The efficient markets hypothesis in fund fees
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Via Chris Addy, a Dilbert cartoon from January 2000:
The scary thing is this is actually true, when it comes to things like the Renaissance Medallion Fund. If it wasn’t for current and former employees only, it would have no difficulty raising many billions of dollars at 5-and-44. The only way it can keep the suckers at bay is by closing the fund to all outside investors.
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Warren Buffett once commented at Harvard Business School that running a business school is the ideal business, because the more you charge, the higher demand is. I heard of a restaurant having similar result with “Rocky Mountain oysters”; when they were cheap, nobody wanted them, but when they raised the price and limited the number customers were allowed to purchase, they started selling much better. In each case the price feeds the perception of quality.
For those who don’t read Scott Adam’s blog (the creator of Dilbert), it might be worth pointing out that Scott once worked for a bank and has a degree in economics.
Dave Ramsey, call your office. Your Endorsed Local Providers (TM) are getting antsy.
felix. how do you know if the medallion numbers are actually up 80%. also, do you know if medallion engages in flash trading?