Why can't wealthy people put their investments in like mutual funds like the rest of us Joe's? Hedge fund charges fees like crazy when they make money for the funds and usually don't do any better than an investment in a index fund like a the SP 500. That guy Madoff made off with 50 billion dollars of their money...ouch. If I'm going to lose money, I minds as well invest and lose it based on my picks. I lost my fair share of $$$ over the past year in the market, but at least I didn't lose it all. If I had millions of dollars, I would darn make sure where every penny is invested. I can't believe this fund to fund nonsense. You pay some one to take your money to invest your money in some hedge fund. Man I gotta setup a business like that. Didn't know that many rich people are suckers! Any thoughts fellow fatwalleters?
Over the years Madoff's fund made very impressive returns. That was one of the tip offs that something fishy was going on, it did too well too consistently. I can see why someone would want to invest in that. I could care less what the fees are if the total return is better.
lampy2k4
Senior Member - 1K
posted: Dec. 20, 2008 @ 6:01p
He didn't make off with 50 billion.. This is a pyramid scheme, so cash was used to pay dividends to earlier investors.
Imagine you put in 100 million and then keep getting 12 million every year for several years. You are pretty happy.. until one day they tell you that your original 100 mil is gone, so you are stuck with your Xyears*12 pay outs and no principal.
chowskee said: usually don't do any better than an investment in a index fund like a the SP 500From what I have read, many hedge funds typically outperform the S&P 500.
chowskee said: That guy Madoff made off with 50 billion dollars of their moneyHe did not make off with clanything ose to that. They financed his lavish lifestyle of course.
xoneinax said: chowskee said: usually don't do any better than an investment in a index fund like a the SP 500From what I have read, many hedge funds typically outperform the S&P 500.
While this is true, you need to remember that hedge fund will ask for 3-5% management fee and 20-30% of the profit, while your standard, computer-managed, index fund will have management fee ~0.1-0.2%
xoneinax said: chowskee said: usually don't do any better than an investment in a index fund like a the SP 500From what I have read, many hedge funds typically outperform the S&P 500.
From what I have read, most hedge funds typically underperform the S&P500. My understanding is that rich people invest with Hedge Funds because its an exclusive type of investment that only rich people have access too and charge high fees so therefore it "must" be good! Rich people dont necessarily understand investing and have other people do for them, usually at great expense, what they could do better with a few minutes and an online Vanguard account.
bryan2010
Member
posted: Dec. 20, 2008 @ 7:04p
Lots of people are financially stupid, regardless of their income.
I had the most absurd nightmare. I was poor and no one liked me. I lost my job, I lost my house, Penelope hated me. And it was all because of this terrible (((((.
best movie evar.
ziffy
Broke Member
posted: Dec. 20, 2008 @ 8:11p
Huge ego and greed.
The feeling of being ahead of other people blinds the analytic judgement. If it sounds too good to be true... it IS.
Also the life of these wealth people after Madoff will be like downgrade from having Royce with the driver to driving AMG by themselves.
catanpirate
Senior Member
posted: Dec. 20, 2008 @ 8:15p
I'll bet most people who lost their fortunes weren't "new money."
lampy2k4
Senior Member - 1K
posted: Dec. 20, 2008 @ 9:07p
catanpirate said: I'll bet most people who lost their fortunes weren't "new money." Just FYI, besides wealthy individual investors and large financial companies/funds, there are other victims such as various charities and foundations, a hospital, schools/universities, etc.
he mentions mutual funds, since when is that 'making a decision'. someone else is making the decision for you.
this Madoff scam was difficult to see coming but not impossible. there were red flags. but there are red flags in everything.
if all the banks shut down and the govt says we cant pay you, there will be clowns saying you should have had all your $ in gold, or stuffed in the mattress.
sonic2000
Senior Member
posted: Dec. 20, 2008 @ 9:14p
From what I heard index funds have always beaten hedge funds with 20% a year returns on average.
xoneinax said: chowskee said: usually don't do any better than an investment in a index fund like a the SP 500From what I have read, many hedge funds typically outperform the S&P 500.
