Hedge Fund Manager welcomes your questions
09-05-2014
, 03:42 PM
Quote:
If not for the public bailing out Wall Street in 2008, how would your firm have done if the markets would have been left alone, and Wall Street and the big banks hadn't been bailed out? What percentage of cash did you have on hand to invest between spring of 2008 and late 2009 or so?
Without cheap access to money and leverage, can you articulate how you or anyone else at your fund has an actionable investing advantage on any large market cap investment?
How do Hedge Funds justify the clearing of the decks each January 1st? For example, most Hedge Funds choose investments that can move fast. If 25 Hedge Funds own Apple on the last day of December, then that is the price that they calculate their gains with, and they take their percentage off of that without ever having the sold equity (mark to market). If on January 1st APPLE's CEO was indicted, or some huge negative event occurred, APPLE would plunge, yet the Hedge Funds would have taken their cut without ever having sold the underlying equity.
Hedge Funds are designed to transfer the money from the investors to the Hedge Fund partners. It is total speculation for most, and that is why you never hear about them having Exxon. Exxon is going to move wildly. It is an almost automatic money making machine that no person in the last 80 years could have lost money on if they tried.
I am hardcore because I know that very few people in the hedge fund industry have EVER paid their bills and improved their lives purely from investing. Asset gathering, even if you have a good eye for investments, after having never had success over time with true investing (Bill Ackman, plus many others) is not real investing. If you aren't going to suffer a negative lifestyle adjustment if you make a huge mistake, and have never had to navigate through situations where that would be the case, then you are just gambling with other people's money.
The only Hedge Fund guy who I have read about who makes any sense to me is Ray Dalio. I respect James Simons, but nobody really knows what is in the soup there. Throw in George Soros. Stanley Druckenmiller gets a lot of credit, but he really blew up during the tech bubble, and he was strictly a maniacal gambler who was lucky to get out somewhat alive, and very lucky to get out alive in his other fund he was running at the time. Steven Cohen is obviously a fraud. Don't know enough about John Tudor Jones.
To me, it is almost impossible to justify being involved. First, you can't really articulate an edge, and second, there is no way to justify why the smartest minds should get into finance, as it is mainly money transferring, and nothing at all is created.
Good luck to you. I mean that. I am just hardcore when it comes to 99 percent of all investment talk. People were playing a losing game in 2008 and there should be more stories out there of people who had to get real jobs. As it was, the regular guy on the street had his money transferred to the gamblers on Wall Street, and that is a huge crime. If it had played out in a fair way, where people have to pay huge consequences for being fully invested at the top, when they knew that 500K for houses were being given to janitors with zero down and zero documentation of income, then most all of the gamblers of other people's money would have suffered a permanent loss of capital like they should have.
The DOW went from 14,000 to 6,500 in just over a year. It was going way lower than that without transferring money from the public to Wall Street. So, almost all in the hedge fund world were fully invested during that drop, and that drop would have been much worse without the public bailout. Very few were short. Paulson borrowed money and created his own personal security to short, but he ended up being a horrific investor in the years after that. Haven't heard many, if any, stories of funds who got short near 14,000. Most funds are long only now. In the old days they may have gone short, but now it is just gambler, and then pump up the stock in public.
Without cheap access to money and leverage, can you articulate how you or anyone else at your fund has an actionable investing advantage on any large market cap investment?
How do Hedge Funds justify the clearing of the decks each January 1st? For example, most Hedge Funds choose investments that can move fast. If 25 Hedge Funds own Apple on the last day of December, then that is the price that they calculate their gains with, and they take their percentage off of that without ever having the sold equity (mark to market). If on January 1st APPLE's CEO was indicted, or some huge negative event occurred, APPLE would plunge, yet the Hedge Funds would have taken their cut without ever having sold the underlying equity.
Hedge Funds are designed to transfer the money from the investors to the Hedge Fund partners. It is total speculation for most, and that is why you never hear about them having Exxon. Exxon is going to move wildly. It is an almost automatic money making machine that no person in the last 80 years could have lost money on if they tried.
