Though there is roughly one more year to go for the bet to run its course, it is clear that Warren Buffett is set to win his much-discussed wager with Ted Seides.
That is because the Vanguard S&P Index fund that Buffett picked has outperformed, by a wide margin, the average return of five hedge funds selected by Seides.
As there has been a lot of talk recently about actively-managed hedge funds losing ground to passively-managed index funds, I really wonder if even a legendary manager like Edward Thorp, if he were still in the business, would he be able to restore the lost sheen of the hedge fund industry.
Thorp, a math professor, became one of the first to apply quantitative thinking to the markets successfully.
He founded Princeton Newport Partners, which managed to operate for 20 consecutive years without booking a single quarter of loss, not to mention his substantial win over the benchmark index.
In 1988, when Thorp was in his early 50s, he decided to retire.
Many people were puzzled by his early retirement. After all, given that not many competitors knew how to use the quantitative approach in those days, he could have extended his perfect record for much longer period and made a lot more money.
In his new book “A Man for all Markets: From Las Vegas to Wall Street, How I beat the Dealer and the Markets”, we can get some insight on the rationale behind his decision.
Thorp shared with readers how numerous rich guys were not happy because of the trouble wealth has brought, and the price they pay for never being satisfied with what they already have.
And this is one of the lines I like most: “Success on Wall Street was getting the most money. Success for us was having the best life.”
The full article appeared in the Hong Kong Economic Journal in Chinese on March 2
Translation by Raymond Tsoi
[Chinese version 中文版]
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