tag:blogger.com,1999:blog-4815867514277794362.post2822085550933784706..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: When the hedge doesn't workJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger31125tag:blogger.com,1999:blog-4815867514277794362.post-48758460159461293942014-01-29T15:56:46.818+11:002014-01-29T15:56:46.818+11:00Appreciate the almost real time introspection and ...Appreciate the almost real time introspection and sharing especially as I meet with unhappy clients tomorrow night. Always deep thinking from John, thanks again!Letitride2https://www.blogger.com/profile/08675066331182388516noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72407355733440195342014-01-29T12:14:35.562+11:002014-01-29T12:14:35.562+11:00John,
You made 63% in your A$ fund last year, and...John,<br /><br />You made 63% in your A$ fund last year, and your beating yourself up over a 6% loss in January.<br />Give yourself a break mate! I'm sure you're investors are still extremely happy with your results to date.<br /><br />You give way too much airtime to your failures, and not enough to your successors. Anyone reading your blog alone and not looking at your performance numbers could be mislead into thinking your performance had been poor.<br /><br />NO strategy works every day, week, and month, month in month out. Substantial alpha generation requires the acceptance of periodic underperformance, I would argue. Certainly continued vigilence towards risk is essential, but I think you could justifiably ease up a bit on the self-loathing though!<br /><br />Thanks for a great post though.<br /> <br />Rgds,<br />LTAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-87576687633278385812014-01-29T04:13:51.946+11:002014-01-29T04:13:51.946+11:00Thanks, interesting post.
Going back to first pr...Thanks, interesting post. <br /><br />Going back to first principles - how much of this is an issue with beta (as you've described it) as a concept as opposed to only looking at the way that you've applied beta in your hedging? <br /><br />I would even extend that question more broadly to the whole CAPM. How many times does this stuff have to be falsified before it's given the flick? There's been a lot of water under the bridge since LTCM! <br /><br />BenAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-90424911969749571332014-01-29T03:58:17.511+11:002014-01-29T03:58:17.511+11:00I also manage a fundamentally-based market-neutral...I also manage a fundamentally-based market-neutral book, though it is completely quant.<br /><br />I think some of what you see has to do with these two facts:<br />1) Many managers volatility-adjust position size, and the more technically sophisticated do so on a continuous basis<br />2) As vol increases, these managers will reduce exposure<br /><br />Thus, any correlation between your book and these other books will be expressed as short-term negative alpha when volatility spikes.<br /><br />My own book often has its best P/L days immediately after taking large losses on these volatility spikes, even if the market is still flat or down.<br /><br /><br />Bennoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-89844473814688060562014-01-29T02:46:49.096+11:002014-01-29T02:46:49.096+11:00Maybe I'm just not smart enough, but I don'...Maybe I'm just not smart enough, but I don't really understand what Tepper was trying to do with that hedge. You say he's not worried about inflation but he's short bonds as a hedge against Fed tapering hurting his long stock portfolio. So I'm trying to imagine a scenario in which stocks go down, yields rise, and inflation remains benign. It's hard to do. If stocks are falling and yields are rising, I would expect there to be inflation. Conversely if stocks are falling and inflation is benign, I'd expects yields to be falling too. So I don't get it.o. natenoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71826295890658989602014-01-28T12:54:50.467+11:002014-01-28T12:54:50.467+11:00http://online.wsj.com/article/BT-CO-20140127-71387...http://online.wsj.com/article/BT-CO-20140127-713877.html<br /><br />Follow up on the Gotham "hit piece"<br /><br />Great Blog John.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-44701269112362549652014-01-28T12:52:37.154+11:002014-01-28T12:52:37.154+11:00http://online.wsj.com/article/BT-CO-20140127-71387...http://online.wsj.com/article/BT-CO-20140127-713877.html<br /><br />Have a great dayAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-76463446678529572882014-01-28T03:53:33.175+11:002014-01-28T03:53:33.175+11:00The thing with tepper's treasury hedge was tha...The thing with tepper's treasury hedge was that it was based on rising rates and likely would have worked based on his comments in the video. The only problem with that is that this downmove has nothing to do with rising rates. So it's less about a failed hedge per say and more about a faulty economic outlook. A jump in equities does not equate necessarily to a boost in the economy. Indeed in ways it should mean the exact opposite if companies were really fulfilling their most basic corporate motives!Mariohttps://www.blogger.com/profile/00905402431684735610noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-45299868615388630562014-01-28T02:07:08.956+11:002014-01-28T02:07:08.956+11:00Roberta Flack... One of the primary qualities of ...Roberta Flack... One of the primary qualities of a good performance is honesty. Enjoyed the postJeffrey Hildebrandhttp://www.brandnet.comnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-68924600755334826622014-01-27T23:08:20.922+11:002014-01-27T23:08:20.922+11:00Great post, John!
