Comments by "EebstertheGreat" (@EebstertheGreat) on "The 4 things it takes to be an expert" video.

  1. Hedge funds are actually a comparatively high-risk investment. They are widely recognized as having a fat tail to the left. Some hedge funds see massive losses when investments believed to be anticorrelated turn out to be correlated. Hedge fund volatility is also not necessarily lower than mutual funds or even indices; in fact, it may be higher when properly measuerd. Besides, hedge funds are supposed to seek absolute returns. If they are losing money, they aren't getting absolute returns. It's not reasonable to say "we beat the index in the bear market, proving value, but it's unfair to compare us against the index in general." Moreover, people don[t normally invest in a single hedge fund but in at least five different hedge funds, like the managed "fund of funds" in the bet, which only serves to increase diversification and the representativeness of the investments (i.e. ultimately reproducing a proxy for the index anyway, but with 3.5% fees on top of 30% of profit). Regardless, hedge funds are only available to wealthy long-term investors, so worrying about occasional short-term losses misses the point. Buy-and-hold investing is always the best strategy for these people. As Warren Buffett said, "I’d rather have a lumpy 15% return than a smooth 12%" (assuming a "smooth 12%" is even a real thing). That's also before you worry about risks that are more difficult to calculate like financial fraud. You could potentially lose everything--literally everything--if you invest with the next Bernie Madoff. Is this likely? No, it is extraordinarily unlikely. But if hedging against rare but extreme risks is important to you, then avoid hedge funds like the plague.
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