Hedge fund loses 99.8% of all funds, $100m down to $200k.
Hedge fund loses 99.8% of all funds, $100m down to $200k.
The manager is "truly sorry".
"[The manager] said in the letter that he made a series of "aggressive transactions" over the last three weeks to make up for poor returns in December. He said he bet on stock price options, predicated on the broader market rising. But stock indexes fell, causing the huge losses"
http://www.cnbc.com/id/102356275
I think there is a lesson here about market timing, risk management, and the validity of the notion that "you get what you pay for" with high price fund managers.
"[The manager] said in the letter that he made a series of "aggressive transactions" over the last three weeks to make up for poor returns in December. He said he bet on stock price options, predicated on the broader market rising. But stock indexes fell, causing the huge losses"
http://www.cnbc.com/id/102356275
I think there is a lesson here about market timing, risk management, and the validity of the notion that "you get what you pay for" with high price fund managers.
I'm just a fan of the person I got my user name from
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
I wonder if the manager got his 2% of the $100 million or $200k? I think I know the answer.
- InvestorNewb
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Wow. How can someone lose that much money? That's insane.
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
"Keep digging deeper! That'll fix it!"InvestorNewb wrote:Wow. How can someone lose that much money? That's insane.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Classic principal-agent problem.
Manager already had a very bad December. So much so, that his career was likely going to take a very hard hit. It was perfectly rational for the manager to bet it all, double-or-nothing. If he won, he would look like a genius and all would be forgiven. If he was wrong, well he was already in a heap of trouble. Now he's just in a touch bit more trouble.
Who was it that said someone is naturally willing to take more risk with someone else's money than with their own?
Manager already had a very bad December. So much so, that his career was likely going to take a very hard hit. It was perfectly rational for the manager to bet it all, double-or-nothing. If he won, he would look like a genius and all would be forgiven. If he was wrong, well he was already in a heap of trouble. Now he's just in a touch bit more trouble.
Who was it that said someone is naturally willing to take more risk with someone else's money than with their own?
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
The lawyers are circling...
They could bet the entire $200,000 on a single number in roulette, win, and they would still be $93,000,000 short.
They could bet the entire $200,000 on a single number in roulette, win, and they would still be $93,000,000 short.
- zaboomafoozarg
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
In other news, "hedge-fund hotshot made $1B betting on oil": http://nypost.com/2015/01/21/this-hedge ... oil-crash/
If the manager who lost 99.8% of his fund would have guessed correctly, he too would likely be considered a hotshot right now.
This is why I am skeptical of hotshots. It's very hard to know if they have real skill or insight that will persist... or if they just made a lucky guess.
If the manager who lost 99.8% of his fund would have guessed correctly, he too would likely be considered a hotshot right now.
This is why I am skeptical of hotshots. It's very hard to know if they have real skill or insight that will persist... or if they just made a lucky guess.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
That is a truly impressive loss. Somebody has to be at the end of the tail, and he's the one.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
We'll have to see if he can duplicate this performance before we can determine whether it is luck or skill.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
http://www.bloomberg.com/apps/news?pid= ... JS57CQQbeEzaboomafoozarg wrote:In other news, "hedge-fund hotshot made $1B betting on oil": http://nypost.com/2015/01/21/this-hedge ... oil-crash/
If the manager who lost 99.8% of his fund would have guessed correctly, he too would likely be considered a hotshot right now.
This is why I am skeptical of hotshots. It's very hard to know if they have real skill or insight that will persist... or if they just made a lucky guess.
indeed. Amaranth lost $6.6bn betting natural gas prices would rise.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Liar's Poker (Salomon, 1980s) and When Genius Failed (LTCM 1990s) have some great examples of this.toto238 wrote:Classic principal-agent problem.
Manager already had a very bad December. So much so, that his career was likely going to take a very hard hit. It was perfectly rational for the manager to bet it all, double-or-nothing. If he won, he would look like a genius and all would be forgiven. If he was wrong, well he was already in a heap of trouble. Now he's just in a touch bit more trouble.