Friday has been a thorn as well...Great post, John!<br /><br />Friday has been a thorn as well.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78483406735582056642014-01-27T20:34:07.271+11:002014-01-27T20:34:07.271+11:00Isnt this worry about providing smooth returns (or...Isnt this worry about providing smooth returns (or hedged) one of the main handicaps to hedge fund investing? Meaning to say, oversimplifying, the reasons you are long certain stocks is for their compounding ability and the reason you are short is for their dodgy nature to reveal itself fast enough to offset the high borrow fees. To overlay on top of those drivers the additional requirement that the combination of such positions also sees a smoother fund NAV path in messy markets is likely to handicap total returns as you will be trying to make the NAV price journey smooth for investor's psychological comfort but without any good long term reason?Sandymounthttps://www.blogger.com/profile/00871848316953642107noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-50875000145778954392014-01-27T19:56:35.096+11:002014-01-27T19:56:35.096+11:00January 2012 was probably a bad month for a lot of...January 2012 was probably a bad month for a lot of people, as a lot of small cap, beaten down stocks rallied hugely in that month. Some people thought it short covering, or position rotation at the beginning of the year. Certainly not long enough to be a beta really like 2009Q2. I have no definitive idea.<br /><br />As you pointed out, any decent hedge fund manager will suffer from times when the hedge doesn't work. You can't hedge everything, just as you can't foresee everything. Hopefully you just see enough things correctly to make money.<br /><br />If it's anything like Aug 2007 or Jan-Feb 2012, then closing out now would be a mistake. If it's like 2009, then closing out now will preserve alpha. Question is, which scenario is more like the present? 2007 & 2012 seemed to be a short term market dynamic based on participants' changing positioning. 2009 ran for much longer, as all kinds of people re-entered the market, so that the "dislocation" or"phenomenon" ran for much longer. Hence the hedges didn't work, for much longer.<br /><br />No real insights to offer but that's my 2c worth of comment.sideline Bennoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-75935515278629521252014-01-27T16:45:48.577+11:002014-01-27T16:45:48.577+11:00Great article John.Great article John.Tangent Stylehttps://www.blogger.com/profile/17707454680772026268noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-13801799605071883092014-01-27T15:26:13.407+11:002014-01-27T15:26:13.407+11:00Beware the copulas for they play havoc with thy he...Beware the copulas for they play havoc with thy hedges! The really interesting question though is whether this indicates a phase transition in market sentiment/behaviour?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-23078115919957192092014-01-27T15:01:49.757+11:002014-01-27T15:01:49.757+11:00The issue here is that your book is exposed to mor...The issue here is that your book is exposed to more than just market risk. Another way of saying that is your risk model is missing factors. You can find a list of common factors in any academic research paper, but the general point is when your book is very exposed to common risk factors, you pnl is liable to suffer serious damage. A deeper question you may or may not want to ask yourself is: are the things you think of as alpha really just systematically risk you're lucky to be escaping. That, however, is a question not many money managers can comfortably ask themselves ... Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-12512959451026647072014-01-27T14:54:49.769+11:002014-01-27T14:54:49.769+11:00Thanks for posting John. I really commend and appr...Thanks for posting John. I really commend and appreciate your openness and willingness to share your process with us all. <br /><br />Side-line quarterbacks are more a distraction than anything else particularly for those of us actually putting ourselves out there for discussion and reflection. <br /><br />I really liked what The PM said about alpha long and short hedging. That seems to make sense to me. <br /><br />I follow Warren Mosler and learned ALOT about how bonds work from him. I really recommend you check him out at his website here: http://moslereconomics.com/<br /><br />Unfortunately I am sorry to say that I don't see many (only a handful literally) financial professionals or politicians who understand bonds in any real meaningful or fundamentally accurate way. And that fact is, imho, literally destroying our long-term economy and public policy decisions. <br /><br />Since you're an aussie (so is my lovely wife - from Normanhurst in fact)...I'd also like to turn you on to an incredible aussie economist that works with Warren Mosler very closely. His name is Bill Mitchell, he is a truly brilliant economist. I believe he works with U of Sydney or something like that. His blog is here: http://bilbo.economicoutlook.net/blog/<br /><br />thanks again John...carry on and keep sharing!Mariohttps://www.blogger.com/profile/00905402431684735610noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-91432982345655906782014-01-27T12:38:02.724+11:002014-01-27T12:38:02.724+11:00one of your better posts. thanks for the writeup.one of your better posts. thanks for the writeup.