Biz Direct MarketKnowing When To Make A Good Decision

Invest in assets or strategies? Legendary northern Japan based hedge fund manager Munehisa Honma, invented quantitative investment strategies, managed futures, event-driven and derivatives trading. Good managers increased exposure to Japan recently; some bad ones reduced and sold the low! Others lost because their so-called “quants” and “risk managers” hadn’t properly modeled for an event that was CERTAIN to occur. I don’t doubt Honma-sensei would be long Nikkei 9,000 call options right now. Taking the other side of panic usually works. In 1755 he wrote “Buy when the crowd is selling”.

Since the earthquake, tsunami and radiation scare, I haven’t been able to contact several people I know that were in the affected area and their chances look remote. But the survivors will need plenty of help. Also having adopted many animals over the years, I’m concerned about the fate of displaced <a href=”http://www.facebook.com/pages/Japan-Earthquake-Animal-Rescue-and-Support/207835229228979?ref=ts
“target=_blank>Japanese pets and work animals. Whether it’s guarding an <a href=”http://www.telegraph.co.uk/news/worldnews/asia/japan/8386123/Loyal-Japanese-dog-leads-rescuers-to-mate.html?sms_ss=twitter&at_xt=4d81200dbae00e05,0

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Invest in assets or strategies? Legendary northern Japan based hedge fund manager Munehisa Honma, pioneered quantitative investment strategies, managed futures and derivatives trading. Good fund managers INCREASED exposure to Japan last week; some bad ones reduced and sold the low! Others lost because their so-called “quants” and “risk managers” hadn’t modeled properly for an event that was CERTAIN to occur. I don’t doubt Honma-sensei would be long Nikkei 9,000 call options and EWJ right now. Taking the other side of panic usually works. In 1755 he wrote “Buy when the crowd is selling”.

Since the earthquake, tsunami and radiation scare began, I haven’t been able to contact several people I know that were in the affected area and their chances look remote. But the survivors will need plenty of help. Also having adopted many animals over the years, I’m concerned about the fate of displaced <a href=”http://www.facebook.com/pages/Japan-Earthquake-Animal-Rescue-and-Support/207835229228979?ref=ts
“target=_blank>Japanese pets and work animals. Whether it’s guarding an <a href=”http://www.telegraph.co.uk/news/worldnews/asia/japan/8386123/Loyal-Japanese-dog-leads-rescuers-to-mate.html?sms_ss=twitter&at_xt=4d81200dbae00e05,0

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Japan invest? The post with the most feedback was on the legendary hedge fund manager Munehisa Honma, pioneer of managed futures, derivatives trading and quantitative strategies. And also a resident of northern Japan and inventor of those candlestick charts you see in the Wall Street Journal. Many good hedge funds INCREASED exposure to Japan last week; incompetent ones reduced and sold the low! I have no doubt Honma-sensei would be long Nikkei 9,000 call options and EWJ right now. Taking the other side of uninformed panic selling usually works. In 1755 he wrote “Buy when the crowd is selling”.

Japan is the country I’ve spent the most time in. It’s just 8 days since the earthquake, tsunami and radiation scare began. I haven’t been able to contact several people I know that were in the affected area on March 11 and their chances look remote. But the survivors will need plenty of assistance. Also having adopted many lost animals over the years, I’m concerned about the fate of displaced <a href=”http://www.facebook.com/pages/Japan-Earthquake-Animal-Rescue-and-Support/207835229228979?ref=ts
“target=_blank>Japan pets and work animals. whether it’s a guarding an <a href=”http://www.telegraph.co.uk/news/worldnews/asia/japan/8386123/Loyal-Japanese-dog-leads-rescuers-to-mate.html?sms_ss=twitter&at_xt=4d81200dbae00e05,0

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Japan is the country I’ve spent the most time in. Over 5,000 days. But it’s just 8 days since the earthquake, tsunami and radiation scare began. I haven’t been able to contact several people I know that were in the affected area on March 11 and their chances look remote. But the survivors will need plenty of assistance. Also having adopted many lost animals over the years, I’m very concerned about the fate of displaced <a href=”http://www.facebook.com/pages/Japan-Earthquake-Animal-Rescue-and-Support/207835229228979?ref=ts
“target=_blank>Japan pets and work animals.

If you are in a financial position to donate it would be great. Soon the north-east Japan catastrophe will drop off the headlines but problems and desperation will remain. Bigger towns like Sendai, Kessunuma and Kamaishi have lost thousands in population. I’ve been to those sadly now famous places like Minamisanriku, Minamisoma, Natori and Rikuzentakata. Hard to believe they are gone. Living things that did need short term relief efforts and long term regional investment. Charity now but capitalism later.

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Please email me at HedgeFundBlog@gmail.com if you have interest in the idea or would like more details on what I propose below.

Japan is the country I’ve spent the most time in. Over 5,000 days. But it’s just 8 days since the earthquake, tsunami and radiation scare began. I haven’t been able to contact several people I know that were in the affected area on March 11 and their chances look remote. But the survivors will need plenty of assistance. Also having adopted many “lost” animals over the years, I’m very concerned about the fate of displaced <a href=”http://www.facebook.com/pages/Japan-Earthquake-Animal-Rescue-and-Support/207835229228979?ref=ts
“target=_blank>Japan pets and work animals.

If you are in a financial position to donate it would be great. Soon the north-east Japan catastrophe will drop off the headlines but problems and desperation will remain. Bigger towns like Sendai and Kamaishi have lost thousands in population. I’ve visited those sadly now famous places like Minamisanriku, Minamisoma and Rikuzentakata. Hard to believe they are gone. Over half the people didn’t make it but those that did need short term relief efforts and longer term regional investment. Charity now but philanthro-capitalism later.

