Great interview. He is one of 'rock stars' in the investing world. I like his inclination toward buying the market (indexing) and otherwise enjoying life.
Yes, Medallion is capped at ten billion and closed to outsiders as big edges for big money are hard to come by. As a group, the other funds from Renaissance Technologies have underperformed 😢 the market and one did so badly that it was shut down.
If it takes 64 data points (annual returns) to be statistically significant, then this is another argument that favors indexing. Don't try to find the needle in the haystack to buy, just buy the haystack.
@cliffpeebles9705 just don't confuse the US Large Cap haystack for the Global Market Portfolio haystack like most people do 😜👍 Own a little bit of everything. Maybe have a little more of some things that have higher expected returns and less of others that are known to underperform like Small Growth or private investments (after fees) that are accessible for the individual.
Sometimes buyers and sellers have different timeframes. It is possible an HFT algorithm could correctly sell something that Warren Buffett is correctly buying with an eye to the long-term.
One thing has always puzzled me about the global market portfolio. It’s pretty intuitive that things like options or futures contracts wouldn’t be included, but why doesn’t this also apply to bonds? If someone is long a bond, then someone else (whether a sovereign, corporation, municipality, etc.) must be short that bond, resulting in net zero bond exposure.
No, the counterpart to stocks and bonds is the issuer (say XYZ Co issues shares, then it's a liability of XYZ and an asset of the buyer). So if you buy a bond then your counterpart is the sovereign/corporate/whatever issuer - the previous owner just transfers this asset/counterpart to the buyer. It's different with derivatives like options and futures. There the issuer (e.g. option writer) is an individual/corporate that has created a financial contract, the price of which is based on the movement of the underlying instrument (bond, int rate, stock etc). So the buyer (e.g. of say an option) is dependent upon the option writer as the counterpart, not the underlying issuer of the instrument.
@@suckers0 there’s a couple things here. First, equity wouldn’t be someone else’s liability, it represents your ownership in something (assets less liabilities). Secondly, the point about the bond issuing being the counterparty is exactly the point I’m getting at. If the market portfolio is what is held in aggregate by all market participants, then for everyone holding a bond, there is a counterparty (issuer) who is short that same bond.
@@ryanconnolly6703 equity is the issuer's liability - look at the issuer's balance sheet - and the holder's asset. You're misunderstanding the bond issue - it's the same as the equity: bond issuer records it as a liability, holder as an asset.
There was a lot of misinformation in here, I hope people don't take it too seriously. 1. The 64 year thing is pretty meaningless. In 64 years, I'll be 120 years old. Yeah, realistic investors need to make decisions in shorter timeframes than that. We also realize that even shorter periods of underperformance can have a very bad impact on our ability to eventually be financially secure and/or retire. We don't have 64 years to wait, we realistically don't even have 10 years of underperformance to sit through, either. 2. The idea of someone being on the other side of a trade is also pretty misleading. People can have different timeframes, for example. A short term investor may want to sell, a long term investor may want to buy (in which case, they can both be 'right'). People can be rebalancing, retirees can be selling to pay bills, etc. Is he saying that all sellers of NVDA were 'wrong' in the past 10 years, and all buyers were 'right'? What about all of the algo traders? It's not that people have a short attention span, sometimes they get halfway into something and see a bunch of bad advice, and stop watching.
I wonder if French has read any of the Swagger Mark Wizard books; he's always referring to Simon as if he's the only one he knows. What about Paul Tudor Jones? What about Druckenmiller? What about Dalio? But as French said, "my view of the way the world works is totally inconsistent with the way most active investors think about."
Doesn't the t-stat of years vary by the amount of alpha tested? For example, a t-stat to prove statistical significance of a 50 bp annual alpha would be much longer than a t-stat to prove significance of 500 bp? So the lower alpha you test for the more significant the time period to prove it? I want French to sick to the 500 bp of annual alpha and give us the relevant time period. My guess is much shorter than 64 years. In other words, there should be an inverse relationship between the amount of alpha measured and the time period needed to establish statistical significance.
The US equity part of passive investing is great until the components' valuations stop making sense... tho better than 1998 when KO was trading north of 60x earnings. At least use a collar.
Is Mr Faber an active or passive investor. And would he actually tell us if he had most of his money in low cost passive funds that track indexes. I had some individual shares in Aviva here in the UK. And there was a share buyback. And what happened was I lost some of my shares and was payed for them at a price they predetermined before the buyback tool place. So now I had less shares and some cash in my account. How the hell did that benefit me in anyway. If they really wanted to give something back to their shareholders, why not just give us an extra dividend payment, then we would have actually gained something
For a short period holding firm like the Medallion Fund from Renaissance Technologies, way way less than 64 years is needed to know they crush. Medallion has averaged around 65 percent a year for over thirty years, before fees, with no losing years.
This man sound like he smoked allot of cigarettes. And you tell me he understand statistics 📊😂 just joking. Nice interview I liked it. I call this taking an intellectual fresh investing bath. Just set the record again of what is most likely happening.
Great interview. He is one of 'rock stars' in the investing world. I like his inclination toward buying the market (indexing) and otherwise enjoying life.
Would someone please clarify the term Prof. French uses at 38:00 ? Something about “valuate average” ? Thank you.
"value-weight(ed)"
I wrote 23 years - thnx for the great discussion!
Amazing guest . Thank you.
Great guest! ❤
Wonderful discussion.
Great Interview...but can someone explain how he got the 64 years number (spoiler Alert!!) at 9:42?
Statistics.