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-87473495794908011912014-01-27T11:58:24.009+11:002014-01-27T11:58:24.009+11:00Great post!Great post!Anonymoushttps://www.blogger.com/profile/03523641844919145486noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-14347654460553547242014-01-27T11:42:03.377+11:002014-01-27T11:42:03.377+11:00Anonymous here (who said you're a slave to the...Anonymous here (who said you're a slave to the market). if you really understand risk management, you wouldn't be getting into positions that forces you to tap out. a 10-20% percentage moves in the market is chump change. If you complain about the short-term nature of your funding base, then change your investors. Or else you will forever be a slave to the market. Just remember you are buying stakes in companies and not just a betting slip. Most people say they do, but very few actually live by this. sounds like most of your readers are traders. If you understand my comment, you will understand how laughable your post is.<br /><br /><br /><br /><br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-89238695596596849132014-01-27T09:55:30.206+11:002014-01-27T09:55:30.206+11:00I think (and certainly hope) that self-loathing is...I think (and certainly hope) that self-loathing is not a prerequisite to being good at fund management. My partner and I are ruthless and frequent in saying to each other "well we really screwed that one up" or "we were idiots" and analyzing our mistakes. But there is no self-loathing involved. Every investor makes mistakes.<br /><br />Having come to fund management from other careers, I am more aware than most that different people are better or worse at handling different <i>types</i> of stress. For myself, losing money in the fund is stressful but far less so than was project management on consulting engagements with high stakes, very tight deadlines, and dozens of people to coordinate. I feel lucky to have unwittingly moved from what was, <i>for me</i>, the higher-stress job to the lower-stress job. I am guessing that, for most people, fund management would be the more stressful job.Robert in Chicagonoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-92080195055127985842014-01-27T06:50:22.849+11:002014-01-27T06:50:22.849+11:00Tepper's outside capital has a 3-year lock-up,...Tepper's outside capital has a 3-year lock-up, and a large chunk of his portfolio is permanent capital. a lot more staying power than a typical l/s fund, so volatility doesn't pain him as much in that regard<br /><br />curious if you can share your thoughts on portfolio decision making in relation to capital base. it strikes me that your business analysis is long-term, while many portfolio decisions are on much shorter time frameAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-22206966997763315102014-01-27T06:16:23.576+11:002014-01-27T06:16:23.576+11:00January isn't over.
So this is where the larg...January isn't over.<br /><br />So this is where the large short base in T note futures comes from. Bring on the squeeze.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-8135398993778566582014-01-27T04:46:15.062+11:002014-01-27T04:46:15.062+11:00Well John, I for one enjoyed the post and applaud ...Well John, I for one enjoyed the post and applaud your ability to be so honest and open about your thought process. I have to wonder whether the above commenters have ever managed a long/short book - great description of the frustrations that leverage can cause - after all often you may well be right in the long term but you still have to react to prices. Would that we all could avoid being slaves to the market. Unfortunately the world does not work that way.<br /><br />I'm left very curious how that 3% potential 8-bagger in March 2012 turned out. Can you share it with us?Jacobnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-24917775436803869422014-01-27T01:48:33.672+11:002014-01-27T01:48:33.672+11:00This comment has been removed by the author.Trader Xhttps://www.blogger.com/profile/07228867107369952836noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-25863049751463450652014-01-27T01:44:59.883+11:002014-01-27T01:44:59.883+11:00John, just curious, why, (or maybe you do already)...John, just curious, why, (or maybe you do already) not use optionality in the fund as a way to hedge out some of the book. Not saying I am a market wizard but the S&P or even the RUT pullback looked like a given, not to that extent, but there seemed to be some signs of some selling coming. Why not use those indices to buy puts or something of the sort on as a way to hedge out without owning actual shares of a company? Trader Xhttps://www.blogger.com/profile/07228867107369952836noreply@blogger.com