Last week's blog on how badly the mainstream press tends to cover hedge funds drew some intense commentary – both criticism and praise. One exchange completely illustrates for me what's wrong with that the press that covers the hedge fund industry for at least one national financial daily newspaper.
After being on vacation for a couple days in the Cape of Cod – my family’s home away from home, the land of beaches, good chowda, not-so-good salt water taffy and of course thousands upon thousands of Red Sox fans -- I came back to an inbox full of messages. One was a request from a reporter at a newspaper you've heard of to “remove me from your list – I don’t want to read your stuff.” My response was simple and elegant: “Consider it done and sorry to see you go!”
That wasn't the end of it, though. My email set off an exchange between me and the reporter. It was polite. It finally ended with him saying that while I was entitled to my own opinion, he felt no need to read my work. Translation: Don't bother telling me about mistakes I've made. I have nothing to learn from the likes of you.
And that, my friends, is the problem. That may sound egotistical, but the fact is that he should be be reading what I and others write to make sure that he and his colleagues are getting it right! Sure, I've gotten things wrong. Everyone makes mistakes. But to make the same ones over and over again? Well, that's unacceptable, especially when people don’t want to read about their errors. That just tells me they're lazy.
Well no more am I going to allow this. I am working on a solution to this problem – not lazy reporters but reporters getting hedge fund stories wrong. Journalists need ombudsmen, and maybe that should be my role. I like making sure people stay at the top of their games. I haven’t completely figured it out yet, but will by the end of September. Stay tuned.
With that I say have a good Labor Day Weekend. Enjoy these last bits of summer. And don’t forget about HedgeAnswers – check it out at www.hedgeanswers.com. Our Chicago event is on the 8th of September and Philadelphia is on September 16th!
Thursday, August 28, 2008
Wednesday, August 20, 2008
Get out of my face...
As all of you loyal readers know, I don't think much of how the media covers hedge funds. It's rare, if ever, that I think hedge fund stories are -- to quote the Fox News slogan -- fair and balanced. Sometimes, though, I'm pleasantly surprised to read a story by someone who doesn't seem to have an axe to grind.
One such piece appeared in The Financial Times last week. The story was about a hedge fund that was already up more than 230 percent this year. In July alone, the fund returned more than 24 percent. The commodities-based fund has been able to take advantage of downturns in the market and earn an excessive rate of return.
I read the article and the first four or five paragraphs really made me smile. All I was thinking was, "Wait, isn't this what hedge funds are supposed to do?" Some might ask a different question: How much risk did he take to make those returns?
Well, I have no idea. I've never spoken to the manager. I've never talked to anybody who works for the manager. I've never seen documents. I've never seen anything at all. But with that said, I am sure that the manager and his team knew exactly how much risk they were taking and new exactly what their exposure was at all times. They understood the upside and the downside before the trades were executed because that's what hedge fund managers are supposed to do: Make money. Lots of money, shared between the investors and the money managers.
The problem is, that's not what hedge funds are doing. Over the course of the month, I get between 50 and 100 “performance updates” from funds all over the world. The vast majority of them have had very poor numbers. The numbers are disgusting. Many funds are posting losses in the double digits for the month, quarter and year. It's just awful.
Frankly, I get sick to my stomach when these “updates” come in because I believe that the investors in these funds have been sold a bill of goods. That's only reinforced when I read the manager commentary that comes along with the updates. That stuff is even worse than the numbers, which can't lie. The commentary passes the buck and blames the poor returns on volatility, problems in the credit markets, and everything else under the sun.
I only have one response to that commentary: “Get the hell out of my face with that nonsense.” A manager has one job – to make money regardless of market conditions. If you can’t do that, fold up the tent and go home. Hedge fund managers aren't asset gatherers – that's for the mutual fund people. The reason hedge fund managers get paid so well is because they're supposed to make money, not put up double digit losses and complain about market conditions.
So, my call to action for every hedge fund investor is to look at your portfolios. Figure out if the managers that you've invested in are actually doing their jobs, and if they're not, fire them. It's that simple. Their job is to make money, period. It is not to manage for mediocrity. It's not to build a bigger infrastructure. It's not to have a beautiful office. It's not to have a massive art collection or their own jets. It's to make money. Tell them to get out there and do what they are supposed to do or go home.