Who was it that said someone is naturally willing to take more risk with someone else's money than with their own?
You see corporate execs do it to with the 'transformative' big takeover or corporate move.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
There is persistence in bad fund performance. Logically that means good fund performance should also be persistent, but that doesn't seem to be as true.bpp wrote:We'll have to see if he can duplicate this performance before we can determine whether it is luck or skill.
There really are fund managers who always underperform.
http://www.morningstar.co.uk/uk/funds/s ... F0GBR04RQG
Manek was a pharmacist who won a Sunday Times stockpicking competition, and has been underperforming basically ever since. An unerring ability to pick companies that are going off the boil (the internet fashion retailer ASOS for example is a major fund holding).
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
I always found it interesting that hedge funds were not more regulated based on the theory that their investors were sophisticated and more knowledgeable.
I'm out of the loop as far as hedge funds. How does one even find one to invest in? Do they have internet sites? Do they beat the bushes looking for $10 million investors?
I'm out of the loop as far as hedge funds. How does one even find one to invest in? Do they have internet sites? Do they beat the bushes looking for $10 million investors?
The key to success - Save early, save often, invest well.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Check out the comments to the original article. They're hilarious and made my day
Debt is dangerous...simple is beautiful
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Chill, guys! He said he was sorry. I mean it coulda happened to any of us if someone was silly enough to entrust us with all that money, right?
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Every time one of these hedge fund stories comes out, it reinforces my sense of astonishment that anyone invests their money in them.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
: ) My investments would have returned 15% last year with very little risk and all for a low low fee of 1% over ER.choices wrote:Chill, guys! He said he was sorry. I mean it coulda happened to any of us if someone was silly enough to entrust us with all that money, right?
A very informative filing here:
http://www.sec.gov/Archives/edgar/data/ ... ry_doc.xml
70% Global Stocks / 30% Bonds
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Thinking they could find Alpha, they found Omega.
I'm finding myself unable to have sympathy for anyone involved...
I'm finding myself unable to have sympathy for anyone involved...
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
I, personally, do not blame the hedge fund manager. He did what was best for him. He runs a hedge fund so don't think there is a prudent man's rule or fudiciary standard like for a RIA. The bigger issue, in general, is investors not understanding you have to find what Mr. Swensen made famous for describing as "Alignment of Interest", i.e. tugging on the same side of the rope.toto238 wrote:Classic principal-agent problem.
Manager already had a very bad December. So much so, that his career was likely going to take a very hard hit. It was perfectly rational for the manager to bet it all, double-or-nothing. If he won, he would look like a genius and all would be forgiven. If he was wrong, well he was already in a heap of trouble. Now he's just in a touch bit more trouble.
Who was it that said someone is naturally willing to take more risk with someone else's money than with their own?
The basic concept is any situation where the manager makes money no matter what (limited downside risk) and you only make money when it does well with unlimited risk (going broke) you have a serious problem with alignment of interest.
In the end this is why in the late Harry Browne often would say one should keep as few as people from your money and you as possible.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
camden wrote:Every time one of these hedge fund stories comes out, it reinforces my sense of astonishment that anyone invests their money in them.
What about these kinds of stories:
zaboomafoozarg wrote:In other news, "hedge-fund hotshot made $1B betting on oil": http://nypost.com/2015/01/21/this-hedge ... oil-crash/
WWJD - What Would Jack Do?
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
It's possible people could have been invested without knowing it, hedge funds typically have pretty high minimum investments and the people that can meet them tend not to manage their own money. More than one person's job is probably going to be impacted by this loss.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
why would anyone trust their money with the former trader at Raj Rajaratnam's company?
May be they were aware to the risk and aiming too high.
