Nevada’s public employee pension fund invests passively and beats peers (2016)

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It was Richard Thaler&#x27;s Misbehaving: The Making of Behavioral Economics book that finally broke through my thick, anxiety ridden skull and convinced me to stop reading economic news everyday and just forget the the retirement accounts existed. If I&#x27;d read that book earlier, I&#x27;d be up 3X on my positions.

In general avoiding fees is definitely a good thing. Its one of those things that hindsight finds the best strategy and they were kinda lucky about the crazy bull market in the USA in this time.<p>If you were a Pension fund in France, Australia, UK, Japan, China etc and put all your money in the local passive index tracker you&#x27;d maybe double your money in the last 20 years but way under perform S&amp;P which is like 6x in that period.

Disclaimer: I&#x27;m not a financial advisor.<p>Whenever I&#x27;m tempted to buy individual high performing tickers (e.g. NVDA, TSLA, AMD), I restrict the purchase to no more than 2% of my portfolio and I only allow myself to bet on 2-3 &quot;race horses&quot; at a time. I think this fulfills the desire to gamble a little and see 100-200% YoY returns. NVDA cracked 300% cost basis when I finally sold, which is wild.<p>The reason I can do this is because the rest of my portfolio is a boring mix of low-fee ETFs that track major US and international indices. As a retail investor, it&#x27;s good to remind myself that if I actually had the skills to invest professionally, someone would probably be paying me to do it for them.

The original idea behind passive investing was to use the pooled intelligence of many traders guessing the value of cr I think we’re beyond that. Most traders are just trying to get a timing edge over the indices. This introduces the modern concept of passive investing as a positive feedback loop force-fed by monetary supply. The market seems to hate dividends and buybacks, preferring expansion or acquisition, but then what gives it value? It has to be its memetic ability to attract investment, and this can easily eclipse anything on the earnings statement. I’m not sure this can go on forever.

Fund was up to $55B in 2022, but they made him take a roomie<p><a href="https:&#x2F;&#x2F;thenevadaindependent.com&#x2F;article&#x2F;lawmakers-approve-doubling-size-of-state-pension-plans-investment-team-to-two" rel="nofollow">https:&#x2F;&#x2F;thenevadaindependent.com&#x2F;article&#x2F;lawmakers-approve-d...</a>

This is incredible from a stakeholder management perspective.<p>Normally non finance people in the organisation get hoodwinked by investment sales people. Then they pressure the finance guys into perusing a complex high fee strategy.

I&#x27;m curious if this is demonstrably an optimal strategy for individual investment too... I haven&#x27;t had much success getting any clear data about whether active management demonstrably produces better results.

In private equity you are employing the managers to create opportunities<p>And during bear markets I’ve seen some managers create the most onerous terms far beyond what I could think of, and that&#x27;s paid excessive dividends for me<p>I think that’s the real hedge that’s overlooked here<p>The performance of private funds is also not a complete picture, individual limited partners have different profit and loss than whatever metric the whole fund is subject to, someone that joined as an LP after any trade doesn’t have their capital allocated to that prior or existing positions, only the subsequent ones. so its not really possible to judge performance of fund managers in comparison to indices the way that it is popularly compared. Unless LPs are showing their own performance in a scatterplot, nobody knows anything. and LPs are typically subject to NDAs.<p>I just think it’s too reductive to say nobody can beat the index, then move the goal post to longer and longer time frames. You only need to be successful once, in any time frame but specifically shorter ones

The value of the fund is now up to $63B. Here is the latest overview: <a href="https:&#x2F;&#x2F;www.nvpers.org&#x2F;sites&#x2F;default&#x2F;files&#x2F;2024-05&#x2F;PERS-Investments-Mar2024.pdf" rel="nofollow">https:&#x2F;&#x2F;www.nvpers.org&#x2F;sites&#x2F;default&#x2F;files&#x2F;2024-05&#x2F;PERS-Inve...</a>

&gt; “Doing nothing is harder than it looks”<p>He means that when people are screaming at you to <i>do something</i> because the market&#x27;s tanking, you earn your salary by yawning and saying, &quot;No, I think we&#x27;re good.&quot;

Or you can just make the right friends in high places and get bailed out from poor fund management:<p><a href="https:&#x2F;&#x2F;www.nbcnews.com&#x2F;news&#x2F;amp&#x2F;ncna1261125" rel="nofollow">https:&#x2F;&#x2F;www.nbcnews.com&#x2F;news&#x2F;amp&#x2F;ncna1261125</a>

Interesting analogy -<p>- A casino&#x27;s winning business model (at least behind the facade of marketing glitz and amenities) is to set odds that favor the house, make sure its rules are followed, then essentially do nothing as it gets rich on the long-term consequences of those odds.<p>- It&#x27;s the inevitible-net-loosers...er, customers, who are the think-they&#x27;re-smarter and think-they&#x27;re-luckier busybodies. And always trying new strategies, to build some sort of success out of their occasional sort-term wins.<p>I suspect that local awareness of this dynamic is why Nevada&#x27;s business leaders and government tolerate such a boring, passive pension investment strategy.