I am hardcore because I know that very few people in the hedge fund industry have EVER paid their bills and improved their lives purely from investing. Asset gathering, even if you have a good eye for investments, after having never had success over time with true investing (Bill Ackman, plus many others) is not real investing. If you aren't going to suffer a negative lifestyle adjustment if you make a huge mistake, and have never had to navigate through situations where that would be the case, then you are just gambling with other people's money.
The only Hedge Fund guy who I have read about who makes any sense to me is Ray Dalio. I respect James Simons, but nobody really knows what is in the soup there. Throw in George Soros. Stanley Druckenmiller gets a lot of credit, but he really blew up during the tech bubble, and he was strictly a maniacal gambler who was lucky to get out somewhat alive, and very lucky to get out alive in his other fund he was running at the time. Steven Cohen is obviously a fraud. Don't know enough about John Tudor Jones.
To me, it is almost impossible to justify being involved. First, you can't really articulate an edge, and second, there is no way to justify why the smartest minds should get into finance, as it is mainly money transferring, and nothing at all is created.
Good luck to you. I mean that. I am just hardcore when it comes to 99 percent of all investment talk. People were playing a losing game in 2008 and there should be more stories out there of people who had to get real jobs. As it was, the regular guy on the street had his money transferred to the gamblers on Wall Street, and that is a huge crime. If it had played out in a fair way, where people have to pay huge consequences for being fully invested at the top, when they knew that 500K for houses were being given to janitors with zero down and zero documentation of income, then most all of the gamblers of other people's money would have suffered a permanent loss of capital like they should have.
The DOW went from 14,000 to 6,500 in just over a year. It was going way lower than that without transferring money from the public to Wall Street. So, almost all in the hedge fund world were fully invested during that drop, and that drop would have been much worse without the public bailout. Very few were short. Paulson borrowed money and created his own personal security to short, but he ended up being a horrific investor in the years after that. Haven't heard many, if any, stories of funds who got short near 14,000. Most funds are long only now. In the old days they may have gone short, but now it is just gambler, and then pump up the stock in public.
Though not mentioned in the book, we had enough "tail hedges" in 2008 (aka "Big Short" type trades) to be quite profitable in 2008 and the payoffs on those "insurance policies" provided cash for us to invest at the lows (in many markets, not just equities) in 2009. And obviously, our firm received no bail out of any kind.
articulating actionable investing edge...not trying to dodge, but let me again argue by way of poker analogy. If the average person (or perhaps a reporter from a non-poker publication) asked Phil Galfond what is his edge in poker, he would likely give a rather blah answer ("I am good at math, I study my opponents closely, I try to improve all the time"). If another poker pro he liked asked him, his answer would likely be of more depth ("my ability to assess ranges better, my understanding of game theory optimality and my ability to play in an maximally exploitative way against a weaker opponent").
To really understand what gives Phil G an edge requires a decent amount of specialized poker knowledge and some serious study of his answer to assess credibility.
If you were approached by a poker player for a staking arrangement, you would want to do deep interviews to assess depth of knowledge. You would want to assess their character (do they tilt, do they drink too much?). You would also want to get an audited track record of their previous wins/losses (hard to get in poker land!)
Given all that, you might conclude that a staking deal is a good investment. And you might be right or wrong about that, but you would have a process that might lead you to more winners than losers.
We, at times, publish ex-ante our views on how an investment situation will work out and our logic of why we believe so. Mostly we send only to our investors but sometimes we do so more broadly for the public--though rare. Given our history on those ex-ante views and (much more importantly) our actual investment results some people have concluded that we are more likely winners than losers.
Not sure if I satisfactorily answered your question, but even if it may seem I am not, I am trying
09-05-2014
, 09:20 PM
09-06-2014
, 08:45 AM
Renaissance is number 1 of all time (reminds me of the Foundation in Asimov's books) And no, I don't work there
Less clear after that. Might be dodging this one a bit as I fear losing anonymity and some point and don't want to burn bridges.
