Basically the title. Hedge funds underperform every year as compared to broader ETFs like S&P500 by more than 10%! Given this, who invests in hedge funds? Are they stupid or am I stupid?
[https://www.aei.org/carpe-diem/the-sp-500-index-out-performed-hedge-funds-over-the-last-10-years-and-it-wasnt-even-close/](https://www.aei.org/carpe-diem/the-sp-500-index-out-performed-hedge-funds-over-the-last-10-years-and-it-wasnt-even-close/)
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Lottery numbers are (on average) mostly useless for making money. But sometimes, lottery numbers can win zillions of dollars.
Hedge funds are like a less-dramatic version of lottery numbers. They will (on average) be mostly useless for people who want a bigger return than average. But there are enough hedge funds out there that some small number of them just by pure luck will be doing better than the average market return, just like there’s a small set of lottery numbers at any given time that will just by pure luck be very good for people who picked them. People who pay someone to pick stocks are just playing the lottery, with extra steps.
Think about it this way: if the hedge funds *could* reliably beat the average market return, why would they sell that information to you instead of just doing it themselves? It’s like writing a book called “how to make a million dollars,” with step 1 being “write a book about how to make money.”
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