Biz Direct MarketKnowing When To Make A Good Decision

Fat tails getting obese? It’s sad seeing peoples’ savings and pensions hurt by the stock market bet. Again. No returns despite vicious volatility for so many years. An equity risk premium but no performance premium? When bonds rise so does underfunding. I access skill instead of gambling on indices. Bear markets and low interest rates don’t impair the returns of intelligently constructed portfolios. The future is unknown so robust hedging and multi-strategy alpha are essential.

Shorts are mandatory; longs are optional. How many more lost decades can we afford? Government debt concerns hit markets so “rational” investors buy “safety” in zero yield cash! My retirement plan needs real absolute returns in all market conditions so is ONLY invested in alpha. I don’t want a cent run by “cheap” managers. I prefer +10% every year after fees no matter what happens and only the best deliver that. Proper hedge funds aren’t the problem; they are the solution.

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Fat tails get obese? It’s sad to see peoples’ savings and pensions hurt by the stock market bet. Again. No returns despite vicious volatility for so many years. An equity risk premium but no performance premium? When bonds rise so does underfunding. Since I don’t gamble I access skill premiums instead. Bear markets and low interest rates don’t impair the returns of intelligently constructed portfolios. The future is unknown so robust hedging and multi-strategy alpha are essential.

Shorts are mandatory; longs are optional. How many more lost decades can we afford? Government debt concerns hit markets so “rational” investors buy “safety” in zero yield cash and negative yield gold! Unlike them, my retirement plan needs adequate absolute returns in all market conditions so is ONLY invested in alpha. I don’t want a cent run by “cheap” managers. I prefer +10% every year after fees no matter what and only the best can deliver that. Proper hedge funds aren’t the problem; they are the solution.

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Fat tails get obese? It’s sad seeing savings and pensions wrecked again by the stock market. No returns despite vicious volatility for so many years. What equity risk premium? Instead I access the skill premium. It’s more stable and LESS risky. Bear markets and low interest rates don’t damage the performance of intelligently constructed portfolios. The future is unknown so robust hedging and multi-strategy alpha are essential for those seeking RELIABLE returns.

How many more lost decades can we afford? Government debt concerns hit markets so “rational” investors buy “safety” in zero yield cash and negative yield gold! Unlike them, my retirement plan needs adequate absolute returns in all market conditions so is 100% invested in alpha. I don’t want a cent run by “cheap” managers. I prefer +10% every year after fees no matter what and only the best can deliver that. No asset class will come anywhere close. Proper hedge funds aren’t the problem; they are the solution.

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Tail risk? Summer doldrums? The “quiet” month of August is rarely quiet. Concern over government debt hits markets so “rational” investors BUY government debt! Fat tails are getting obese. Bear markets and low interest rates don’t impact the returns of PROPERLY constructed portfolios. The future is unknown so robust hedging and multistrategy market neutrality are mandatory. It is sad seeing hard working peoples’ savings and pensions ravaged by the long only lobby. No return for taking high risk for such a long time. Triumph of the realists or revenge of the pessimists? Hedge funds aren’t the problem; they are the solution.

Ridiculous that market turbulence hurts so many investors. Keeping to long only is like sticking with slate and chalk when you could be using an Apple iPad. Financial innovation has progressed but most portfolios remain in the beta stone age. Hedge funds seek alpha. Total alpha sums to zero but the hedge fund industry generates substantial positive alpha. That’s despite wide return dispersion and “average” hedge funds aren’t skilled. The explanation is simple - much investment by non-hedge funds is non-alpha seeking. All hedge funds try to produce absolute returns but most other funds just aim to beat or track a benchmark.

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Tail risk in the summer doldrums? The “quiet” month of August is rarely quiet. Triumph of the realists or revenge of the pessimists? Concern over government debt hits markets so “rational” investors BUY government debt! Fat tails are getting more obese. The future is unknown so robust hedging and market neutrality are mandatory. Bear markets and low interest rates don’t impact the performance of PROPERLY constructed multistrategy portfolios. Time to buy? It’s always time to buy alpha not beta. Volatility is a blessing since forced trading, mispricing and arbitrage situations increase. Unacceptable losses for many years show unskilled long only is for speculators but skilled long/short is for widows, orphans and retirement plans. Time to REPLACE long only with better, cheaper solutions. It had its chance but the damage must now cease.

How can a long only portfolio be considered diversified when codependencies are so obvious? When stocks crash “risk free” yields also drop doubly worsening pension liabilities. Hedge funds aren’t alternatives; they are replacements. 100% in quality REPLACEMENT INVESTMENTS is the way to reduce risk and secure viable income streams for the long term. Adding commodities and geographic diversification doesn’t help since they rely on similar global demand factors. Emerging markets offer alpha chances NOT beta anymore. Real hedge funds are in the business of trading, finding inefficiencies and monetizing volatility for absolute returns. Managers needing bull markets to make money are running closet index funds. Acid tests like now are great for differentiating true ability from random luck.

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Invest in assets or strategies? The world’s best hedge fund manager Munehisa Homma, invented quantitative investing, event-driven arbitrage and algorithmic trading. Many good hedge funds increased exposure to Japan after the earthquake but weak ones reduced and sold the low. Others lost because their “quants” and “risk managers” hadn’t stress tested for an event that was certain to occur. Inevitable happenings aren’t black swans.

Homma-sensei would be buying Nikkei 9,000 call options right now, like me. Taking the other side of panic usually works. In 1755 the developer of systematic pattern recognition and candlestick analysis wrote “Buy when the crowd is selling”. The current commodities “boom” is ideal for his contrarian relative value strategies. Some commodities traders even attempt to find alpha without mastery of his methods. No wonder most of them lose over time. Bull markets disguise much incompetence.

