

What SAT Scores Say About Your Hedge Fund - robg
http://www.nytimes.com/2007/09/09/business/yourmoney/09stra.html?ex=1346990400&en=23f822b1020865e1&ei=5090&partner=rssuserland&emc=rss

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DocSavage
The Times article didn't mention the other characteristics tested by the
study:

"We first construct probably the most comprehensive dataset on manager
characteristics based on more than 4,000 hedge funds covered by TASS between
1994 and 2003.4 The dataset covers a wide range of information on personal,
educational, and professional backgrounds of managers of most hedge funds.
Specifically, we collect information on the following six characteristics of
the lead manager of each fund if such information is available: the manager's
age (AGE), the total number of years of working (WORK), the number of years of
working at the specific hedge fund (TENURE), the composite SAT score for the
manager's undergraduate institute (SAT), whether the manager has a CPA or CFA,
and whether the manager has an MBA degree. Broadly speaking, the six
characteristics can be divided into two groups: SAT, CFA/CPA and MBA dummies
represent intelligence and education;5 AGE, WORK, and TENURE could represent
working experience and career concern."

Their conclusions:

"Specifically, we find that managers from higher-SAT institutes tend to take
less risks (measured by either overall return volatility or loadings of hedge
fund returns on systematic risk factors) and have higher raw and risk-adjusted
returns. On the other hand, we find that managers with longer years of working
tend to have lower raw and risk-adjusted returns and take less risks. We also
find that younger and better-educated managers tend to attract more capital
inflows. These results are very robust to the different risk-adjustment
benchmarks, sample periods, and types of funds (funds of funds vs. regular
hedge funds) we consider."

The way they constructed their database raises some red flags for me: "Out of
the 4,000 funds covered by TASS, we are able to identify most of the
characteristics of the lead manager for 1,002 funds."

I wonder about biases introduced by the rejection of 3/4 of the funds due to
insufficient data. Did managers of successful funds tend to preferentially
withhold information, e.g. not mentioning a non-"elite" education if they
wanted to emphasize just the results of their funds?

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Alex3917
"managers from higher-SAT institutes tend to take less risks"

This makes sense considering the index massively outperforms the median
hedgefund. This seems like another case of the NYTimes spreading FUD.

~~~
pc
FUD != incorrect information. It refers to misinformation intentionally spread
for competitive advantage.

~~~
Alex3917
I'm sure it's an accident that the "incorrect information" just happens to
coincide with the paper's support for the schooling status quo.

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Alex3917
Those considering using this finding as a basis for investment might also
consider Kedrosky's research comparing the golf handicap of CEOs with the
company returns to shareholder:

<http://paul.kedrosky.com/archives/000639.html>

/sarcasm

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steve
downvoted. well, if I could.

~~~
comatose_kid
Yeah, I think the recent quality of submissions to the site have suffered - at
least if you measure them against the name of the site - 'Hacker News'. It
seems that voting by itself doesn't weed out non-topical stuff.

Perhaps this could be fixed by asking the submitter to reconsider if the link
they are about to submit really has anything to do with hacking or
entrepreneurship.

~~~
Alex3917
The problem is that too much of the stuff that gets submitted is "content."
Good writers don't refer to their writing as content. Why? Good writing
expresses ideas, and no one refers to their ideas as content. You'd never hear
pg referring to his essays as content, which is probably why they're so
popular.

It's actually kind of funny. You'd think there would be lots of intelligent
people who had interesting ideas and wrote them down, but really there aren't.

~~~
steve
> You'd think there would be lots of intelligent people who had interesting
> ideas and wrote them down, but really there aren't.

There are a couple interesting problems here. What there is no lack of is
intelligent people with ideas that they never share.

~~~
pg
Maybe more accurate to say there are a lot of intelligent people with half-
formed ideas they never fully explore by writing them down. Writing is not
like hitting print.

~~~
Alex3917
Certainly part of the problem is the time barrier. IIRC Guy Kawasaki said he
averages seven hours per post. It's about the same for me for my posts that
have made techmeme or reddit. I'd love to sit down and blog something about
the social policy implications of pygmalion effect or whatever but it's hard
justify blowing off an entire day more than a couple times a month.

The other problem though is that there is very little theory surrounding what
actually makes something insightful, informative, interesting, etc. There are
hundreds of books or grammar and style, but try looking for a book on
insightfulness. Google turns up literally zero useful results. If there were a
book like Strunk/White but on substance, not style, it would greatly
ameliorate the problem. I've been working on the problem for a while now
myself, not from the perspective of a great writer but rather from the
perspective of someone who knows what creates value for him as a reader. The
problem is before you publish something like that it kind of has to be
perfect.