Remember HedgeAnswers is coming up quick to learn more about these great events go to www.hedgeanswers.com. I hope you can make it.
One such piece appeared in The Financial Times last week. The story was about a hedge fund that was already up more than 230 percent this year. In July alone, the fund returned more than 24 percent. The commodities-based fund has been able to take advantage of downturns in the market and earn an excessive rate of return.
I read the article and the first four or five paragraphs really made me smile. All I was thinking was, "Wait, isn't this what hedge funds are supposed to do?" Some might ask a different question: How much risk did he take to make those returns?
Well, I have no idea. I've never spoken to the manager. I've never talked to anybody who works for the manager. I've never seen documents. I've never seen anything at all. But with that said, I am sure that the manager and his team knew exactly how much risk they were taking and new exactly what their exposure was at all times. They understood the upside and the downside before the trades were executed because that's what hedge fund managers are supposed to do: Make money. Lots of money, shared between the investors and the money managers.
The problem is, that's not what hedge funds are doing. Over the course of the month, I get between 50 and 100 “performance updates” from funds all over the world. The vast majority of them have had very poor numbers. The numbers are disgusting. Many funds are posting losses in the double digits for the month, quarter and year. It's just awful.
Frankly, I get sick to my stomach when these “updates” come in because I believe that the investors in these funds have been sold a bill of goods. That's only reinforced when I read the manager commentary that comes along with the updates. That stuff is even worse than the numbers, which can't lie. The commentary passes the buck and blames the poor returns on volatility, problems in the credit markets, and everything else under the sun.
I only have one response to that commentary: “Get the hell out of my face with that nonsense.” A manager has one job – to make money regardless of market conditions. If you can’t do that, fold up the tent and go home. Hedge fund managers aren't asset gatherers – that's for the mutual fund people. The reason hedge fund managers get paid so well is because they're supposed to make money, not put up double digit losses and complain about market conditions.
So, my call to action for every hedge fund investor is to look at your portfolios. Figure out if the managers that you've invested in are actually doing their jobs, and if they're not, fire them. It's that simple. Their job is to make money, period. It is not to manage for mediocrity. It's not to build a bigger infrastructure. It's not to have a beautiful office. It's not to have a massive art collection or their own jets. It's to make money. Tell them to get out there and do what they are supposed to do or go home.
Remember HedgeAnswers is coming up quick to learn more about these great events go to www.hedgeanswers.com. I hope you can make it.
Monday, August 11, 2008
It is the numbers - stupid!
Everyday it seems another hedge fund is going out of business or in trouble.The volatility of 2008 is taking its toll on many funds both large and small. It is very strange. New funds cannot seem to get off the ground and some well-known established funds are closing their doors. It is the numbers – stupid.
It is bad out there. Do not be fooled by recent rallies things are tough and do not seem to be getting any better. There is some light at the end of this tunnel. The bright side is that this volatility is truly getting rid of a lot of the dead weight in the industry. It is forcing fund managers to show their investors and potential investors just how good or bad they are during tough times. It is fascinating to be observing the hedge fund business right now.
Never has it been truer to say that nobody really knows what tomorrow brings. It is after all impossible to predict the future however, there is one thing that we can predict with some certainty – that markets rise and fall. This is an undisputable fact and as such, investors and managers need to prepare for these types of environments. The reason so many funds are closing is due to their inability to deal with the volatility. These managers have truly no concept of how to manage money during tough times.
All good investors have bad times. It is the law of averages – you cannot be right 100 percent of the time. One needs to stick with the fundamentals – reread Graham and Dodd – the material works and makes sense. It is just that simple.
HedgeAnswers 2008 is right around the corner. The events are shaping up quite nicely and I look forward to seeing you at them. To register and learn more about HedgeAnswers go to www.hedgeanswers.com.
It is bad out there. Do not be fooled by recent rallies things are tough and do not seem to be getting any better. There is some light at the end of this tunnel. The bright side is that this volatility is truly getting rid of a lot of the dead weight in the industry. It is forcing fund managers to show their investors and potential investors just how good or bad they are during tough times. It is fascinating to be observing the hedge fund business right now.
Never has it been truer to say that nobody really knows what tomorrow brings. It is after all impossible to predict the future however, there is one thing that we can predict with some certainty – that markets rise and fall. This is an undisputable fact and as such, investors and managers need to prepare for these types of environments. The reason so many funds are closing is due to their inability to deal with the volatility. These managers have truly no concept of how to manage money during tough times.
