Hedge Funds Stink

Interesting piece here from Matt Taibbi about Hedge Funds.  It notes that only 11% of hedge funds are outperforming the S & P 500.  I've seen Matt Yglesias make the point before as well, that hedge fund managers are better at making gobs of money for themselves than they are at making money for their investors.

Now I don't know much at all about investing or financial services.  But it does stand to reason that people can't really outperform the market as a whole over time- if they're really successful for a while then everyone starts copying them and the market catches up.  There are tons of really smart people working on Wall Street, and it feels unlikely that many people are really much smarter than the average professional there.

It reminds me again that investing is a game, and a game that's rigged for insiders.  Reading Taibbi regularly makes one realize how the Goldman-Sachs's of the world make a lot of their money by finding suckers to screw over.  They rely on lots of little guys who think they're smarter than everyone else and have a little money to lose.

At base I guess I have to admit that I feel this way because I'm not at heart a risk-taker.  Slow and steady in the market appeals to me.  But the whole scam reminds me of the old line from War Games

"The only way to win is not to play".

But the best sum up comes from Taibbi:

Someday we'll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc. Because it seems like our best minds kind of suck at investing.