
Buffett Assails Money-Manager Fees as Berkshire Reports Profit Rise - rottyguy
https://www.wsj.com/articles/warren-buffett-has-no-doubt-on-passive-bet-1488037970
======
dcposch
i worked at a startup called addepar for several years, making software for
asset managers.

addepar's a cool place, and i learned a ton there and made some good friends.

\--

that said, my overwhelming impression of asset managers is that most capture
more value than they add. fee-bearing mutual funds, family offices, financial
advisors, hedge funds: few are worth their fees.

hedge funds, with their standard two-and-twenty fee structure, are especially
bad. you could hardly design worse-aligned incentives, short of outright
betting against your own clients.

two-and-twenty means 2% of assets under management every year plus 20% of any
profit and 0% of any loss. why people agree to those terms is beyond me.

for example, running a strategy similar to a martingale, a negative-EV fallacy
when done in a casino, can be incredibly positive-EV when you're a hedge fund
manager. it produces streaks of above-market returns, where you keep doubling
your AUM and rake in the fees, for however long that lasts.

when the crash happens, the managers walk away unscathed.

if you're interested in an entertaining story that starkly illustrates this
dynamic, check out Long Term Capital Management.

~~~
bfrink
I think perhaps the worst thing about Addepar is the way it sells itself to
prospective (inevitably young) employees: that's it's on a mission to "fix
finance." While there are some operational inefficiencies to be alleviated in
the wealth management performance reporting space, the savings from which
might at some point be passed along to asset owners, the actual result of
Addepar's work, at least in the short term, is much less grandiose. I would
characterize Addepar's effects as enabling wealth managers to continue to
capture more of this value as you point out, while also assuring tax-efficient
inter-generational wealth transfer.

This is perhaps a cynical and short-sighted view of Addepar (and I've been
told as much by Addepar's management), but based on my experience in the
investment management industry, I feel it's more true than false.

~~~
dcposch
I think your criticism of startups overselling themselves to college grads is
fair.

However, I don't know if Addepar is more guilty of this than any other local
tech venture. It's an industry wide issue.

Just curious, did you previously work there? Your only HN submission was over
a year ago, and it was an obscure news article about Addepar cutting sales
staff:

[https://news.ycombinator.com/submitted?id=bfrink](https://news.ycombinator.com/submitted?id=bfrink)

> While there are some operational inefficiencies to be alleviated in the
> wealth management performance reporting space

Addepar already does more than just "wealth management performance reporting".

And _all_ successful startups, as far as I can tell, start by shipping
something simpler and smaller than their ultimate vision.

Facebook started as Thefacebook. It was a PHP+MySQL site that had the names of
your classmates, profile pics, and a Poke button.

~~~
bfrink
I think there are other wealth management-related startups that are actually
changing the paradigm, e.g., Wealthfront, whereas (to the extent of my
knowledge) Addepar is helping the incumbents in the space continue to capture
fees in excess of their value add (your original point). Relative to other
local firms, Addepar operates at an information asymmetry advantage - the
finance and especially wealth management industry is less well understood by
the average CMU SCS graduate than, say, the social media industry. I think
Addepar exploits this.

Of course everyone starts smaller than their end state, but as far as I can
tell, Addepar still focuses on client reporting. There's a lot of data
aggregation, etc., that goes into that, but from their website: "Addepar gives
you a competitive advantage. By eliminating the manual burden of aggregating
your financial information, and making it easy to generate customized reports
in just seconds, we free you up to spend more time designing and advising on
client investment strategies." If there's more there, like portfolio
construction/rebalancing, order generation and execution management, clearing
and settlement, etc., it's not easy to apprehend from publicly available
information.

Look, I think Addepar is amazingly beautiful software, exceedingly well
executed (though it may be pearls before swine.) It also has tremendous hype
(which is often seen as an unalloyed good in the Valley). Is it a viable
business? Is it revolutionary, or is it a much-better executed Advent with the
advantages of no legacy code- and userbase? I think those are interesting
questions.

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lutusp
Quote: "Billionaire also declares victory in his $1 million bet with another
asset manager that low-cost index funds would out earn hedge funds over a
decade."

Okay, I've been publishing this advice for 20 years now, to the annoyance of
any number of financial advisors:

[http://arachnoid.com/equities_myths/](http://arachnoid.com/equities_myths/)

The WSJ dartboard contest makes the same point:

[http://www.automaticfinances.com/monkey-stock-
picking/](http://www.automaticfinances.com/monkey-stock-picking/)

------
hackerboos
Which Vanguard index did he buy into?

~~~
lukewrites
He talks about investing in an S&P 500 index fund, which probably would be
VFINX/VFIAX.

There is some good discussion of this on the Bogleheads forums.