He supplies you with the inputs (5% expected alpha)
After the first sentence he had me.I don’t know who this guy is but he is talking sense.
Yes, Medallion is capped at ten billion and closed to outsiders as big edges for big money are hard to come by. As a group, the other funds from Renaissance Technologies have underperformed 😢 the market and one did so badly that it was shut down.
If it takes 64 data points (annual returns) to be statistically significant, then this is another argument that favors indexing. Don't try to find the needle in the haystack to buy, just buy the haystack.
Or tilt towards characteristics that are known to have higher expected returns and offer independent sources of risk
@cliffpeebles9705 just don't confuse the US Large Cap haystack for the Global Market Portfolio haystack like most people do 😜👍
Own a little bit of everything. Maybe have a little more of some things that have higher expected returns and less of others that are known to underperform like Small Growth or private investments (after fees) that are accessible for the individual.
No, I did not write down 64.
I wrote 10.
Looking forward to this one!
Great interview....mature perspective...thank you....
Sometimes buyers and sellers have different timeframes. It is possible an HFT algorithm could correctly sell something that Warren Buffett is correctly buying with an eye to the long-term.
One thing has always puzzled me about the global market portfolio. It’s pretty intuitive that things like options or futures contracts wouldn’t be included, but why doesn’t this also apply to bonds? If someone is long a bond, then someone else (whether a sovereign, corporation, municipality, etc.) must be short that bond, resulting in net zero bond exposure.
No, the counterpart to stocks and bonds is the issuer (say XYZ Co issues shares, then it's a liability of XYZ and an asset of the buyer). So if you buy a bond then your counterpart is the sovereign/corporate/whatever issuer - the previous owner just transfers this asset/counterpart to the buyer. It's different with derivatives like options and futures. There the issuer (e.g. option writer) is an individual/corporate that has created a financial contract, the price of which is based on the movement of the underlying instrument (bond, int rate, stock etc). So the buyer (e.g. of say an option) is dependent upon the option writer as the counterpart, not the underlying issuer of the instrument.
@@suckers0 there’s a couple things here. First, equity wouldn’t be someone else’s liability, it represents your ownership in something (assets less liabilities). Secondly, the point about the bond issuing being the counterparty is exactly the point I’m getting at. If the market portfolio is what is held in aggregate by all market participants, then for everyone holding a bond, there is a counterparty (issuer) who is short that same bond.
@@ryanconnolly6703 equity is the issuer's liability - look at the issuer's balance sheet - and the holder's asset. You're misunderstanding the bond issue - it's the same as the equity: bond issuer records it as a liability, holder as an asset.
What an amazing interview. K. French is an extremely sharp guy.
one of the best.
There was a lot of misinformation in here, I hope people don't take it too seriously.
1. The 64 year thing is pretty meaningless. In 64 years, I'll be 120 years old. Yeah, realistic investors need to make decisions in shorter timeframes than that. We also realize that even shorter periods of underperformance can have a very bad impact on our ability to eventually be financially secure and/or retire. We don't have 64 years to wait, we realistically don't even have 10 years of underperformance to sit through, either.
2. The idea of someone being on the other side of a trade is also pretty misleading. People can have different timeframes, for example. A short term investor may want to sell, a long term investor may want to buy (in which case, they can both be 'right'). People can be rebalancing, retirees can be selling to pay bills, etc. Is he saying that all sellers of NVDA were 'wrong' in the past 10 years, and all buyers were 'right'? What about all of the algo traders?
It's not that people have a short attention span, sometimes they get halfway into something and see a bunch of bad advice, and stop watching.
Also... things change, so 64 years may not show who can crush the market right now.
I wonder if French has read any of the Swagger Mark Wizard books; he's always referring to Simon as if he's the only one he knows. What about Paul Tudor Jones? What about Druckenmiller? What about Dalio? But as French said, "my view of the way the world works is totally inconsistent with the way most active investors think about."
Dalio’s returns have been terrible . Read the book The Fund by NY Times writer Rob Copeland.
Doesn't the t-stat of years vary by the amount of alpha tested? For example, a t-stat to prove statistical significance of a 50 bp annual alpha would be much longer than a t-stat to prove significance of 500 bp? So the lower alpha you test for the more significant the time period to prove it? I want French to sick to the 500 bp of annual alpha and give us the relevant time period. My guess is much shorter than 64 years. In other words, there should be an inverse relationship between the amount of alpha measured and the time period needed to establish statistical significance.
The US equity part of passive investing is great until the components' valuations stop making sense... tho better than 1998 when KO was trading north of 60x earnings. At least use a collar.
Is Mr Faber an active or passive investor. And would he actually tell us if he had most of his money in low cost passive funds that track indexes. I had some individual shares in Aviva here in the UK. And there was a share buyback. And what happened was I lost some of my shares and was payed for them at a price they predetermined before the buyback tool place. So now I had less shares and some cash in my account. How the hell did that benefit me in anyway. If they really wanted to give something back to their shareholders, why not just give us an extra dividend payment, then we would have actually gained something
He wrote a post on how he invests: mebfaber.com/2022/02/01/how-i-invest-2022/
brilliant
Al Borland 🙌
For a short period holding firm like the Medallion Fund from Renaissance Technologies, way way less than 64 years is needed to know they crush.
Medallion has averaged around 65 percent a year for over thirty years, before fees, with no losing years.
This man sound like he smoked allot of cigarettes. And you tell me he understand statistics 📊😂 just joking. Nice interview I liked it. I call this taking an intellectual fresh investing bath. Just set the record again of what is most likely happening.