RisingSun96815
Broke Member
posted: Dec. 20, 2008 @ 9:38p
HNW clients are justified putting a portion of their portfolio in hedge funds if the bulk of their assets are elsewhere. It's the principle of diversification.
tripleB said: xoneinax said: chowskee said: usually don't do any better than an investment in a index fund like a the SP 500From what I have read, many hedge funds typically outperform the S&P 500.
From what I have read, most hedge funds typically underperform the S&P500. My understanding is that rich people invest with Hedge Funds because its an exclusive type of investment that only rich people have access too and charge high fees so therefore it "must" be good! Rich people dont necessarily understand investing and have other people do for them, usually at great expense, what they could do better with a few minutes and an online Vanguard account.
The S&P500 may not even be an appropriate benchmark for many hedge funds, given the wide variety of strategies they employ.
OneEyedJack
Member
posted: Dec. 21, 2008 @ 1:19a
bryan2010 said: Lots of people are financially stupid, regardless of their income.
Truer words have never been spoken.
Financially literacy isn't related to income. There are a lot of rich people that don't understand math or even the basics of investing.
xoneinax said: chowskee said: usually don't do any better than an investment in a index fund like a the SP 500From what I have read, many hedge funds typically outperform the S&P 500.
Since this may fall under theft some of the investers in the fund may be able to receive a tax refund to help offset their losses, from Bloomberg:
Individual investors who lost money in Bernard Madoff’s alleged $50 billion fraud may be able to recover some of their money by seeking U.S. tax refunds.
“The Madoff debacle will result in what amounts to another federal government bailout,” said Warren Kessler, an attorney at the Los Angeles law firm Kessler & Kessler. “It is likely that the Treasury will wind up refunding taxes,” at least on the loss of money individuals invested with Madoff, he said.
Capital-gains taxes paid by investors may be refundable for 2005 through 2007, lawyers said. In addition, they said investors probably can convince the Internal Revenue Service they are victims of theft, which would let them deduct losses from their income taxes dating back to 2005. Any unused theft losses could be used to reduce tax liabilities for the next 20 years.
To claim the more valuable deduction, Barrie said, the taxpayer must establish that a theft occurred, a threshold he said will likely be met by Madoff’s indictment. Taxpayers must also establish there is no likelihood of recovering the money, which he said they probably can do unless they get compensation from the government-sponsored Securities Investor Protection Corp.
RisingSun96815 said: HNW clients are justified putting a portion of their portfolio in hedge funds if the bulk of their assets are elsewhere. It's the principle of diversification.
from the sound of it, most people had everything in there. no sympathy from me. the day i had $25 in my savings account, i diversified with gi joe's and baseball cards. everyone preaches diversifying but from the looks of it (real estate, etc), most dont.
I was just reading this last night as I went to bed. I sounds like he had the persona perfected and applied pressure to his clients. This is a good read. Economist Commentary
My major question is: Didn't all these clients have money managers looking after their investments? You would think that someone would have noticed a 3 person accounting firm, and no outside audit. I'll grant that a lot of these folks don't have the time or inclination to do due diligence on the fund, but I bet they were/are paying someone who could.
They are rich because most of them know when/where to invest. People like Madoff come what - one in a century/lifetime. Like someone earlier said 'Hindsight is 20/20'
Xyrus2
Member
posted: Dec. 21, 2008 @ 11:08a
Greed is probably a big factor.
I don't understand it myself. If I had $10 million, I'd spread it out amongst several high yielding safe investments and live off the interest (re-investing whatever I didn't spend). Then again, I'm perfectly happy not having 10 cars and 7 houses.
Money is the universal green penis. The more of it you have, (or appear to have), the "better" you are. So people like to go out and spend money they don't have (effectively stuffing balled up socks in their pants) in order to appear better endowed. For those who are already well endowed, they're willing to try the penis enlargement pills and swedish suction devices based on promises of great "returns".
