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When Lance Armstrong's ex-teammate first accused him of using performance enhancing drugs, did you believe the accusation right away? I did. And when we learned that doping was common practice among top cyclists, did that surprise you? It didn't surprise me. It was exactly what I expected. My bullshit filter worked perfectly in that case. Or maybe it was just my economics training. Whenever the following three conditions are met, you always have rampant cheating:

1.       Cheating is easy

2.       The payoff is huge.

3.       The odds of getting caught are low

Eventually you'll see the same sort of doping scandal in tennis. It's obvious that many of the top players - especially the women - are up to something. You can tell by the sudden changes in body shape and performance. It's especially obvious when you see players having their best performances after the age of thirty.

This brings me to hedge funds. Every now and then - such as this week - a story trickles out that a hedge fund manager has been accused of illegal insider trading. Prior to the accusations, we tend to take hedge funds at their word that they have secret algorithms and they do penetrating research to achieve their market-beating returns.

Allow me to get out in front with both tennis and hedge funds. My bullshit filter says tennis is filled with juiced-up cheaters, and the majority of hedge funds are criminal enterprises hiding behind "secret" algorithms.

Just to be clear, I don't think Roger Federer is abusing any substances. His body shows no signs of it. I think Andy Roddick is clean too, or else he would still be playing. I would put the juicing rate at somewhere near 50% for the top thirty players.

I'm sure some hedge funds are legitimate too. The honest ones are easy to spot; most of them aren't beating the market averages. Here again I would put the rate of cheating, including insider trading, at about 50%. I have no data to support that estimate; I'm just looking at the needle on my bullshit meter. Someday we'll look back and laugh at the fact we ever believed hedge funds used secret algorithms.

What does your bullshit meter tell you about tennis and hedge funds? What percentage do you believe are cheaters?

 

 
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Nov 21, 2012
If you suspect cheating is rampant and apply then the rule that the winners are cheaters and only the average and looser might be non-cheaters then Roddick and Federer must use Doping. Is it really feasible that Federer dominates the tennis scene against competitors who use doping?

And with hedge funds I would assume that practically everyone is cheating or trying to cheat. The problem there is that cheating does not guarantee winning. If you try to game the market to go down, someone else might try to game the market to go up and might be stronger. And there are a lot of losers who don't have access to insider information, so they gamble instead.

If you look at HP and Autonomy. If you buy a company you have access to their books before closing the deal. They were not able to find the truth (and neither did Deloitte, signing off the quarterly reports). It it is impossible to evaluate a company from the inside then it is even more so from the outside, so value-based strategies can't work. And chart-analysis etc. is just guessing. The only way to guarantee profits is front-running, which is nowadays rampant.
 
 
Nov 21, 2012
Why is doping cheating? Because of some arbitrary committee's decree that is why. Doping (whatever that is) is the attempt by an athlete to be the very best he/she can be.

By this logic, the making of doping illegal is the same as making weight training, or any training for that matter, cheating and therefore illegal.

The answer to why do athletes dope and why do athletes train is exactly the same.

"They are do it to be better performers". That's cheating!! lol

For me? I wish all athletes would dope, juice and supplement themselves into invincible warriors. Then we can see the true limitations of human endeavor. Until then, sports are.... well.... .... meh.

Besides, why is it the business of anybody to tell me or you what you can ingest?
 
 
-9 Rank Up Rank Down
Nov 21, 2012
People - let's be clear: There is no such thing as 'cheating'.

Some actions have negative consequences. But this is true whether they're man-made consequences (cheat on your taxes, get caught and go to jail), or natural consequences (tell a lie to a friend, get caught and lose the friendship).

When it comes to money and sports, I count on people bending or outright breaking the rules. Expecting anything else is naive. In baseball, there's a saying, "If you're not cheating, you're not trying hard enough."

