So umm, those friends of mine who read this: Please dont schedule anything early on Friday.
Will a collection of hedge funds, carefully selected by experts, return more to investors over the next 10 years than the S&P 500?
That question is now the subject of a bet between Warren Buffett, the CEO of Berkshire Hathaway, and Protégé Partners LLC, a New York City money management firm that runs funds of hedge funds - in other words, a firm whose existence rests on its ability to put its clients' money into the best hedge funds and keep it out of the underperformers.
You can guess which party is taking which side.
Protégé has placed its bet on five funds of hedge funds - specifically, the averaged returns that those vehicles deliver net of all fees, costs, and expenses.
On the other side, Buffett, who has long argued that the fees that such "helpers" as hedge funds and funds of funds command are onerous and to be avoided has bet that the returns from a low-cost S&P 500 index fund sold by Vanguard will beat the results delivered by the five funds that Protégé has selected.
Here is a quick and dirty assessment. I used constant annualized returns over 10 years and the article's cost figures. Yes, there are bad assumptions here like constant returns, but excel has its limitations, so accept this as a rough guide.
it goes without saying that in a long term bear market (around 0% growth) the index fund beats the hedge fund
If the market returns 2% and the hedge returns 5%, the market wins. (150 diff%)
If the market returns 6% and the hedge returns 10%, the market wins. (66 diff%)
If the market returns 10% and the hedge returns 15%, the market wins. (50 diff%)
If the hedge can return 20%, it wins, unless the market returns 14%
Since market returns between 2-10% are most likely, I listed those results. The hedge funds must beat the market by around 66% percent of the market return to win the bet. In the time period prior that Protege and Buffett looked at, the market returned 64% while the hedge fund gained 95%. This is for a net rate of 48% greater for the hedge fund.
The bet would appear to slightly favor Buffett given a down market to start off the betting years. In down markets, index funds retain larger shares of their capital due to lower fees than hedge funds (which on average lose more as their fees are higher and most funds do not beat the market in any particular year, noting exception which Prodigy may be in the future, but who knows?
So who's going to win the bet?
If you're looking for a budget / savings planner software out there, you can buy it in a store for about 50 dollars, or you can find a free service online. The two best free services are Motley Fool's Mint or Yodlee's Moneycenter . I've used both, and I'd say that they each have their strengths.
Mint is much more useful for tracking spending habits, identifying where you really spend your money, and where you can cut back. I think its useful for folks without mortgages and post-tax investment funds. Moneycenter, on the other hand, is really comprehensive, and gives a much better picture of total net worth including mortgages, stocks, bonds, etc. However, its MUCH more difficult to set up, and its spending reports are not up the quality of Mint's.
In more worldly news, our garden is now having blueberries and blackberries budding, and the vegetable plants are finally over a foot tall. I was worried I was going to miss the growing season. I guess it is hot enough now.
This will likely be xposted at GetRichSlowly.Org next week. I'm interviewing David Gardner, founder of the Motley Fool, tomorrow. I'm also going to be talking to some Urban/Regional Economists next week
Thoughts on the Motley Fool Focus Group
Curiously, the Fool has an open position for a freelance writer / analyst. It would be a waste of an opportunity to not throw my hat into that ring
The theft itself will cost us about 1000 when all is said and done between insurance and deductibles.
The cost, in terms of our sense of security, and our attempt to mitigate it with more security, will be more. I suppose its very easy to give into extra security when you feel really threatened. That feeling though, disipates over time, and then you're left with just alot of really big and annoying locks. But it's sure easy to justify at the time. I mean, I was halfway to the gunshop (figuratively) 30 minutes after finding out it was stolen.
Really, though, it was a random act of a stupid kid (who left prints). And no amount of security makes one safe from random events.
With my MA from GMU, I should get about 20 hours credit towards my degree (a cost savings of 20,000 dollars). Further, I there's a not very often used OPM program http://www.opm.gov/oca/PAY/StudentLoan/ that will fund up to 60K of student loan repayments provided I sign on for about 3 more years of service.
Since I have no intentions of leaving the Federal Government in the next 10 years, this is a boneheadly easy decision. When my Chief is back in the office on Monday I'll be talking to him about it. This was part of the deal we struck when I had an offer to be an senior economist elsewhere.
While G-Dub isn't a top economics school, for what I need it for it'll do just fine =-)
His annual reports and letters are an excellent read.
It's my goal next year to attend the meeting. I've got my B class shares, which means I can sit in, but I can't ask questions. One has to be an A class shareholder for that.
Then I sat outside and worked on my laptop. I had a few cold ones. Beautiful day, you just can't put a value on it.
Sunday afternoon, sitting outside, was time I used to check over our budget. It's probably a good thing to, every few months, see how we're doing on our finances. I still have a problem with eating out far too many times in a week. I'd like to get it down to 2 times a week, but right now I'm at 4-5. That's too much. We're really good about not eating out when we've been grocery shopping, but there's that period of a few days where your stocks are running low and nothing looks good...so you eat out. We need a better stock of staples to keep eating in during the grocery store avoidance stretches.
That's not to say we're not doing good. We knocked out over 15,000 extra off of our Home Equity Loan that built our addition in the past year. We had positive cashflow each month for the last 12, which can only bode well since we had a home addition project, a wedding, and a honeymoon to pay for. It even looks like our retirement accounts are back to where they were return wise pre-downturn. That's a nice sign.