The thing that's mos annoying about the carry trade is that so many people think it's arbitrage. It's a bet on the slope of the curve or a straight up currency bet. What it's not is an arbitrage. It isn't even stat arb because if you hedge it, you will make no money. There's no alpha. These guys looked so good because they were winning in their trades and the ones that weren't went belly up and didn't advertise their failure.
I agree. For managers with a <10 year track record, if you are good enough to distinguish between luck, leverage in a rising market, and skill, then you are good enough to pick stocks yourself. IMO it is *easier* to pick stocks than to pick skilled managers with <10 years track records. Add in a 2% annual drag, and 20% of profits on top, and it's a monumental hurdle. Finally, if you *do* find one obviously good, he either requires a huge minimum investment, is closed to new business, or managing such a huge amount that he can't keep his returns as high as before, or just gets lazy with success and blows up or cranks down the size to gather assets and take his risk-free 2%. Far better to just use sector ETFs and go long whichever sector you would have invested in anyway, and take 10-20% of assets and make selected punts trying to find the new Dell Computer.
And as we are seeing in 2008, that argument could even be applied to many so-called value investors too. Basically their 'cheap' stocks are cheap - so long as there isn't a killer recession or financial meltdown. If there is one, the cheap stocks turn into value traps, go to $1 or even $0, and the value guys blow up. At least with them it's only once every 30 years that they get totally raped, not every 5 years like the leveraged hedgies. Ben Graham lost 85% from 1929 to 1932. And check out the value managers in 1973-74, they got slaughtered.
It was a transcript from James Grant about Ben Graham. By the end of 1932 he was down 70% but at the peak he was down 85%. Then again, part of the reason was that he used leveraged. If he had invested for cash, he would presumably have lost maybe half as much, so down 42.5% at the nadir in 1932, which is a lot better than the general market (down 89%) but still a pretty horrific result
Thats interesting fact from James Grant. Would anyone be surprised that happens again this time? I wouldnt be
the reporting requirements, or lack therof, makes them much more 'black box' the entry requirements make them far more 'cant enter unless you can afford to lose' as for as the 'value investors' go, if there is a structural change in the economy, p/e means absolutely nothing
great contributions -with core trader sentiment. I have to admit while I am pretty cynical (about these funds) I will be surprised if it turns out Tudor was "marking to profit" semi toxic assets.