Happy Soon-To-Be Turkey-Day Everybody :-)
 
 
+4 Rank Up Rank Down
Nov 21, 2012
I'd say your rationale is spot-on, and your percentages are plausible. But I don't agree that hedge funds need to cheat to do well. Do you think Peter Lynch cheated when running Magellan? And Warren Buffett cheats? I don't. You might say "they're great stock pickers, but 'secret algorithm' implies cheating." It just means that they're not sharing their methods, because if you copied them, it would be to their disadvantage.

Think of it this way: your picks don't have to all be right; if you're right 51% of the time (about liking or DISliking a stock/sector/region/country/currency), you've beaten the market. And the "market" is usually defined as a market-capitalization-weighted index that, by definition is over-weighted in whatever is over-priced. For example, at the peak in 2000, the S&P 500 was 33.5% tech stocks. Anyone who thought that was too much, did much better in crash. In 2007, it was 30% financials; by 2009 it bottomed at 6% financials (just when they were all $1 and it was a great time to buy). And then there's leverage in hedge funds, plus the ability to bet against certain stocks by shorting them.

It's not hard to believe that disciplined investors can beat the market more often than not. But how many investors have this kind of discipline? And managers are judged each year, and often don't have the luxury of patience; their investors pull out as soon as they under-perform (e.g. not having 1/3 in tech in 1998 & 1999 during the bubble). Because hedge funds are restricted to accredited investors and are not as liquid, they don't suffer this problem as acutely as mutual funds.

Bottom line: because of your three reasons listed, I would expect that there is quite a bit of cheating (50% of them? Maybe). But I don't believe that it's their entire raison d'etre. Talent and discipline can also be effective.

Disclosure: Previously and engineer, I'm now a financial advisor.
 
 
Nov 21, 2012
Hedge funds - I'd say they're all cheating, but 50% are better at cheating than the other 50%. (Yes, I'm sure you're surprised that 50% of cheaters are better than 50% of cheaters).

I'd invest my money, if I had any, with the better cheaters.
 
 
Nov 21, 2012
Check this out

http://video.today.msnbc.msn.com/today/49915358/

First Newser does a 'stealing nun' story on the same day you suggest we trust them with our data and now this. Does this sort of thing happen to you a lot Scott?
 
 
+5 Rank Up Rank Down
Nov 21, 2012
@jnkdaniel

"Is doping cheating?" Yes. "Is lobbying cheating?" No. "Is it cheating to take statins to live longer?" No "Is airbrushing cheating?" Not if you admit to it.

Doping is in a different category because of the impact of on other people coming into the sport with the expectation of competing on a level playing field. Athletes should not face the practical (if unstated) requirement that they take performance-enhancing drugs in order to compete at the highest levels. On a personal level, I don't want my kid pressured to take drugs to improve his performance in order to make his coaches look good. Sports is awash in ego, money and risk-taking behavior. Athletes should not have to sacrifice their health, their ability to have children, etc. for their sport. If you make it optional and just call it a personal choice (as I've heard some people suggest), you leave behind some of the best of what sports has to offer and turn it into a very different enterprise...
 
 
Nov 21, 2012
I'd say for tennis the cheaters constitute maybe 30% - but only because cheating is less effective in that sport.

For hedge funds I'd say 98%. The 2% is the rotating volume of naieve funds that either quickly become crooked, or fail.
 
 
+18 Rank Up Rank Down
Nov 21, 2012
I think the rate that cartoonists and comedians use performance enhancing psychedelics is at 200%

Not that there's anything wrong with that - keep up the good work!
 
 
Nov 21, 2012
I am not sure there is enough insider information available to allow 50% of hedge funds to be taking advantage of it. They may be doing other illegal activities like pump and dump (buy a stock, start rumors about it, sell after the pop), but these are also difficult to do on a large scale. Maybe this is why as the hedge fund industry has gotten larger the market beating returns have nearly vanished.
 