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Alternatives? Replacing long only with long/short hedge funds works only if skill is evident. Forecasting alpha and detecting skill is difficult but not impossible. After much analysis, due diligence and multifactor modeling I’ve found the few common themes for predicting superior track records are innovation, hard work, talent, shared alignment and exclusive focus. Every investor’s portfolio is a fund of funds so the main decision is WHO chooses the managers. Invigorate portfolios with substitute investments using the five factor model. Seek alpha, eliminate beta.

Value added alpha comes from selecting the right securities or the right managers. It’s a similar process for either. The main things I look for in any investment is NEW ideas and asymmetric returns. Sadly conventional “wisdom” favors OLD products with low returns at high risk and dire margins of safety. Despite investors needing consistent performance, traditionalists resist innovation and even dispute after fee alpha exists! According to many economists it’s luck but I get most manager and security selection decisions correct. It’s not rocket science. Just common sense, mathematical rigor and tracking a WORLD of opportunities.

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Alternative investments? What is a substitute investment? Replacing long only with long/short hedge funds only works if skill is evident. Forecasting alpha and detecting skill is difficult but not impossible. After much analysis, due diligence and multifactor modeling I’ve found the only common themes for predicting superior track records are strategy innovation, hard work, talent, SHARED alignment and EXCLUSIVE focus. Everyone’s portfolio is a fund of funds so the primary decision is WHO chooses the managers. Seek alpha, eliminate beta.

Alpha comes from selecting the right securities or the right managers. It’s a similar process for either. The main things I look for in any investment is NEW ideas and asymmetric risk/return profiles. Sadly conventional “wisdom” favors OLD products with low returns at high risk and dire margins of safety. Despite investors needing consistent performance, vested interests often resist innovation and even dispute after fee alpha can exist! According to economists it’s just luck but I usually get most manager and security selection decisions correct. It’s not rocket science. Just common sense, an open mind, mathematical rigor and tracking a WORLD of opportunities.

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Pension fund? Just met with another pension fund moving its entire portfolio to 100% alpha strategies in 2011. Why let retirement benefits, income streams and funded status be affected by interest rates and unreliable stock markets? Why not hire the world’s best fund managers to allocate fiduciary capital? The trustees and CIO are glad that plan will outperform peers and match long term liabilities. Retirees won’t worry about income after working and sponsors will avoid deep drawdowns. Someday 100% in skill-based strategies will be standard. Why ignore top managers or financial innovations? Why take headline risk of unskilled “passive” funds? Minimize tracking error to liabilities not assets. Take LOWER RISK than the market for HIGHER RETURNS.

Increase expected returns, lower age eligibility and invest smartly. 100% in good hedge funds is often the cheapest and safest LDI strategy. Bonds are too expensive. Absolute liabilities need absolute returns. It’s now rare for institutions to not invest in alternatives but allocations are often too low or made to mediocre managers. Promises must be paid regardless of the economy or discount rates but how to optimally fund future needs today? Most investors don’t have time to rely on stock market beta or suffer its vicious clawbacks. Skill is the friend, time is the enemy. Some sovereign wealth funds are already 100% allocated to external and internal alpha strategies. Long term success needs short term focus. Conventional “wisdom” says assumed actuarial returns are too high. Raise them instead and invest in skill.

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Pension fund? Just met with another pension moving its entire portfolio to 100% alpha strategies. Why let retirement benefits, income streams and funded status be affected by interest rates and unreliable stock markets? Those trustees and CIO are glad the plan will outperform peers and match liabilities. Retirees won’t worry about income after working and sponsors avoid drawdowns like 2008 or 2002. Someday 100% in alternatives will be standard. Why ignore top managers? Why take headline risk of unskilled funds? Minimize tracking error to liabilities not assets.

Increase expected returns, reduce age eligibility and invest smartly. Absolute liabilities need absolute returns. It’s now rare for institutions to not invest in alternatives but allocations are often too low or made to mediocre managers. Promises must be paid regardless of the economy or discount rates but how to optimally fund future needs today? Most investors don’t have time to rely on stock market beta or suffer its vicious clawbacks. Skill is the friend, time is the enemy. Some sovereign wealth funds are already 100% allocated to external and internal alpha strategies. Long term success requires short term focus. Conventional “wisdom” says assumed actuarial returns are too high. On the contrary raise them and invest in skill.

Read the rest of this entry »

Pension fund? Just met with a large pension de-risking its portfolio by moving entirely to 100% alpha strategies. Why let retirement benefits, income streams and funded status be affected by interest rate and stock market volatility? The trustees and CIO are glad the plan will outperform its peers and match liabilities. Retirees won’t have to worry about a proper income after working or another drawdown like 2008 or 2002. Someday 100% in alternatives will be standard. Why avoid top managers? Why endure the headline risk of unskilled funds? Minimize tracking error to liabilities not assets.

Absolute liabilities need absolute returns. It’s now rare for institutions to not invest in alternatives but allocations are often too low. Promises must be paid regardless of the economy or discount rates but how to optimally fund future needs today? Long term success requires short term focus. Most investors don’t have time to rely on stock markets to deliver. Skill is the friend, time is the enemy. Increase expected returns, reduce age eligibility and invest smartly. Some sovereign wealth funds are already 100% allocated to external and internal alpha strategies. What do you know that they don’t?

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