Hedge Fund managers who blew up
Two consecutive years of this magnitude of underperformance for such a goliath of the industry is frankly unheard of and some investors have begun to pull money, openly opining that JP’s haul in 2008 & 2009 has skewed his thought process such that he believes he “can’t be wrong” — in a word, hubris has taken hold. JP has now essentially gone “all-in” on gold with news at the time of writing revealing that he has effectively tied 44% of his fund to the gold price.
In a nutshell, he has bet the ranch once more on an unleashing of a 3rd and massive tranche of QE that sends gold to the moon. The problem for him is that the odds of such an event have been lengthening this year and he is so heavily into mining plays and the gold price itself that if he needs to get out, the whole market is going to see him coming... It will be extremely interesting to see how this saga ends.
Victor Neiderhoffer
Victor Neiderhoffer first came to my attention in the late 90’s when he blew himself up spectacularly with the Asian Currency crisis. His first blow up however was in fact back in 1987 when Black Monday hit and he wiped both himself, his investors, and his firm out. Up to the point of the crash of 87, he had been engaging in what is akin to “collecting pennies in front of an oncoming train” — Put premium selling without any hedge in place or assessment of volatility risks. He would simply sell way “out of the money Puts” on any market dip and, as the market had continued to go up for years at that point, it seemed the easiest money in the world (Note — NO money in the markets is ever easy! It may appear it at times, but trust me, hang around long enough and the market will look to call in its “loan”). Victor is something of a “maverick” figure within the industry it’s fair to say, seeking out “clues” to financial market cycles in studying sand patterns, musical notes and, more recently, tree rings.
True! He started trading in the 70’s and at one point in the early 80’s was actually in business with no less a giant of the industry than George Soros so he has experience and association on his side. Still, in 1997, he embarked on a trade in Thai banking stocks — an area he had no experience in. I think you can guess what is coming next? Yup, as the Asian Financial Crisis took hold and the Thai Banking sector continued to plumb new lows, Victor again wiped himself out and, strangely, tried to sue the Chicago Mercantile Exchange (CME) for his losses in which he alleged that floor traders colluded to drive the market down on the 27th October 1997 (a day when the Dow fell 7%) to force him out of his positions. Talk about thinking that the market’s got it in for you! To give the man his dues, however, he dusted himself down, albeit leaving his investors slain on the street, re-mortgaged his house and his antique silver collection and started trading again. He did achieve exceptional returns during the 5 year period between 2001 & 2006 in which he compounded at 50% per annum — not to be sniffed at. However, during 2007, as the Great Financial Crisis took hold, Victor again succumbed to gravity and experienced a drawdown of some 75%. Take a look at his website — www.dailyspeculations.com which is interesting to say the least! Lessons from Mr Neiderhoffer? Some people never learn and should therefore not trade in the market and also, somewhat ironically, given the man’s record and the seeming preparedness of new investors to back him — “another fool is born every minute!”
September 2012 | www.financial-spread-betting.com | 9