May be they were aware to the risk and aiming too high.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Yeah honestly the manager acted in his own rational self-interest. From his perspective, nothing he did was unreasonable. Immoral? Sure. But not irrational. He followed his self-interest to the letter.staythecourse wrote:I, personally, do not blame the hedge fund manager. He did what was best for him. He runs a hedge fund so don't think there is a prudent man's rule or fudiciary standard like for a RIA. The bigger issue, in general, is investors not understanding you have to find what Mr. Swensen made famous for describing as "Alignment of Interest", i.e. tugging on the same side of the rope.toto238 wrote:Classic principal-agent problem.
Manager already had a very bad December. So much so, that his career was likely going to take a very hard hit. It was perfectly rational for the manager to bet it all, double-or-nothing. If he won, he would look like a genius and all would be forgiven. If he was wrong, well he was already in a heap of trouble. Now he's just in a touch bit more trouble.
Who was it that said someone is naturally willing to take more risk with someone else's money than with their own?
The basic concept is any situation where the manager makes money no matter what (limited downside risk) and you only make money when it does well with unlimited risk (going broke) you have a serious problem with alignment of interest.
In the end this is why in the late Harry Browne often would say one should keep as few as people from your money and you as possible.
Good luck.
Makes you kinda worried about those that advocate for a society run 100% on nothing but self-interest.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
>why would anyone trust their money with the former trader at Raj Rajaratnam's company?
Apparently he was not implicated in the insider trading.
So at least he lost the money honestly?
Apparently he was not implicated in the insider trading.
So at least he lost the money honestly?
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Right, it is likely that the whole lot were rotten and operating on the edge (or beyond) of ethics and law. Should not be too shocking that this fund went bust also.parsi1 wrote:why would anyone trust their money with the former trader at Raj Rajaratnam's company?
May be they were aware to the risk and aiming too high.
70% Global Stocks / 30% Bonds
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Someone send him a copy of The Boglehead's Guide to Investing
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Reminds me of when a roommate gave me $20 to gamble in Las Vegas (1994 - I was driving through on a ski trip and was showing a Brazilian the sights of the West). He said, "Go make me some money." I said, "You are really giving me money to gamble?" So, I went to a table (I don't remember which game as I hate gambling and Las Vegas) and won $5 so I was up to $30. Then I gambled $10 three times and lost all the money.
Back home my roommate eagerly waited for me to see how rich he had become. I said I lost all your money (I was not sorry like the hedge fund manager)....and he was actually a little bit mad at me!!!
Back home my roommate eagerly waited for me to see how rich he had become. I said I lost all your money (I was not sorry like the hedge fund manager)....and he was actually a little bit mad at me!!!
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
The rules have been changed to allow them to advertise to retail investors, though so far few have taken advantage of it. Oh, and they are now allowed to accept $1 million investors.MN-Investor wrote:I always found it interesting that hedge funds were not more regulated based on the theory that their investors were sophisticated and more knowledgeable.
I'm out of the loop as far as hedge funds. How does one even find one to invest in? Do they have internet sites? Do they beat the bushes looking for $10 million investors?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
On the other side of his trades, SOMEBODY made some money.
And now they can tell their clients, "See, WE know how to beat the market!"
And now they can tell their clients, "See, WE know how to beat the market!"
Time is what we want most, but what we use worst. William Penn
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
As Bluto would say to those investors:
"My advise to you is to start drinking heavily".
RM
"My advise to you is to start drinking heavily".
RM
I figure the odds be fifty-fifty I just might have something to say. FZ
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
It's only money, no problem...
Attempted new signature...
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
I don't know anything about this hedge fund manager, but he sounds like a stand-up guy. Or, at least better than me. If I lost $99,800,000 of other people's money, I'd feel so bad, I'd probably drink the last 200k away.
Quod vitae sectabor iter?
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
And I thought I was a bad investor....kind of puts my mistakes of the past in perspective
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
How are hedge funds regulated, if at all? How do they know he didn't just tuck $100m - $200k into his pocket?