------
bsamuels
alright so whats the newest trick needed to get around the paywall?

~~~
streblo
[https://archive.is/UguCJ](https://archive.is/UguCJ)

~~~
Harimwakairi
So, straight-up copyright violation?

~~~
djsumdog
They're broadcasting their data. If you request data in a specific way (with a
given user agent, or via a proxy), are you violating their copyright?

When you use a Greasemonkey script or an adblocker, you're changing the way
the data they send you is represented. Is it a requirement that it must be
displayed only in Webkit/Gecko/Titan representations of that data?

If you hit a paywall and use the built in web tools to delete the offending
divs or disable javascript for that site, are you violating their copyright?
Do sites have a right to require you represent the data they send in a
particular way?

~~~
cookiecaper
>They're broadcasting their data. If you request data in a specific way (with
a given user agent, or via a proxy), are you violating their copyright?

>If you hit a paywall and use the built in web tools to delete the offending
divs or disable javascript for that site, are you violating their copyright?
Do sites have a right to require you represent the data they send in a
particular way?

Generally, yes, doubly so if you persist after being "asked" to stop. You can
also be found offending under the Computer Fraud and Abuse Act. Read the case
law on this if you want to get pissed off.

There have been several cases on these matters, and the overwhelming majority
of them have confirmed that such acts are illegal. Due to the structure of
copyright law, the small quantity of victories are hard to generalize (fair
use is an affirmative defense), and basically only happened because the judges
didn't want to take the heat for shutting down Google.

A web page cannot be accessed without infringing copyright except insofar as
the user displaying the page is entitled to either an explicit or implicit
license. Without valid licensing, the copy of the web page that exists in your
system's RAM has been repeatedly ruled to be infringing.

Using proxies and masking user agents are big no-nos and usually function as
good evidence that infringement was willful, which means an entitlement to
treble damages, plus the animosity of the court.

The long and short of it is that if you continue to attempt to access a site
after you know they don't want you to access it, you have violated the CFAA
and could go to federal prison for doing so. You've almost certainly also
violated the Copyright Act. Even if you _don 't_ know they don't want you to
access it, it's certainly doable to build a case along these lines.

Aaron Swartz was being prosecuted for exactly this. He had set up a computer
to download publicly-funded research papers from a service that MIT had a
subscription to. His crime was downloading content in a way that the service
didn't like; as far as I know, there was no service disruption as a result of
Swartz's activity (and even if there were, that should entail civil, not
criminal, penalties). We all know how that turned out.

You can make anyone in the U.S. a felon-in-waiting by a) knowing they visit
your site or otherwise access a computer system under your control; b)
deciding you don't want them to visit anymore; and c) making some indication
of this, explicit or not, through some channel that a judge will decide
should've been good enough to inform the accessor that his access was no
longer wanted. Banning their IP probably works just fine, and surely setting
up a paywall that takes explicit action to circumvent would as well.

Our laws are _not_ made for the digital era.

Big tech companies like the status quo because it gives them carte blanche to
rip off and trounce smaller competitors, while judges give them the benefit of
the doubt ( _Perfect 10 v. Amazon_ ). The big guys use fancy, $1,000/hr law
firms to intimidate people who would make their data portable, and if that
doesn't scare you off, they proceed with the lawsuit, ask their friends in the
government to proceed with the prosecution, and take both your financial and
physical independence. And yes, this _does_ happen. It happens daily.

The "network effect" and "chicken-and-egg syndrome" discussed with relation to
online services exists solely because we've legislated them into place through
these laws. The digital world is valuable because massive amounts of data can
be replicated quickly and exactly. There is no reason that "network effects"
would ever be a thing here (people would use tools that read data sources and
products would compete based on the features of the data viewer, _not_ based
on who had which data), except that we've made it a thing so that it's easier
for big companies to kill competitors.

I'm not a lawyer; this reflects my layman's understanding.

------
rbcgerard
Little rich coming from an ex-hedge fund manager...

~~~
curuinor
Buffett's main deal is Berkshire Hathaway, which is a conglomerate holding
company and has little to do with hedge funds. So you wouldn't have to be a
qualified investor to put money in BH, for example (although you would have to
afford their stock, which is incredibly expensive). BH did own a part share in
a hedge fund at one point, but Buffett never did anything like, say, charging
2 and 20

~~~
caminante
Ever heard of Buffett Partnership Ltd.[0], his activist investor days, or his
use of insurance float to invest in alternative assets?

[0] [https://www.wsj.com/articles/daniel-loeb-criticizes-
warren-b...](https://www.wsj.com/articles/daniel-loeb-criticizes-warren-
buffett-in-a-rare-public-swipe-1431041716)

~~~
djsumdog
I don't understand this thread. He's not some saint. He's a member of the 1%.
He's in the same circles as all of those investment bankers who benefited from
the 2008 financial crisis while everyone else lost their homes.

~~~
mindcrime
So he happens to be rich, so what? That doesn't make him a bad person, or
anything else. If there was evidence that he was part of any of the dirty
dealing that went on in the lead-up to the subprime crisis and all of the
follow-on stuff, then that would be one thing. But up to this point, I haven't
heard anything to suggest that. Are you aware of something like that, or is
this strictly a sentiment rooted in "guilt by association"?

