Sorry we've been away for a little while. This round of investments has taken up lots of time (and lots of computing power). We are already planning for a technology upgrade at some point. The analytics we are running are maxing out our systems already, so look for more powerful computers soon. But so far so good, we are up again this month.
Not so for 3/4 of hedge funds in January, according to comments made by Barclay yesterday. According to Barclay, over 900 hedge fund managers out of the 1241 in its database lost money in January. So much for the hedge fund being perceived as a vehicle that can change directions quickly, I guess. January was a tough month for sure, but it's hard to believe that so many funds lost money. Many of those that should have never been created have forgotten their mandate, or never knew it to begin with. You have to try to make money all the time, every month. No one can do that forever, certainly not us. There will be months where your best efforts don't work out. But the loss has to be minimal, like 1 or 1.5% down. Some of these funds were down 8%, 12%, or even more during January. That's not hedging, that's gambling. Or it's maintaining conviction in the face of negative information. Either way, it's wrong.
We will never be up 100% for the year, not in this fund anyway. It's not built to hit a grand slam. But it is designed for singles and doubles and the occasional triple. It's all about on-base percentage and executing good fundamentals. Enough of the baseball analogy.
Let's hope that some of these funds regain their senses and remember why they are really in business. It's not to take big bets and get paid off huge if you are correct. It's about being wrong a very small percentage of the time by hedging every move you make.
Tuesday, February 12, 2008
Tuesday, February 5, 2008
Thursday, January 31, 2008
Next Investment Round
Our next round of investments is about to begin. The arrival of the Blooomberg a week ago ended our short period of operating in degraded mode. Now we are about to unleash the full operational power of this process. OK, that is a little dramatic. Let's just say we've got all the tools that go in the toolbag now.
On a broader note, the market is looking like it will finish January down about 6.5%. That's better than the -13.5% it touched intraday about ten days ago, but all is not well with the economy. The Fed has cut rates 1.25% in the last ten days, which has provided most, if not all, of the comeback. But the effects of those cuts will take a lot of time to ripple through to income statements, and in the meantime, it could be choppy. As it turns out, we like choppy. We make more money in general when the smooth sea turns into a rough storm. But choppy normally means that most people are hurting for awhile.
We called a range for the S&P for 2008 between 1300 -1550. We haven't closed below 1300 yet, although we've been there twice intraday. Hopefully we can get closer to 1400 soon. I have a feeling that the market will finish slightly positive for the year even given this rocky start.
On a broader note, the market is looking like it will finish January down about 6.5%. That's better than the -13.5% it touched intraday about ten days ago, but all is not well with the economy. The Fed has cut rates 1.25% in the last ten days, which has provided most, if not all, of the comeback. But the effects of those cuts will take a lot of time to ripple through to income statements, and in the meantime, it could be choppy. As it turns out, we like choppy. We make more money in general when the smooth sea turns into a rough storm. But choppy normally means that most people are hurting for awhile.
We called a range for the S&P for 2008 between 1300 -1550. We haven't closed below 1300 yet, although we've been there twice intraday. Hopefully we can get closer to 1400 soon. I have a feeling that the market will finish slightly positive for the year even given this rocky start.
Monday, January 28, 2008
The Roof Is On Fire
More negative news came out this morning about the sales of new homes, about how they are at their lowest level in 12 years, blah blah blah. Well, we all knew this was coming in 2005. There is no free lunch. Things got ridiculous, everyone jumped in, things went sour, now people are scared and want answers. In other words, the same old story of any bubble.
So here's an answer: The time to invest in residential real estate, whether for your personal home or for you investment portfolio, will be in the next 18 months. That's not the answer most people want to hear, because many have been left holding the bag (or the deed, or whatever). But if you want to make a good investment, 2008-2009 is the time to buy fairly low. We need to see blood in the streets. We need to see grey matter oozing out of people's ears. We need unearthly shrieks of pain. And we are starting to get near that point.
Homebuilders are laying off people right and left. Many subcontractors are waiting for phone calls that aren't coming. Rate cuts and refinancing aren't going to save a lot of people; they are going to have to dump their home at the worst possible time and at the lowest price. We aren't taking any pleasure in this, it's an awful thing for people to endure. But they knew what they were signing up for when they got their 5/1 ARM at 3.85%. There is always a day of reckoning.
So here's an answer: The time to invest in residential real estate, whether for your personal home or for you investment portfolio, will be in the next 18 months. That's not the answer most people want to hear, because many have been left holding the bag (or the deed, or whatever). But if you want to make a good investment, 2008-2009 is the time to buy fairly low. We need to see blood in the streets. We need to see grey matter oozing out of people's ears. We need unearthly shrieks of pain. And we are starting to get near that point.
