Hedge Fund Manager Crushed Every Year

Hedge Fund Losers, 2019

2019 has been a record year for the S&P.  2018 ended down nearly 5% thanks to a December pullback due to the ongoing trade wars with China.  This year, however, the S&P has outperformed by nearly 30%.  It has been a year that some would say “Anyone can make money”.  That being said, there are still many hedge fund losers out there where the word “outperform” is a far and distant memory.

According to BarclayHedge, funds in 2019 have thus far returned 8.85% on the year, versus 29% in the S&P.  This begs the question: Why is anyone still investing with hedge funds?  Looking back at the past five years, hedge funds have underperformed the market every single year, sometimes by a margin of more than 50%.  And especially when the market has returned outsized gains, such as this year and 2017. 

How is it possible to have a firm full of Ivy League graduates, with nearly unlimited capital for resources, be outperformed by a low-fee old-as-dirt index? We can look to a Warren Buffett quote to reasonably sum up this phenomenon:

“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.”

Hedge funds and alternative investments including venture capital, halo investing and early IPO offerings are investment vehicles that are reserved for accredited investors.  To be an accredited investor, you need to have certified that your income is more than $200,000 per year for two years, as well as a net worth of $1,000,000.  According to the government, this is the right amount of income it takes to make very stupid investment decisions.

Like Warren Buffett’s proclamation; you do not need to be a genius to outperform the market and add to your net worth.  It takes discipline and fortitude.  Do not let others profit from your own hard work.  You can make the decisions yourself, feel great about these decisions and watch as your net worth increases ad infinitum, beating your nearest hedge fund losers with ease.

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