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
If you believe in reversion to the mean, bet on this guys next hedge fund........Gordon
Disciple of John Neff
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Minimum investment $1,000,000..... obviously people that have more money than sense.z3r0c00l wrote:A very informative filing here: http://www.sec.gov/Archives/edgar/data/ ... ry_doc.xml
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Hedge Funds? NO. Too much hype. Too much diffusion of performance among winners and losers. Too many different strategies. Too many successful managers who won't accept your money. Too much cost and too little tax efficiency. The management fees are so high that they often destroy even the small chance you have of winning. (The hedge fund, it is said, is not an investment strategy but a compensation strategy.) ~ John Bogle (From the Little Book of Common Sense Investing).
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
LOL. You win the Internet for the day.bpp wrote:We'll have to see if he can duplicate this performance before we can determine whether it is luck or skill.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Only 99.8% losses? If he'd been betting against the Swiss Franc he could have had 500% or bigger losses!
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
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Last edited by TT on Mon Feb 05, 2024 3:09 pm, edited 1 time in total.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Can't argue with that!!stemikger wrote:Hedge Funds? NO. Too much hype. Too much diffusion of performance among winners and losers. Too many different strategies. Too many successful managers who won't accept your money. Too much cost and too little tax efficiency. The management fees are so high that they often destroy even the small chance you have of winning. (The hedge fund, it is said, is not an investment strategy but a compensation strategy.) ~ John Bogle (From the Little Book of Common Sense Investing).
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Exactly my thoughts.Tanelorn wrote:Only 99.8% losses? If he'd been betting against the Swiss Franc he could have had 500% or bigger losses!
Of course, that undoubtedly happened to someone else's hedge fund; we just haven't heard about it yet.
In theory, theory and practice are identical. In practice, they often differ.
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Everest Capital's $830 million hedge fund is closing after losing almost all its money on the Swiss Franc move.technovelist wrote:Exactly my thoughts.Tanelorn wrote:Only 99.8% losses? If he'd been betting against the Swiss Franc he could have had 500% or bigger losses!
Of course, that undoubtedly happened to someone else's hedge fund; we just haven't heard about it yet.
http://www.reuters.com/article/2015/01/ ... N920150117
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Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
It was definitely in his own short-term interests. Was it in his own long-term interests? The test will be whether or not he keeps/gets another job in the industry. I would hope not, but merit is definitely not the only factor involved.toto238 wrote:Yeah honestly the manager acted in his own rational self-interest. From his perspective, nothing he did was unreasonable. Immoral? Sure. But not irrational. He followed his self-interest to the letter.
Makes you kinda worried about those that advocate for a society run 100% on nothing but self-interest.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
I can't quite figure out what this guy did. From the article,
Buying options betting on the broader market to rise sounds like buying call options or maybe selling put options. With the call options, the downside would be limited to the up front cost of the options. Selling puts would have the bigger downside risk from market declines, but the "broader market" didn't really fall much at all (not that I noticed anyway), so he probably used some serious leverage to produce this kind of loss, no?Li said in the letter that he made a series of "aggressive transactions" over the last three weeks to make up for poor returns in December. He said he bet on stock price options, predicated on the broader market rising. But stock indexes fell, causing the huge losses along with several undisclosed direct investments, according to the note.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
He could have bet everything on calls that expired worthless. The "up front cost" is the only costgrog wrote:With the call options, the downside would be limited to the up front cost of the options.
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
What I am curious about is if before he winds down, can another hedge fund buy him out to take over all of his tax assets (carryover losses)? Would be awesome to shield $100m, although perhaps a tax-motivated acquisition would be frowned upon?
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
Exactly. Didn't he understand leverage?Tanelorn wrote:Only 99.8% losses? If he'd been betting against the Swiss Franc he could have had 500% or bigger losses!
"Confusion has its cost" - Crosby, Stills and Nash
Re: Hedge fund loses 99.8% of all funds, $100m down to $200k
I'm "truly sorry" I lost all y'alls money.
Slow and steady wins the race.