When Jon Wood opened his Monaco-based hedge fund, the former UBS AG trader told investors he'd beat the market by buying stakes in no more than 40 companies -- the same way he made $2.4 billion in six years for his old employer. Instead, holdings such as failed U.K. bank Northern Rock Plc and Calabasas, California-based Countrywide Financial Corp., the largest U.S. mortgage lender, imploded. From its start in late 2006 with $3 billion, Wood's SRM Global Fund lost about 70 percent through March 31, said two investors, who asked not to be identified because the firm doesn't publicly disclose returns. ``These concentrated funds scare the hell out of me,'' said Brad Alford, head of Alpha Capital Management LLC, an investment consultant based in Atlanta. ``Either the manager knocks it out of the park or he strikes out.'' Other managers who follow the approach of betting big on out- of-favor stocks are also struggling as market volatility hits historic highs. Edward Lampert's ESL Investments Inc. dropped 27 percent last year and an additional 1.3 percent in the first three months of 2008, investors said. The 45-year-old Lampert, who oversees $17.5 billion, has been hurt primarily by a $6.1 billion stake in retailer Sears Holdings Corp. of Hoffman Estates, Illinois, that has fallen 48 percent in the past year. Investors expect that Wood and Lampert, who both declined to comment, will survive their losses because clients can't pull their money for three to five years. The lock-ups leave investors no choice but to wait for a turnaround. Other funds that concentrate their wagers haven't been so lucky. http://www.bloomberg.com/apps/news?pid=20601087&sid=azobDABpF9ZU&refer=home
Suss----concentrated bets are fine, as long as they don't turn into big losers. Instead of being "talented", Wood and Lampert may have been merely lucky for many years before they were bitten by the black swan.
Their strategy is aggressive but risky. I guess it just shows there are lots of people out there with money who do not know what to do with it.
i still remember when sears was near 200 jim cramer on tv said: lambert is the next warren buffet. just buy shld, it is the next brk.
I guess Cramer and businessweek jinxed it for good ole' eddie http://www.businessweek.com/magazine/content/04_47/b3909001_mz001.htm
you are underestimating the power and frequency of the Black Swan. In a true Black Swan event they would have been wiped out.
50% and 70% drawdowns? Those are "severe". They may have been bitten by a black swan with rubber teeth instead. The media and institutional investors may still look upon them as being darlings because they each have a lot of money. In a bear market, sentiment would be much worse.