Both groups will get screwed.
Moral of the story: The sensible people who are happy with what they have don't get screwed.
Because they know their friends in Washington will subsidize their losses.
Eventually the TARP fund will be raided to help all of these people. It will start with the charities that were wiped out and than the country clubbers willl be next.
tazzy531
Senior Member - 4K
posted: Dec. 21, 2008 @ 1:48p
Difference between a mutual fund and hedge fund is that the hedge fund manager seeks out high alpha and low beta. The hedge fund manager seeks returns that are uncorrelated to the market. For example, if the S&P is down, they want returns of XX%, if the market is up, they want returns of XX%. Whereas a mutual fund's goal is 1) protection of capital, 2) beat or be in line with the market (in that order).
This is why people pay so much money to get into a hedge fund.
madoff
Member
posted: Dec. 21, 2008 @ 3:30p
Research shows that the top 1% is heavily swayed by gut and impression, not numbers and facts. They vote more on the basis of personality in campaigns; buy products more on the basis of brands; and invest more on the basis of the tip than on sound logic.
Research also shows the elites have become more impressionable -- more removed from everyday problems, more trusting of what they hear, and more likely to adopt unthinking viewpoints based on brand or emotion.
Further, elites are on information- and time-management overload, and the result is that they have been making big decisions with less information, not more. They throw their hands up in the face of adversity and complexity, relying upon the judgment of others instead of forming their own.
The key here is "Impressionable Elites," the term used for educated, affluent people who focus more on personality than issues when it comes to evaluating financial or political decisions.
-Madoff
duncan36
Senior Member
posted: Dec. 21, 2008 @ 5:11p
You'll hear a lot of sob stories but the reason most of Madoff investors put money in is they thought he was using inside information to cheat and get big returns. Most people in NYC who know the details of Madoff thought he was cheating they just couldnt imagine it was a Ponzi scheme.
madoff
Member
posted: Dec. 21, 2008 @ 5:24p
Madoff is a giant in his field. He out-Ponzied Charles Ponzi; he out-Princed Chuck Prince...Madoff's charm was that he out-foxed the foxes and out-scammed the scammers. How hard was it to give away new houses to people who didn't have any money…or get people who didn't speak English to sign toxic mortgage documents? Child's play, really. And the executives with their millions in bonuses... Rather than go after the widows and orphans, he swindled the smartest money in the world... And he was remarkably democratic about it; he took money from his own tribe, his own clan, and his own golf club buddies. Billions of it. Even more impressive, he did it not with hyperbole, but with relative modesty. He produced only about 10% per year - which didn't seem like much during the Bubble.
There are various aspects of the Madoff scam that explains its success and why his victims, for the most part, didn't see it coming.
(1) Affinity Scam. Madoff targeted the Jewish community, who did not believe they would be scammed by "one of their own." The FBI had warned about the popularity of so-called "affinity scams" amongst all ethnic groups, not only Jews. It worked to perfection for Madoff.
(2) Madoff was a giant in the field. He was a former chairman of NASDAQ and was well-known for three decades.
(3) The Buzz. Madoff was brilliant enough to turn money down. This created a buzz for his services amongst the super-rich. There are lots of money managers out there, but Madoff billed himself as a guy who only invested for the rich ELITE. There was a golf club in Florida that had an "in" with Madoff and was able to sell memberships costing hundreds of thousands of dollars because members could pool their money and invest in Madoff.
(4) False Wisdom Of The Crowds. This is a corollary to (3). If all these brilliant rich guys are investing in Madoff, then someone must have done their due diligence on him.
(5) Madoff did not pay ridiculous rates of return. He averaged 12% a year, which is great but not unbelievably so.
hdpq said: Mutual funds are retail products. Most wealthy investors would not be served well by these funds.Why have they been better served by funds that cost 100% to 1,000% more?
hdpq said: Its kind of like a guy seeking Neiman Marcus quality shirts at the Walmarts.That analogy is so faulty it could come only from someone who sells investments.
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