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Invest in assets or strategies? The world’s smartest ever hedge fund manager Munehisa Homma, invented quantitative investing, event-driven arbitrage and algorithmic trading. Many good hedge funds increased exposure to Japan after the earthquake but weak ones reduced and sold the low. Other managers lost because their “quants” and “risk managers” hadn’t stress tested for an event that was certain to occur. Inevitable happenings aren’t black swans.

Homma-sensei would be buying Nikkei 9,000 call options right now. Taking the other side of panic usually works. In 1755 the developer of systematic pattern recognition and candlestick analysis wrote “Buy when the crowd is selling”. The current commodities “boom” is ideal for his contrarian relative value strategies. Some commodities traders even attempt to find alpha without mastery of his methods. No wonder most of them lose over time. Beta bull markets disguise vast manager incompetence.

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Invest in assets or strategies? The world’s first hedge fund manager Munehisa Homma, invented quantitative investing, event-driven arbitrage and algorithmic trading. Many good hedge funds increased exposure to Japan after the earthquake but bad ones reduced and sold the low. Other managers lost money because their “quants” and “risk managers” hadn’t stress tested for an event that was certain to occur. Inevitable happenings aren’t black swans.

Homma-sensei would be buying Nikkei 9,000 call options right now. Taking the other side of panic usually works. In 1755 the developer of systematic pattern recognition and candlestick analysis wrote “Buy when the crowd is selling”. The current commodities “boom” is ideal for his contrarian relative value strategies. Some commodities traders even attempt to find alpha in such markets without mastery of his methods. No wonder most of them lose over time.

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Invest in assets or strategies? The world’s first hedge fund manager Munehisa Homma, invented quantitative investing, event-driven arbitrage and systematic trading. Many good hedge funds increased exposure to Japan after the earthquake whereas bad ones reduced and sold the low. Other managers lost because “quants” and “risk managers” hadn’t stress tested for an event that was certain to occur. Inevitable happenings aren’t black swans.Most likely Homma-sensei would be buying Nikkei 9,000 call options right now, like me. Taking the other side of panic usually works. In 1755 the developer of pattern recognition and candlestick analysis wrote “Buy when the crowd is selling”. The current commodities “boom” is ideal for his contrarian relative value strategies. Amazingly some commodities traders even attempt to find alpha in such markets without mastery of his methods. No wonder most of them lose over time.Apart from cash, the best way to help a region get back to business is to go there. In the north it’s a rescue situation now but the worst hit areas will be looking to reconstruct. Northern Japan having been the home of the world’s greatest ever money manager also has superb hot springs, traditional ryokan, ski resorts and mountain hiking. The local economy will need customers. And investors.I’m arranging an investor trip to the affected areas in Japan. The values and opportunities are compelling. Anyone or any group interested is welcome to get themselves to Tokyo in September prepared for a one week journey. I can sort out the logistics within Japan. It’s a great time to visit Tohoku. The best ryokan and got springs are available then. The region will need assistance long after the media goes home. There really is a triple bottom line for win/win/win investing. A rough one week itinerary: 1) Head to Homma’s home town to visit his historic house, trading room, garden, art gallery and the family office/corporation he founded that exists today2) As far as is practicable and respectful, visit the worst hit parts of the north east coast. And hopefully directly help some devastated local families and villages3) Visit some alpha places in Tohoku I don’t want the beta crowd to know about4) Stay in traditional hotels amid beautiful scenery5) Drop by some north Japan institutions and HNWIs that invest in great hedge fundsA week of your time that won’t be wasted. All participants will receive the only English language translation of Honma’s great work on investing - “The Fountain of Gold”. That’s after viewing the actual fountain of gold. The Sage of Sakata paved the way for modern day alpha capture superstars like the Oracle of Omaha and the Brain of Budapest.Since the earthquake, tsunami and radiation scare, I haven’t been able to contact several people I know that were in the worst affected area and their chances look remote. But the survivors will need plenty of help. Also having rescued and adopted many animals over the years, I’m concerned about the fate of displaced Japanese pets and work animals. Whether it’s guarding an injured friend, a forlorn horse, baby dolphins, deer on sacred Kinkasan or the famous Cat Island.If you can donate it would be great. Soon the north Japan situation will drop off the headlines but problems and desperation will remain. Bigger cities like Sendai, Kesennuma and Kamaishi have lost thousands in population. I’ve been to those sadly now well-known places like Minamisanriku, Minamisoma and Rikuzentakata. Charity now but socially responsible infrastructure investing soon.Please let me know. If you can’t make it, please consider donating anyway. You can email HedgeFundBlog@gmail.com if you have interest in the trip.

by Veryan Allen. Copyright

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Invest in assets or strategies? The world’s first hedge fund manager Munehisa Homma, invented quantitative investing, event-driven arbitrage and systematic trading. Many good hedge funds increased exposure to Japan after the earthquake whereas bad ones reduced and sold the low. Others lost because some “quants” and “risk managers” hadn’t stress tested for an event that was certain to occur. Inevitable happenings aren’t black swans.

Most likely Homma-sensei would be buying Nikkei 9,000 call options right now, like me. Taking the other side of panic usually works. In 1755 the developer of pattern recognition and candlestick analysis wrote “Buy when the crowd is selling”. The current commodities “boom” is ideal for his contrarian relative value strategies. Amazingly some commodities traders even attempt to find alpha in such markets without mastery of his methods. No wonder most of them lose over time.

Read the rest of this entry »