blogger doesn’t understand that general goals or purpose or measurement of an alternatives product, that’s fine
LPs have money and they objectively have to invest it somewhere. HFs provide returns on lower volatility than SPX so they are able to better match expenses. For instance think of a college Endowment, if they are 100% invested in SPX and it goes down 50% again, they would have to make massive layoffs to teachers and administrators.
Also if you are able to find the right manager you can make exponentially better returns, a 15% return in 30 years is 3x a 10% return annualized
I stopped reading at 'SPY and QQQ go up 20-30% a year with NO RISK'. Seriously?
I myself think that the average investor should not invest in active management, but the market portfolio is far from having no risk. I suggest reading a finance textbook
Have you ever actually calculated the Sharpe for SPX? I have and in no way shape or form would I call it “high”.
Following up. Shocker, momentum and NVDA and QQQ/TQQQ/MTUM are up another like 15% while “value” turnaround names suck again. Why do people fight my principles?
Then why are you here and not 100x leveraged on NVDA calls and retiring at 16 (which is, I assume, how old you are) in your beach house on your own private island since clearly you understand markets better than everyone else?
This is just insanely incorrect it's not even funny.
[mixed up the name for ProShares UltraPro QQQ w/ the ticker TQQQ, but neither of these ETFs are risk free]
I thought only TQQQ was leveraged? Not QQQ
You're correct and I'm wrong, I was thinking of the name - ProShares UltraPro QQQ - and got the ticker mixed up. TQQQ is the leveraged one. QQQ is still hardly "risk free" and it's more concentrated than SPY.
Bump. Guess QQQ AAPL NVDA are up 10% in a week again. How are your differentiated “value” or “idio” picks doing?
Another week and you're bumping again because you're a coward and didn't full port into NVDA 0DTE options... in frustration, you felt it necessary to "prove" something on anon message board? Congratulations
The beauty of the markets (+ careers + life in general) is that you can do anything you want. For this specific part of life, making money is the goal. If you find a way to end up richer than the rest, great. "Proving" your work added value is a futile endeavor. This industry is already built on middle men. Go ahead and rip out your hair over whether Fidelity or Wellington's active funds are worth the expense ratio... meanwhile the tenured PMs are sipping beers in Nantucket. Its all a game... and its always been this way. WGAF.
So either go full passive into TQQQ for the next 10 years, or STFU
shocker, another great day for QQQ/NVDA and crap day for "differentiated" but cheap stocks!
How is your portfolio doing bud? ISNT IT SO SIMPLE RIGHT??????????????
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