All this is true, and there are many good comments in the thread here. But this &quot;hey dude, stock picking is for idiots and all non idiots but index funds&quot; should be treated with caution. Index funds are an extremely clever idea but were never meant to be used on such a scale.<p>To give you some ideas:<p><a href="https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;chriscarosa&#x2F;2024&#x2F;04&#x2F;02&#x2F;index-funds-surge-in-popularity-but-pose-risks-for-the-market&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;chriscarosa&#x2F;2024&#x2F;04&#x2F;02&#x2F;index-fu...</a>

He is still in charge. I was expecting him to have been forced out. Very hard to fight shiny.<p><a href="https:&#x2F;&#x2F;www.pionline.com&#x2F;pension-funds&#x2F;nevada-public-employees-pension-fund-returns-91-fiscal-year" rel="nofollow">https:&#x2F;&#x2F;www.pionline.com&#x2F;pension-funds&#x2F;nevada-public-employe...</a>

The macroeconomic read between the lines takeaway for me from this is, these pension funds are big time LPs in VC firms. If that well dries, it has substantial downstream effects for the startup ecosystem and raising capital.

So in the end, what&#x27;s the key takeaway regarding global economics ? If (some of) the most well-paid people cannot guess the market, then doesn&#x27;t it mean that they are useless ? Then why are we paying their services ?

Alright, how much of this is hard science and how much is just survivorship bias?

Are the actual holdings of the pension public? Seems like something is like to follow!

Great tool for bypassing paywalled articles. <a href="https:&#x2F;&#x2F;routinehub.co&#x2F;shortcut&#x2F;19150&#x2F;" rel="nofollow">https:&#x2F;&#x2F;routinehub.co&#x2F;shortcut&#x2F;19150&#x2F;</a>

To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund:<p>We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big.<p>If you don&#x27;t beat the index (within the time frame), you make up the difference (so I get the return to the index).

Fidelity: Successful investors forget they have an account:<p><a href="https:&#x2F;&#x2F;www.bogleheads.org&#x2F;forum&#x2F;viewtopic.php?t=146347" rel="nofollow">https:&#x2F;&#x2F;www.bogleheads.org&#x2F;forum&#x2F;viewtopic.php?t=146347</a>

The title was correct yesterday. Why is the title editorialized today?<p>&quot;What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing&quot;<p>This is the actual title of the article, the page, and the printed version. There was no reason to have edited this except for optics. If true, that&#x27;s absurd, dang.

Whenever the topic of index funds come up, people should remember:<p>1. The benchmark for hedge funds is <i>not</i> the sp500, it’s the bond market<p>2. Because the sp500 is inherently a <i>bet</i>, that America’s top few companies will perform well. This is <i>not</i> a purely risk free, hands off bet.<p>If you bought the Japanese Index fund, the Nikkei, even today it hasn’t returned to its 1980 peak<p>You might say “I’ll just get a global index”- in which case congrats, you’ve underperformed hedge funds!<p>3. There are more factors than just investment returns- ie volatility (Sharpe), drawdowns, etc<p>So despite what HN seems to think, the hedge fund industry is not in fact, full of idiots.

Always better to invest and just let the market over time take care of it, the make quick cash never works.

(2016)

Completely off-topic. The article is paywalled, and for once I decided to go down the subscription rabbit hole. I am viewing this in Firefox on Windows. But every &quot;subscribe&quot; button on the WSJ page points to an Apple store page for the &quot;app&quot;. WTF?!

So, for SURE it is possible to beat &quot;the market&quot;, but:<p>- strategy is limited up to max 1mio per account (well, maybe 2 pr 3)<p>- you need a tailored software, tools like MT&#x2F;et al wont help you<p>- with a leverage of 5-10, its possible to achieve gigantic returns<p>- system needs to be capable of going short as well<p>- your individual application should abstract-away all dauly charting&amp;news noise: what counts is statistics and propability only, do not check CNN et al<p>EDIT: - this approach cant be done by ANY institutional corp due to regulations, so they are not doing it