How many online pros average +500k a year in the world?

[bustedromo]

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Regarding fund managers...

This is way off topic but there is a lot of evidence that they really don't contribute anything. They provide superior returns but only if you fail to adjust for increased risk, and they pretty much rip off their customers in terms of fees.

If they were in fact providing abnormal returns they would at least be making the market more efficient, even if they were still ripping off their clients. As it is I really don't think they do anything except add a little volatility.

(There are some outlier funds that really do seem to provide abnormal risk-adjusted returns, to be fair.)

BTW - My main source for this is a recent New Yorker article, but people in the press and academia and other areas of the financial world have suspected this for years.

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In the equities and equities derivatives trading biz, mutual fund managers are generally known as chumps. Most of them have no clue how markets actually work and are taken on a regular basis by market-makers. If you talk to fundies, they'll tell you that on the strategic scale they think at, playing the trading game is irrelevant (i.e. their losses due to "friction" is a tiny fraction of their potential inaccuracy on entrance/exit points in a directional trade). In this manner, (on average) they manage to piss away any risk-adjusted fees-adjusted advantage they really offer over the indexes. As you might expect, they're mostly delusional about the advantage their skills really do offer.

The mutual fund game is really all about marketing and risk-control on the minus side. Get as much money under management as possible, charge the highest fees possible, avoid losing money because losing money=losing customers.

To be fair to the managers, the game is somewhat rigged against them because the marketing-driven nature of the business usually sets some parameters on what they can be invested in, and what % of the money must be invested, that are difficult to work around. But even with that in mind, these guys are mostly turkeys.

What about hedgies ? Hedge funds used to be where all the really talented people ended up eventually (because of the pay structure, and the freedom to do the really interesting trading). And due to this talent, and the freedom to run the money as they please, hedgies do offer far better edges on the indexes than fundies (in the good old days, 40% was expected from a hedge-fund). However, these increased edges comes at the price of variance, and so hedge funds are not for everyone.

In recent years, visibility of hedge funds has moved out of the very private enclave of the very rich and caught the public eye. Consequently all sorts of clowns who don't know what they're doing have gotten involved, and thus we have record hedge fund collapses, with far more to come.

What's the lesson ? If you want your money run by people with real skill who can get you a true edge on the indexes, you need to accept that there will be significant variance in your returns. Kind of like the bankroll realities of being a poker pro.

Do managers of hedge funds and mutual funds add economic value ? Well, if you want all that saved money of the world's well-off people put to work out there acting as capital investment in the economy, then it's almost inevitable that there will also be a bunch of human beings out there managing large portions of it (due to the sales/marketing driven nature of capitalism). As is true in any game, the majority of these players are suckers whom the minority of real talent feed off. It's really quite similar to the poker world.