Less clear after that. Might be dodging this one a bit as I fear losing anonymity and some point and don't want to burn bridges.
09-06-2014
, 11:22 AM
09-06-2014
, 12:48 PM
09-06-2014
, 01:52 PM
Why? This seems to be a pretty unique position, so I'd love to hear more here.
When I did the CAIA exams back in 2010-2011, they were aimed at helping money managers make good decisions picking alternative investments for that sector of their portfolio. The readings were entertaining, but the exams were pretty easy. I have found that passing them has not helped on my resume.
re: 25/50 NL
Did you ever beat any level over a large sum of hands? Also, did you ever get tutoring from an online pro? If not, why not?
re: managed accounts
Would love to hear more here. I've heard that some of the big pension funds essentially now have managed accounts. It seems like something I'd insist on if I were a large pension fund, particularly for newer funds. I understand if this isn't something you want to talk about or just haven't thought about much because it isn't applicable to your firm.
What questions are we not asking that you'd like us to ask? I'm not sure how much this thread has helped your book.
When I did the CAIA exams back in 2010-2011, they were aimed at helping money managers make good decisions picking alternative investments for that sector of their portfolio. The readings were entertaining, but the exams were pretty easy. I have found that passing them has not helped on my resume.
re: 25/50 NL
Did you ever beat any level over a large sum of hands? Also, did you ever get tutoring from an online pro? If not, why not?
re: managed accounts
Would love to hear more here. I've heard that some of the big pension funds essentially now have managed accounts. It seems like something I'd insist on if I were a large pension fund, particularly for newer funds. I understand if this isn't something you want to talk about or just haven't thought about much because it isn't applicable to your firm.
What questions are we not asking that you'd like us to ask?
I'm not sure how much this thread has helped your book.
09-06-2014
, 02:14 PM
09-06-2014
, 02:41 PM
09-06-2014
, 03:09 PM
Quote:
Well done Pete! Spot on.
If Phil G would offer you this deal, you wouldn't (if you were smart) argue about the fee arrangement but quickly agree before someone else does!
The ratio of win rate to standard deviation is known as the "information ratio" or "Sharpe ratio"--in this case, 3. The fund I manage has had a realized information ratio of over 3 for over 6 years now. For that to be from luck, the odds would be 741^6. Although as Taleb says, that alone can never be proof that we aren't just good coin flippers, it starts to seem less likely
Also, the track record of Millennium Management (not where I work) is even more impressive and unique. More on this in some future post. It is close to the "hedge fund that basically never loses", and how it does so is incredibly revealing about markets.
It is possible that the market was beatable for a time (like a poker table being beatable) and it is no longer so. Perhaps the bad players all left the game. Therefore, our realized results may not be the best predictor (in fact, they likely are not) of our expected future information ratio.
If Phil G would offer you this deal, you wouldn't (if you were smart) argue about the fee arrangement but quickly agree before someone else does!
The ratio of win rate to standard deviation is known as the "information ratio" or "Sharpe ratio"--in this case, 3. The fund I manage has had a realized information ratio of over 3 for over 6 years now. For that to be from luck, the odds would be 741^6. Although as Taleb says, that alone can never be proof that we aren't just good coin flippers, it starts to seem less likely
Also, the track record of Millennium Management (not where I work) is even more impressive and unique. More on this in some future post. It is close to the "hedge fund that basically never loses", and how it does so is incredibly revealing about markets.
It is possible that the market was beatable for a time (like a poker table being beatable) and it is no longer so. Perhaps the bad players all left the game. Therefore, our realized results may not be the best predictor (in fact, they likely are not) of our expected future information ratio.
"Also, the track record of Millennium Management (not where I work) is even more impressive and unique. More on this in some future post. It is close to the "hedge fund that basically never loses", and how it does so is incredibly revealing about markets."
Can you explain more about this?
Also, how does one start out thinking about and testing different investment thesis'?
09-06-2014
, 10:58 PM