All good investors have bad times. It is the law of averages – you cannot be right 100 percent of the time. One needs to stick with the fundamentals – reread Graham and Dodd – the material works and makes sense. It is just that simple.
HedgeAnswers 2008 is right around the corner. The events are shaping up quite nicely and I look forward to seeing you at them. To register and learn more about HedgeAnswers go to www.hedgeanswers.com.
Monday, August 4, 2008
A Bit of a Bump and Bruise
I hate to say I told you so, but I told you so: Things are bad, and they may get worse before they get better. You don’t need to read this blog to learn that jobs are being lost, prices of everything from a carton of milk to a gallon of gas are through the roof and there is no end in sight for the conflict in Iraq and Afghanistan.
But my advice is the same as it’s always been. If you look back at some of these blog posts over the last year or so, as well as some of the material in our newsletter and my books, I’ve been saying for quite some time that they really need to understand how their money is being managed. Unfortunately, the questions, comments and confusion I’m seeing suggest that no one – or at least very few – are heeding this advice. That can only make a bad market look worse.
Well, let me tell you two things: First, if you are a hedge fund manager or budding hedge fund manager during markets like these, stay in touch with your investors and potential investors. Second, you investors out there -- or potential investors – need to ask lots of questions, and make sure you get answers to all of them.
Recently, one of the many financial publications wrote that hedge funds are overrated, the managers are paid too much and that these investment vehicles for the rich should be outlawed. I tried to find that clipping for you, but then realized it was too difficult: All of them had written that story.
Such articles have littered the press of late, and I expect them to pile up even more in my dustbin. People are confused about what’s going on in the markets and when they are confused they make bad decisions – knowingly and unknowingly.
So take what you read with a grain of salt. As long as you have good reasons for handing over the money you’ve given to particular managers, you should have no problems with your portfolio in the long run. Short term bumps and bruises are to be expected. Long-term gains are what should be delivered. In either case, make sure you have conviction and if you don’t act accordingly.
As for the future of the hedge fund industry, my thoughts are simple: Those funds that have the wherewithal to weather this and other future storms will make it. Survival takes, time, patience, understanding, chutzpah and balls. A little of each will go a long way.Those who don’t have them wither and die. Don’t shed a tear, it’s Darwin’s world and we’re all just living in it.
On another note, before we know it, the summer will be over and that can mean only one thing – it is time for HedgeAnswers. To learn more about our exciting events go to www.hedgeanswers.com. Register today, seats are filling up fast!
But my advice is the same as it’s always been. If you look back at some of these blog posts over the last year or so, as well as some of the material in our newsletter and my books, I’ve been saying for quite some time that they really need to understand how their money is being managed. Unfortunately, the questions, comments and confusion I’m seeing suggest that no one – or at least very few – are heeding this advice. That can only make a bad market look worse.
Well, let me tell you two things: First, if you are a hedge fund manager or budding hedge fund manager during markets like these, stay in touch with your investors and potential investors. Second, you investors out there -- or potential investors – need to ask lots of questions, and make sure you get answers to all of them.
Recently, one of the many financial publications wrote that hedge funds are overrated, the managers are paid too much and that these investment vehicles for the rich should be outlawed. I tried to find that clipping for you, but then realized it was too difficult: All of them had written that story.
Such articles have littered the press of late, and I expect them to pile up even more in my dustbin. People are confused about what’s going on in the markets and when they are confused they make bad decisions – knowingly and unknowingly.
So take what you read with a grain of salt. As long as you have good reasons for handing over the money you’ve given to particular managers, you should have no problems with your portfolio in the long run. Short term bumps and bruises are to be expected. Long-term gains are what should be delivered. In either case, make sure you have conviction and if you don’t act accordingly.
As for the future of the hedge fund industry, my thoughts are simple: Those funds that have the wherewithal to weather this and other future storms will make it. Survival takes, time, patience, understanding, chutzpah and balls. A little of each will go a long way.Those who don’t have them wither and die. Don’t shed a tear, it’s Darwin’s world and we’re all just living in it.
On another note, before we know it, the summer will be over and that can mean only one thing – it is time for HedgeAnswers. To learn more about our exciting events go to www.hedgeanswers.com. Register today, seats are filling up fast!
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