Homebuilders are laying off people right and left. Many subcontractors are waiting for phone calls that aren't coming. Rate cuts and refinancing aren't going to save a lot of people; they are going to have to dump their home at the worst possible time and at the lowest price. We aren't taking any pleasure in this, it's an awful thing for people to endure. But they knew what they were signing up for when they got their 5/1 ARM at 3.85%. There is always a day of reckoning.
Thursday, January 24, 2008
Positive!
We don't talk about exact performance here, but I'm happy to report that our first month will be a positive one, even with all of the market turbulence. Our hedges were bent a little, but unbroken, and we will be positive. How do I know this, with a full week left in the month? Because our Bloomberg just got here today, and we are sitting in cash while we run the analytics to put together our positions. This will take a few days, and we want to make sure we are following all of the procedures that have worked in the past. Plus, Bloomberg has upgraded lots of the analytic tools, and there is a small learning curve in place.
Rogue Trader or Rogue Firm???
One trader wiped out $7.1 billion of capital from Societe Generale over the past two years.
They just noticed it this week, when the turmoil in the markets forced the trader to cover his bets.
You would think that after all of the rogue traders that have brought down firms (Jett, Leeson, etc.) that institutions would have tightened up these risk controls. Ummm, not a chance. This guy was allowed access to systems that allowed him to cover his tracks for years. The firm never questioned anything until it was too late. That's why compliance is so important, but especially to the big firms. It's easier to hide a mistake in a big firm than a small one. The best firms keep insanely tight controls in place, and they just happen to be the same firms that are holding up fairly well in this tumultuous market.
When the wheels are coming off the market, you've got to know that your vehicle is sturdy. The best firms have reviews of individual trading positions frequently, and at the management committee level. You would think that all CEOs of major firms would do this, but only a few actually do it. The rest of them get fired when it all goes down (Merrill, Citi, Bear).
You have got to MICROMANAGE EVERYTHING when it comes to trading positions.
They just noticed it this week, when the turmoil in the markets forced the trader to cover his bets.
You would think that after all of the rogue traders that have brought down firms (Jett, Leeson, etc.) that institutions would have tightened up these risk controls. Ummm, not a chance. This guy was allowed access to systems that allowed him to cover his tracks for years. The firm never questioned anything until it was too late. That's why compliance is so important, but especially to the big firms. It's easier to hide a mistake in a big firm than a small one. The best firms keep insanely tight controls in place, and they just happen to be the same firms that are holding up fairly well in this tumultuous market.
When the wheels are coming off the market, you've got to know that your vehicle is sturdy. The best firms have reviews of individual trading positions frequently, and at the management committee level. You would think that all CEOs of major firms would do this, but only a few actually do it. The rest of them get fired when it all goes down (Merrill, Citi, Bear).
You have got to MICROMANAGE EVERYTHING when it comes to trading positions.
Thursday, January 17, 2008
Break Out The Vaseline
If you woke up on Christmas morning and looked at your portfolio and smiled ... well, you probably aren't smiling now. The market has lost over 10% in the last three weeks, and is down over 8% for the year. That's not good, considering it's only January 17. They've got the market out behind the woodshed right now and are having their way with it.
So what to do? Consumer staples are doing well right now, but nothing else is. When people start getting panicky about their finances, they tend to focus on the basics (food, drinks, cigarettes, guns) and sell off everything else. Yes, guns are a consumer staple to some people. Some financial firms have been getting pummeled for too long and are worth a look. BB&T had little to no exposure to the sub-prime problems, got taken down with the others, but is now starting to stabilize as people realize that the write-downs won't happen there. Same with Goldman Sachs, which doesn't rely on the consumer nearly as much as most other financial firms. Take a look at MO and BUD, stocks that always do well when times appear to be rough. Hey, if you're going down in flames, might as well drink and smoke on the way down.
What are we doing? Well, I can't tell you exactly of course, but I will say that everything we do will be hedged. If we are wrong, we won't be very wrong. If we are right, we will do very well. Sort of what a hedge fund is supposed to do.
Johnson & Johnson (JNJ) is actually up since Christmas Day. Guess who makes Vaseline?
So what to do? Consumer staples are doing well right now, but nothing else is. When people start getting panicky about their finances, they tend to focus on the basics (food, drinks, cigarettes, guns) and sell off everything else. Yes, guns are a consumer staple to some people. Some financial firms have been getting pummeled for too long and are worth a look. BB&T had little to no exposure to the sub-prime problems, got taken down with the others, but is now starting to stabilize as people realize that the write-downs won't happen there. Same with Goldman Sachs, which doesn't rely on the consumer nearly as much as most other financial firms. Take a look at MO and BUD, stocks that always do well when times appear to be rough. Hey, if you're going down in flames, might as well drink and smoke on the way down.
What are we doing? Well, I can't tell you exactly of course, but I will say that everything we do will be hedged. If we are wrong, we won't be very wrong. If we are right, we will do very well. Sort of what a hedge fund is supposed to do.
Johnson & Johnson (JNJ) is actually up since Christmas Day. Guess who makes Vaseline?
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