his wealth has barely beaten the s&p 500 since he left though. The growth is more to do with the bull market in general than the specific feats of his money manager

Barely beating the sp500 at the scale his money is at is still not bad though, no?

Beating the S&P500 at all is better than most money managers can do, also.

Yes -- especially because just about every diversification strategy being promoted over the past 20 years involves putting money into other asset classes that have under-performed the S&P by large amounts. And the arguments for diversification are everywhere. Hard to ignore them.

Wealthfront, for example, currently cites a 3-year annualized return of 5.67% on its best batch of portfolios (ie tax-advantaged), and a 5-year annualized return of 9.44%.

By contrast, a pure S&P play would have provided 10.09% annualized over 3 years and 15.17% over five. Links are here:

https://www.wealthfront.com/historical-performance http://quicktake.morningstar.com/index/IndexCharts.aspx?Symb...

I don't believe BillG had all his money in S&P index funds. But he and/or his managers were able to find other investments that did even better. That's not easy to do, given markets of recent years, as the Wealthfront data indicates.

About one third of managers beat the market. The problem is that there is no correlation between year-to-year performance of managers: the manager who beat the market this year is no more likely to beat it next year than any other manager.

https://blog.wealthfront.com/illusion-stock-picking-skill/

Right, the point is that his manager consistently beat the market (even if by a small amount). Not that I knew this before just now.

It occurs to me that maybe the way to beat the S&P is to focus on the losers and not the winners.

That is, if you could figure out which listed companies were going to fare the worst and build a partial index fund with the rest, you'd beat the index.

Similar research style to short selling but with less downside.

In order to beat the market, you have to know something it doesn't already know. But eventually, it's (they're) going to learn that, too, so you'll have to learn something new. The only way to keep beating the market is to gather information faster than the "average" and keep up with the information that it has, relative to what you invest in, although usually you can accomplish most of the work in the latter half (beta, IIRC) by watching the market itself. In brief, as Martin Shkreli put it: invest in yourself...

Unexpected takeovers make this much harder than it seems.

For example, Twitter's prospects on its own don't look so great right now. But if that induces you to avoid owning Twitter, you miss out on a quick profit (perhaps even a big one!) if some larger company decides to buy it.

I don't think it's any easier to find companies that will under preform. Apple stock seems over priced right now with P/E:17.66 and not so great growth prospects, but so does Amazon and Facebook and the rest of the S&P 500 when you take a close look.

If picking the winners is impossible, how would picking the inverse set (e.g. losers) be any different?

I'd assume it's because most companies aren't big winners or big losers.

In theory a company's expected poor performance is already priced into the stock.

I wasn't able to find actual data on his performance, what I found is that: "Cascade does not publicly disclose its performance results". If someone has actual numbers I'd be happy to see them.

That is a very bold claim. As a counterexample, I bet that some of them are more likely to beat the market than me if I started investing.

By managers I mean professional portfolio managers.

Individual investors pretty much all do worse than market.

EDIT: obviously that means there is skill involved. But it seems that professional managers are close enough in skill that luck is the dominant factor.

Unless you invested in the S&P 500 :)

He's surely been spending many billions of dollars in that time period though, we can't know how much but I think it would be more than enough to be significant.

Aside from the fact that he's been aggressively donating his personal assets to philanthropy rather than accumulating them in recent years, it's very difficult to beat the S&P when you're talking about tens of billions of dollars.

At that scale, the S&P isn't even a good benchmark, because it's not like a single investor can just dump that much in an index fund or even in the underlying companies directly.

SPY and the Vanguard version together represent half a trillion dollars of wealth under management. And that's just the top two. So yes, you can dump that much in index funds.

That's the same amount he has. Vanguard can't just double their fund like that...

From other comments: Vanguard's 500 index manages ~500 billion (dmoy), Gates is worth ~100 billion (kevindqc). Even so, Vanguard can't just increase their fund by 20% like that.

Right you're sorta missing the point though. Vanguard outside of the s&p 500 has another 3.5 trillion or something. They could absorb bill gates net worth.

Vanguard's 500 index alone represents 550 billion under management. (It's split into 4+ expense ratio classes depending whether you have 0, 10k, 5m, 50m, 5b or whatever)

matching the S&P 500 with billions of personal assets is reallllly hard. Almost nobody in that position would just put $30B in NEA with Vanguard and wait - not diversified enough.

If you've got $30B in personal assets, it's hard to imagine any investment situation short of the complete collapse of the monetary system that wouldn't leave you as immensely wealthy until you die.

Putting it all in any one thing could be bad. Its easy to imagine ridiculous phrases like "Put it all in Twinkies".

But yeah any halfway sensible plan will leave a billionaire fantastically wealthy even in failure.

With that much money, you could literally shovel cash into the furnace every day, and probably never run out.

Indeed. I've always preferred using one billion seconds as a way of understanding just how much a billion is (hint: it's 31 and change years).

The average American lifespan is 2.4 billion seconds.

If you were shoveling 100 dollar bills, you could actually do some damage in the relatively short term (you could probably reasonably shovel $5k-10k/10s, or $500-1k/s, so you could burn through a billion every 1.5-3 weeks (assuming you never sleep or eat).

If you were working a 40hr week shoveling hundreds, it would take 6-12 weeks to burn through a billion.

If you were doing the same but with singles it would take 6-12 _years_ to burn through a billion.

So if you started with $30B - it would take between 180 and 360 years to get rid of all that money by shoveling it into a furnace.

You could literally have a few generations of heirs whose job is shoveling money into a furnace and they would be considered significantly wealthy for most of those generations.

Of course. It's a ludicrous amount of money, you could just keep it in cash and not worry about it. That wasn't in any way the topic of conversation - it was why is it difficult to beat the market (or even match the market) managing that much money for one person as a money manager.

Sure, and my point was that it was a pointless consideration.

Got any more information on that? I would be interested to read about it.

A significant portion of Gates' wealth comes not from his Microsoft stock, but through his investment arm, Cascade Investment:

https://en.wikipedia.org/wiki/Cascade_Investment

Owns 5% of Berkshire Hathaway. Doing pretty solid right there.