Biz Direct MarketKnowing When To Make A Good Decision

Bonds or stocks? A good alpha source this year has been BRIC versus BRIC. Since I disclosed it, long Colombia/short China returned +50%, long Indonesia/short India +30%, Bangladesh beat Brazil and Romania rocked Russia. Relative-value strategies don’t often make money on both sides. While economic expansion does not imply stock market growth, I’m more glad I didn’t tie up peoples’ cash in “risk free” cash. Long only? Too risky so I’ll leave the bond bubble to others. Absolute return is the safer alternative.

Seek alpha or bet on beta? Why does so much financial advice fixate on how much to allocate to various betas? The more “risk averse” the more in bonds? Is it sensible to recommend the same allocation at 1% yields as when they paid 10%? Can opportunity cost and default risk be ignored with coupons so low and borrowing so high? There are NO risk free bonds but at least higher yields delivered the fixed-income on which so many individuals and institutions depend. Financial regulation has as much chance of preventing the NEXT crash as ordering the ocean to stop rogue waves. Get sunk again OR benefit from them? You choose.

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Bonds or stocks? A nice investment this year has been the bric versus BRIC trade. Since I wrote about it, long Colombia/short China returned +50%, long Indonesia/short India +30%, Bangladesh bettered Brazil and Romania rose past Russia. Beta-neutral relative value emerging market strategies usually don’t make money on both sides. While economic expansion does NOT imply stock market growth, I’m more glad I didn’t tie up peoples’ cash in “risk free” cash. Long only? Too risky so I’ll leave others to chase the bond bubble. Absolute return is the SAFER alternative.

Seek alpha or bet on beta? Why does so much financial advice fixate on how much to allocate to various betas? The more “risk averse” the more in bonds? Is it sensible to recommend the same allocation at 1% yields as when they paid 10%? Can opportunity cost and default risk be ignored with coupons so low and borrowing so high? There are NO risk free bonds but at least higher yields did deliver the fixed-income on which so many individuals and institutions depend. Financial reform and regulation has as much chance of preventing the NEXT crash as ordering the ocean to stop rogue waves. Get sunk again OR benefit from them? Investors can choose.

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Buy bonds or stocks? A nice investment this year has been the bric versus BRIC trade. Since I disclosed it the long Colombia/short China position returned +50%, long Indonesia/short India +30%, Bangladesh bettered Brazil and Romania romped past Russia. Beta-neutral relative value strategies rarely make money on both sides. While economic expansion does not imply stock market growth, I’m more glad I didn’t tie up cash in “risk free” bonds.

Search for yield? Not long ago many experts said inflation was inevitable so short bonds but now deflation is the hot topic so buy them instead? There is a long list of gurus that lost big money short selling JGBs over the years but now treasuries are doing the same to them. If you need an explanation for the bond rally it is more a short squeeze than flight to “safety”. Trade bonds but don’t hold them. Just like stocks. Applied skillfully, long/short equity is safer than long only. And I’ll take fixed-income arbitrage and distressed debt strategies over “investment grade” bonds.

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Buy bonds or stocks? A nice alpha trade this year has been bric versus BRIC trade. Since I disclosed it the long Colombia/short China position returned +50%, long Indonesia/short India +30%, Bangladesh bettered Brazil and Romania romped past Russia. Beta-neutral relative value strategies rarely make money on both sides. While economic expansion does not imply stock market growth, I’m more glad I didn’t tie up cash in “risk free” bonds.

Seek alpha or bet on beta? Why does so much financial advice fixate on the irrelevant topic of how much to allocate to asset classes? The more “risk averse” the more in bonds? Is it sensible to recommend the same allocation if they yield 2% as when they paid 10%? Can opportunity cost and default risk be ignored with coupons so low and borrowing so high? There are no risk free bonds but at least higher yields delivered the fixed-income on which so many individuals and institutions depend. Absolute return is the alternative.

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Hedge Fund began five years ago today. It’s been great meeting and dialoging with many interesting people I might never have connected with. Initially I posted daily but outside the blogosphere I was helping investors make money and reduce risk. Developing portfolio rescue strategies and pension liability solutions also takes time. Despite vastly superior performance, hedge funds continue to be misunderstood. Some still blame them for downturns. Causality is cloudy: did EWP have a good month due to “stress tests” or soccer success? Stocks might eventually go up (or down) but why wait decades to find out?

Could individual and institutional investors afford ANOTHER severe bear market or credit cataclysm? There is no need for retirement savings and personal net worth to suffer the unreliability and volatility of long only stocks and bonds. Better alternatives and uses of capital are available. Some still bet on risky beta - the unskilled returns from asset classes. I prefer alpha - absolute returns from market skill. The only financial certainty in the future is a substantial increase in investment in skill. Major stock markets are lower than 5 and 10 years ago. Good for alpha but bad for beta. Don’t let beta behemoths crush your portfolio, again, prudent man. Fiduciary duty implies attempting to preserve client capital.

