ヴェリアンアレン ヘッジファンド 代替投資 对冲基金 對沖基金


Short sell in May

Big Short? Jack Bogle's nemesis, Michael Burry is not back working double shifts at the hospital because he actually bothered to analyze securities. Bogle says do NO DUE DILIGENCE! Most "active" managers do little REAL investment work despite their claims; Bogle and index pimps do NONE but charge fees anyway. Fees for what? Scion Capital charged an amazingly low 2 and 20 to help clients achieve retirement goals. Bogle inflicted massive losses from the toxic waste "cheap" garbage he sells knowing NOTHING of the holdings.

Bogle gambles in securities on dumb lists NOT carefully selecting stocks from prudent analysis. Bogle bets retail savings on the absurd notion that S&P can pick 500 stocks or bonds they were bribed to rate "investment grade"! Incredibly Bogle has STILL not apologized to Burry for his outrageous behavior or for destroying so many hard working peoples' retirement plans. No professional investor gave a cent to speculators like John Bogle and his "passive" lemmings.

Greatest trade ever? If subprime CDOs had NOT blown up would movies be made and books written? Buyers now called brilliant gurus for their perspicacity? Intermediaries excoriated for failing to disclose to loser shorts that winning longs bet against them? Would it have been news? Lesson for investors remains: caveat emptor, caveat venditor. Buyers, sellers be GRATEFUL to people betting against you. How else can alpha be made from them?

If credit had not imploded would Michael Lewis have written "The Big Long" on credit bulls picking off clueless bears? Or Gregory Zuckerman on the "The Worst Trade Ever" how merger arbitrageur John Paulson went bankrupt style drifting into shorting subprime? Magnetar sucked into a black hole? What if Paulson HAD bought and then reversed to the short side. Would it have changed loan selection or credit rating? If I buy a security should it concern me if others are short? Should it affect analysis if others think differently?

Alpha capture is war and victors don't take prisoners. If you are uncomfortable with the FACTS of the zero-sum game then don't invest in anything. I love index funds as their risky unskilled gambling creates alpha opportunities for good active managers. I pity anyone speculating on long only "cheap" funds that do no analysis or risk management and squander 50% of client capital every few years. Why wouldn't you want your portfolio run by the best investors in the world? Or instead get suckered in by the unskilled passive pimps?

Could it be that skill and hard work can find misvaluations? Curious how passive zealots with their "random walk, security analysis is pointless, Buffett is a lucky coin flipper" mantra, say that Paulson, Magnetar dared to pick securities they correctly figured would fall in price! In an efficient market identifying such opportunities is impossible. Why should anyone be criticized finding overvalued, mis-rated CDOs. Thanks to such funds pensions, endowments and foundations have more to pay out their liabilities. Shame on unskilled long only funds that wrecked so many retirement plans and spending budgets.

Wary of "misleading" non-disclosure, I fled to the relative safety of stocks. I selected 500 overpriced reference securities to bet against. Luckily some quantitative geeks had already structured derivative product for that equity tranche. I short sold the basket portfolio but the intermediary failed to alert longs that I and possibly traders at the sponsoring firm might bet against them. Even the salestrader herself confided in an email that she was bearish at that time but her function was facilitating transactions regardless of personal or her firm's market positions. Anyone long SPY, an ETF asset-backed security, and not made aware of my short has recourse to complain that they didn't about my short? Ridiculous, but that is what some "smart investors" are trying with CDOs.

Deception? Designed to fail? For EVERY purchase there MUST be a seller. I wonder about that fateful meeting. Would buyers have walked away if the marketing materials had stated on the front page in bold red ink "A merger arbitrage fund you likely haven't heard of with no known expertise or track record in credit helped choose the underlying loans and might bet against them". Or proprietary traders at this moment happen to be bearish on subprime but they have been right AND wrong in the past". How might this have changed investor appetite? Lists of shorted stocks are published but does this make every long get out? Never buy IPOs as insiders are selling?

There are ALWAYS bears on anything. If there are no bears get short immediately! If then unknown Paolo Pellegrini had shouted from the rooftops his negative views on subprime how many would have acted on it? We now know he was correct but AT THE TIME OF THE DEAL this was an outlier opinion ignored by the street. Even I wrote several bearish posts in early 2007 and investors that followed that advice have made very high returns but most ignored those too.

Today I naively took the risk of renting a car. After closing the deal I was shocked to see vehicles coming in the OPPOSITE direction. NO-ONE TOLD ME. The salesperson said nothing and the documentation had NO disclosure about this risky two-way flow. More due diligence revealed that despite heavy regulation and licensing, these dubious inventions KILL over 1,000 people EACH DAY from such collisions! Again zero mention in the legal paperwork. Did the arranger commit fraud by failing to inform of the dangers? CDOs can't be traded by most individuals but calamitous CARs are still widely available to the public. Why? Where are the regulators? Get these murderous C-A-R things off the street, NOW.

If I had an accident could I claim they had selected a car they "knew" would crash or would it be outcome bias? Subpoena to Congress those merchants of mayhem and dealers in destruction like car rental firms? I even saw a "rogue" employee knowingly bet against me driving north while I headed south. Such conflicts of interest and idiotic innovation needs to stop before even more people die in toxic tort products known as cars. Ban derivatives trading so ban driving since it is much riskier? The world thrived for a long time before "monstrousities" like C-D-Os and C-A-Rs were created. Get CDOs wrong and just lose money but outlawing CARs would save millions of lives over time.

