
Wall Street and hedge fund analyst: "Financial markets are rigged" - nextparadigms
http://www.reddit.com/r/occupywallstreet/comments/muqzv/wall_of_text_i_work_in_wall_street_and_work_in/
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byrneseyeview
Better title:

"Anonymous Internet commentator: Here's a bunch of common knowledge you can
glean from any basic investment book. I'll omit the half that makes my
argument look bad. Also, I can pretend to be someone who wouldn't naturally
agree with you."

I don't know why the Internet eats this stuff up. It might be fun to go to
conservative-monoculture forums and start posting: "I am an OWS organizer. I'm
only here to appear more virtuous than my friends, and also to sleep with
girls who have weird piercings and tattoos."

Politics articles in general are an utter black hole for intelligent
discussion, but this one is also a portal into a completely new dimension of
pointlessness.

~~~
jQueryIsAwesome
And all the things that come from reddit are just as over-dramatic:

"The finance industry is a complete scam"

"you have absolutely no chance"

"you're paying ridiculous spreads"

"you are paying exorbitant fees."

"you are utterly screwed"

"You have no idea"

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RockyMcNuts
unpersuasive. You go to the casino and sit down at the poker table, some of
them are going to be pros or very skilled people who will try to manipulate
you. Is the game rigged against you? As much as they can within the rules of
the game.

Second, on average, HFs recently have little performance edge. They had an
edge during the dot-com burst and earlier, when they were smaller. Lackluster
returns and frequent blowups belie the notion they have the inside track.

A few of the hedge fund guys are legitimately brilliant, with a consistent
edge.

A few are bad eggs and push the envelope, e.g. Galleon.

A few have an inside track, e.g. HFT guys who are collocated and see
everything a split second before everyone else.

Most HFs have little or no sustainable edge, and just take big fees from
gullible people until they blow up.

If you don't think you can play against these guys, just invest in bond and
stock index funds and ETFs. You won't do much worse, and you won't be risking
blowups.

There's been a lot of looting the last few years, blatant stealing of customer
funds at MF Global, bailouts, insider trading by Congressmen, CEO pay, private
equity extraction, would focus on those guys. Mostly hedge funds are a
convenient target. If you want to target something, target specific practices
that are a problem, not specific actors.

(the only real scandal is the ultralow tax rate paid by HF managers on giant
earnings - thank fully-paid-for Paul Ryan and Eric Cantor)

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ams6110
I started reading this, then skimming, then came to "You have better odds
going to a casino and playing slots, the worst-paying game in the house, but
still better than the stock market" and decided that this piece is a rant by
an ideologue.

That statement is just flat out wrong, and ridiculously so.

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modeless
401(k) accounts amount to an enormous subsidy for the financial industry. The
whole system is structured to discourage competition and funnel money to the
largest financial services companies, because employers require you to use a
specific company with a limited choice of investment options. Health insurance
being tied to employment causes similar problems there. OWS should be rallying
against stuff like this instead of police brutality, which seems like the
current focus.

~~~
fennecfoxen
This. This is the real rigging: your company doesn't care what fees your
401(k) charges you. They'll give you an S&P500 index fund with a 1.2% expense
ratio. Given that you can get that for 0.06% elsewhere, you can _bet_ that a
good chunk of the rest is yacht money.

Fortunately, you can roll over your 401(k) to an IRA when you change jobs.
Vanguards' ain't too shabby. Or pick a brokerage and get your own stocks. You
don't need to care about a high-frequency traders' 30-second impact on the
market if you're not selling your portfolio for 30 years.

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waqf
He has two points with which I agree:

(a) many investing strategies which rely on frequent trading or high leverage
are not available to retail investors because of commissions, spreads, or
taxes;

(b) (i) mutual funds etc. are poor investments because of the fees they
charge; and (ii) because 401(k)s often force you into mutual funds, 401(k)s
are often poor investments.

Of those, I'm only angry about (b)(ii), because the government forces me (with
tax incentives) to put money in my suboptimal 401(k).

The rest is just a question of understanding what game you're playing and
acting accordingly. I don't see why I should be offended that somebody else
gets better access to the markets than I do, any more than I'm offended that
my friend who works at the donut shop gets free donuts.

~~~
joshu
don't most 401ks offer index funds?

~~~
tedunangst
They also have the all cash option, which by itself offers a very good return
if you factor in matching and tax benefits. And if you switch jobs somewhat
frequently you can roll it over into a no fee IRA you manage without
necessarily worrying about the state of the market when you do the rollover.

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tedunangst
"You have better odds going to a casino and playing slots, the worst-paying
game in the house, but still better than the stock market."

I can calculate what the odds are for slots, but I would love for someone to
post some real numbers for what the stock market odds are.

~~~
joshu
It's not the same kind of mechanism, so you can't really provide odds.

I guess you could look at the S&P as an average measure of return.

~~~
tedunangst
Kinda my point. The comparison is meaningless. I also think he's wrong, but
don't know how to even begin demonstrating that.

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joshu
There's a lot there that's emotionally stated and designed to draw ire without
actually being correct, alas.

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mynameishere
_Some of these services, especially pension funds, will invest into hedge
funds, who take an additional 2 and 20 (meaning 2% of assets plus 20% of
capital gains). What this means is that if you go any of the traditional
retail routes, you are utterly screwed facing off against the hedge funds._

Two of the most completely unreasonable sentences joined together. Hedge
funds' ruinous fee structures give hedge fund investors an advantage...?

Uh, no.

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irrumator
Why is this biased anonymous junk on HN frontpage?

~~~
Quarrelsome
I'm guessing people wanted to talk about it or use the audience here to verify
the quality of it.

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apaprocki
Some actual numbers to provide some context. Out of 2128 HFs I can see on the
Bloomberg...

Total 5 year return: 650 > 3%, 399 > 25%, 56 > 100%, max 322.84%.

Total 1 year return drops to: 498 > 3%, 51 > 25%, 2 > 100%, max 278.64%.

273 of them appear to have been around for >= 10 years. Out of those 273 the
total 10 year return: 244 > 25%, 135 > 100%, 51 > 200%, 14 > 500%, 4 > 1000%,
max = 1907.18%.

edit: clarity

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refurb
Possibly the best rant in support of the book "Intelligent Asset Allocation"
by Bernstein.

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pitdesi
Much of this is not true. This is in an occupy subreddit so be careful what
you see in comments and what gets upvoted...

One thing that he doesn't make clear: hedge fund fees are 2% annual management
fee PLUS 20% of any upside (very similar to VC's)

After fees, index funds often perform better than hedge funds:
[http://www.nytimes.com/2007/03/04/business/yourmoney/04stra....](http://www.nytimes.com/2007/03/04/business/yourmoney/04stra.html)

Also - relevant is this long bet: <http://longbets.org/362/>

“Over a ten-year period commencing on January 1, 2008, and ending on December
31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds,
when performance is measured on a basis net of fees, costs and expenses.”
PREDICTOR Warren Buffett

~~~
dfc
That NYT article is from 2007.