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Hedge Fund began five years ago today. It’s been great meeting and dialoging with many interesting people I might never have connected with. Initially I posted daily but outside the blogosphere I was helping investors make money and reduce risk. Developing pension liability solutions and portfolio rescue strategies also takes time. Despite vastly superior performance, hedge funds continue to be misunderstood. Equity benchmarks might eventually go up (or down) but why wait to find out? The five years were good for alpha but bad for beta.

Could individual and institutional investors afford ANOTHER severe bear market or credit cataclysm? Some bet on risky beta - the unskilled returns from asset classes. I prefer alpha - absolute returns from market skill. There is no need for retirement savings and personal net worth to suffer the unreliability and volatility of long only stocks and bonds. Better alternatives and uses of capital are available. The only financial certainty in the future is a substantial increase in investment in hedge funds. Don’t let the beta behemoths crush your portfolio, again.

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Hedge Fund Blog began five years ago. It’s been great meeting and dialoging with people I might never have connected with. Initially I posted daily but outside the blogosphere I’ve was quite busy helping investors make money, developing pension liability solutions and implementing portfolio rescue strategies. Despite vastly superior performance, hedge funds continue to be controversial and misunderstood. The five years have been good for alpha but not for beta.

Risky but some still bet on beta - the unskilled returns from asset classes. I prefer alpha - absolute returns from market skill. There is no need for retirement savings and personal net worth to suffer the unreliability and volatility of long only stocks and bonds. Could individual and institutional investors afford another severe bear market? Safer alternatives and better uses of capital are available. The ONLY financial certainty over the next five years is a substantial increase in investment in hedge funds. Avoid the beta behemoth crushing your portfolio, again.

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Long or short? A flight to “safety” so “rational” investors BUY government bonds and the yen? Congratulations to “emerging market” South Africa for holding a successful soccer tournament and for winning the stock market World Cup over the long term, 110.5 years. We are all long term investors, right? I guess index zealots are loading up on EZA since past is prologue or is “passive” home bias still wrecking their portfolios? Long or short alternative strategies, not long only traditional assets, is the way to go.

France are out of the World Cup and it’s Warren Buffett’s fault? He shorted Les Bleus to profit from their demise. Negative bets “cause” failure according to those who blame short sellers. Do things fail because of fundamental problems or shorts? Have sovereign debt spreads widened due to some belatedly realizing there are no risk free bonds or use of credit derivatives? Anyone not shorting is not hedging. The fact is that markets where short selling and derivatives are not allowed have WORSE crises.

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Long or short? France are out of the soccer world cup and it’s Warren Buffett’s fault? Berkshire Hathaway short sold Les Bleus to profit from their demise. Negative bets “cause” failure according to those who blame short sellers for the credit crisis. Did the team fail from fundamental problems or shorts? Have sovereign debt spreads widened due to some belatedly realizing there are no risk free bonds or use of credit derivatives? The fact is that markets where short selling and derivatives are not allowed have worse volatility and drawdowns. Anyone not shorting is not hedging. A flight to “quality” so BUY bonds and the yen? Long/short is the way to go.

A portfolio without shorts or derivatives is like a soccer team with no defenders or goalkeeper. The unhedged, unskilled crowd has underperformed CASH since France won back in 1998; so far my best ever year but commonly regarded as “bad” for hedge funds due to the blow up of one. Hedge funds have demolished long only managers since England won back in 1966; the year long/short was first widely publicized and shown conclusively to be a vastly superior alternative strategy for portfolios. After 44 years how much longer must most investors wait to be allowed to properly diversify and allocate to the pure alpha of genuine skill?

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France are out of the world cup and it’s Warren Buffett’s fault? Berkshire Hathaway short sold and profited from their demise. Negative bets “cause” failure according to those who blame short sellers. Did the team fail due to fundamental problems or short sales? Have sovereign debt spreads widened due to amateurs belatedly realizing there are no risk free bonds or professionals using credit derivatives? That fact is that long only markets where short selling and derivatives are not allowed have worse drawdowns and volatility.

Some say short selling is a drag on returns, derivatives should be banned while security analysis and active manager selection are a waste of time. If there is no such thing as investment skill, there is no such thing as sporting skill? Anyone competent knows FUTURE talent is detectable. It just takes hard work, due diligence and experience to find the top performers in advance. Skill must be unconstrained which is why mandating good managers to be long only gets similar results to blindfolding soccer players. For those who prefer human decisions to quant strategies, check out world cup referees “accuracy”.

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