 
Nov 21, 2012
I ignore sports as much as I can. Every time I've ever watched sports it just doesn't seem as much fun as other entertainment options. And now you've just provided me with another good reason to avoid them.

As for hedge funds I don't trust secret investments on general principles. I can't give you a percentage, just general 'stay the hell away from them' advice.
 
 
Nov 21, 2012
I read on ESPN's TMQ that most big hedge funds do worse than the market average, it's just the odd year or two they luck out that they boast about. Let's say this is true. In that case yes there are good ones that can do well honestly and then you have the lucky ones who will regress to below norm in a year or two. Finally there are the cheaters.

I don't know where to put that number. Since you put the number of cheaters in tennis at 50%, I'll say 50% of hedge funds do insider trading.

Now according to drudge yesterday, the senate just tweaked a bill to allow the government, including the SEC to view all your emails and whatnot without a judge's permission, so let's say that's true as well. Insider trading will probably get cracked down on or the amount of bribes to the government will go up. Of course this bill is probably a shakedown bill and enough campaign donations will go in to defeat it.

At this point in my reasoning, I'm too cynical to care about the topic any longer...



Over 9000% of hedge funds and politicians are corrupt cheaters. That's my story and I'm sticking to it.
 
 
Nov 21, 2012
You cannot be serious!
 
 
+10 Rank Up Rank Down
Nov 21, 2012
Is doping cheating? Is lobbying cheating? Is it cheating to take statins to live longer? Is airbrushing cheating?

I have lived in America too long.
 
 
Nov 21, 2012
Tennis is loaded with cheaters. Look at the level of fitness for the men. If players got to a fifth set twenty years ago it was a matter of who was in the best shape that won the match in most cases. The longer the match went the "tireder" the points looked (for both players). Today, all these (and I'm going to go out on a limb and making some GENERAL accusations here) european and south american players seem to get stronger and the points last longer as the match progresses.
And don't tell me it's just better fitness and diet because if both players have those advantages then they still have be able to beat the 'fitness and diet" out of the other because both are having to play at a higher level each and every point. In other words, it takes more energy from both just to play a point with the net result being both should be exhausted going into a fifth set. BUT they aren't. They look like they can run stop-and-go sprints for weeks at a time. They ALL look like Lance Armstrong did on the podium after the Tour de France. No one ever looks like the losers that tried to keep up with him over all those hundreds of miles.

As for the women in tennis, can somebody explain how all those 6 ft. plus girls have moms and dads that are 5' 3" and 5' 8''?

I have a friend who played baseball in the majors in the 90's. He was a journeyman who moved from team to team and he saw a lot of stuff. He use to talk about all the steriods. I only half believed him until I watched a guy he said was on steriods get fooled on an outside pitch and give the ball a one armed 'poke swing' just to keep from striking out. Off balance and with no power in his swing he happened to hit the ball with the sweet part of the bat.
The ball went in a line shot down the baseline and over the fence for a home run. I remember the announcers talking about just how strong the players were getting as he ran around the bases. It was complete b.s. They knew he was on something. I quit watching the sport that day.
My b.s. meter is on full alert and I will quit watching tennis as soon as the media can get some balls and verify what these guys are doing.
And by the way, I agree - I don't think Roddick or Federer are on anything.
 
 
Nov 21, 2012
OH MY GOD!!
The crap filter on your blog won't allow the word B U L L S H I T,
Dumb topic for a blog post or what?
 
 
Nov 21, 2012
What gets my !$%*!$%* meter going is that if hedge funds are so good, the really rich and clever guys would keep it all for themselves and not let anybody else into it.
 
 
Nov 21, 2012
I'd say folks with big egos are also more likely to cheat. They will underestimate the odds of getting caught. As far as having a big ego, let's see, professional athletes, check, hedge fund managers, double check. Yep, I would say there is rampant cheating. I have no idea what %, but 50% doesn't sound too high.
 
 
 
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