Alpha battles have casualties. Finding alpha is a zero-sum ADVERSARIAL game of losers AND winners. Zero-skill, crowded beta is "cheap" but insightful analysis and variant perception costs 2 and 20 or more. Contrasting views make a market. It is dumb and suboptimal to presume a counterparty is looking out for you when they take the OTHER side. That is why they are called COUNTERPARTIES. The juxtaposition of ideas helps prick bubbles earlier than a one-way market. If I buy I WANT as many smart people as possible hoping I am wrong. If I short sell I am most comfortable and make the highest returns when sophisticated professionals are buying and A-list analysts regard it as a core long. PLEASE, PLEASE EVERYONE BET AGAINST ME.

You can ONLY produce alpha when others lose. Therefore it is essential for others to oppose you. Longs need shorts and vice versa. The most alpha appears when most are wrong. A rating of "strong buy" on a stock or "AAA" for a bond is just someone else's opinion. It is up to investors to do their own analysis or hire advisors working FOR them. Do your own due diligence or find someone to do it, for YOU, that has the rare expertise and whose interests and INCENTIVES are aligned with yours. Cheerleaders cheer the team that pays them not necessarily YOUR team. It is not of the slightest interest to me that others have the opposite opinion except that the more there are the more likely I will be correct.

If I buy the more shorts the better since there is higher probability of a short squeeze. If everyone is buying, it is often time to short sell. Rather than being horrified that others think differently, it is excellent and favorable news. When I buy a security I assume and expect people are betting against me. If a market maker has a bid-offer spread and I take the offer, they are often left short temporarily if they don't have inventory. They are then technically betting against a client but does it matter? Any market participant surely knows there will be opposing positions. Investors are free to choose pure execution-only brokers or investment banks well-known to have large proprietary trading operations that may or may not be betting in a different direction. The only Chinese Wall runs just north of here in Beijing.

Would regulation and transparency have prevented the credit crisis? There have been many financial panics and real estate crashes in the past. Did CDOs and shorts "cause" those also? Why have there been worse ones where there were no derivatives or shorting? No security EVER trades for what it is worth; differences of opinion fuel all markets. If you short sell something you need as many people as possible to be bullish. Shorting rarely causes a security to go down. When you buy, the preferred situation is that many others are short. Exploiting the madness of crowds is the key factor for alpha. The more investors doing the opposite is POSITIVE if you have an edge. If you've done you're research it ought to increase trade conviction. If you don't have an edge why are you investing? Some think security analysis is a waste of time and John Bogle was as accurate as usual in ridiculing hedge fund managers who bother with skilled hard work.

All deals produce winners and losers. For every buyer there must be a seller and often a short seller. Is it always necessary to disclose that others including originators might bet against you? And if they do should it change your view or rating given your analytical edge? If you are bullish surely more bears should make you more bullish if you are confident of your ability. Blame the crisis on 2 and 20 and deal structurers or the 2 and 28 ARM lenders? Or on the inevitable boom and bust, greed and fear of the crowd. Manage risk and invest in skill to survive PREDICTABLE cyclical behaviour. Variant perception is what creates value for clients. Some speculate on conspiracy and collusion but it is usually just the Emotional Markets Hypothesis at work. All securities at all times are wrongly priced.

Short selling does not make securities to implode. It can however slow bubbles from turning into superbubbles and potentially worse problems. It may be counterintuitive but short selling subprime may have prevented larger losses and bigger issues. Some argue that credit repackaging exacerbated and perpetuated it but do not explain earlier crashes and meltdowns. With only longs, the Japanese credit bubble of the 1980s happened without CDOs, structured products or hedge funds betting against it. Subprime lending was invented in Japan and the crash's effects still exist with the stock AND real estate markets 75% below high water marks. Short sellers and transfer of risk are positives not negatives for economic growth. Real estate booms and busts have occured for centuries. Sovereign defaults and bailouts are common yet rookies treat the Greek situation like it is unprecedented. Greece has been bankrupt more often than not since 1810.

One of the strangest results of the 2007-2008 post mortem was the slow motion reverberation from credit to equity. Even if you missed the credit short there was plenty of time to get short of equities. No-one could have predicted the crisis? Really? Many correlation "traders" short sold correlation at 0.3 and watched helpless as it gapped straight up to 1.0. Gaussian copulas absurdly assume constant default probabilities just like gaussian Black-Scholes crazily relies on constant volatility to allegedly "price" derivatives. The added complication with credit is the non-linear binary payoff. Either the debt is serviced or bankrupt. With low interest rates, yields often do not compensate for default risk. All an investor can do is their own analysis or hire an expert whose interests are the same as theirs. If you need a friend get a dog.

Full transparency: I am short many other asset-backed securities and credit structured products, however I might reverse and go long between 20 microseconds and 20 years from now. Whatever or whenever an investor buys or sells, it is PREFERABLE that others are betting the opposite way. To generate consistent alpha it is necessary to have counterparties with different opinions. It is obligatory for others to disagree with you. Their existence is mandatory for those seeking alpha.

By Hedge Fund Creative Commons License

This work is licensed under the Creative Commons Full Attribution, Non-Commercial, No Derivative Works 3.0 License

Hedge Fund Hedge fund


F u n d §©®±¼½¾µßαβγδσ€∂√∞≠♠♣♥♦ΣΦΨΩ Follow Me on Pinterest