Just look at what happened to the international markets earlier this year, especially emerging markets. When the hedgies decide to dump, they come tumbling down. Look at the current commodities markets. Crowded trades make for fierce action. If you're in them, you'll get crushed by the herd as it moves for the exits. With all these hedge funds emerging, markets are more prone now to bubble and burst cycles than ever before. If you're a good trader and base your overall strategies on sound fundamentals, you'll be just fine. I have been in the markets since '97 and am still here. The most interesting thing about the article is the evolution of Mr. Cohen. I believe that just being a trader is only a portion of the overall necessary faculties it takes to make it. Looks like Steve believes this as well. Good to see SAC evolving into something more than just a room full of traders frantically clicking day in and day out.
Your points are sound. Hedge funds are creating a likely market crisis, however. I define (subjectively) a crisis as a pronounced crash in the equity markets that will approximate a 25% decline in a matter of a few months or so - that would be enough of a decline to test the confidence of all investors, professional and amateur alike. If that happened, which could be brought about by Hedge Fund implosions, it would be akin to a 'run on the banks', whereby investors stampede to pull their money out of the markets out of fear of further losses, exaggerating the crisis. With the tremendous liquidity running like tsunami waves through Wall Street right now, and the tremendous leverage (1.2 trillion dollars) that Hedge Funds exercise, and with the incredibly short-term trading philosophy that most of the hedge funds implement, we've never been more vulnerable. Liquidity will dry up eventually (banks won't lend, etc.), and when you couple that with a crisis of confidence among investors (who will have trouble borrowing from other sources), and serious downturn in the markets, a very real financial calamity will result, as people look to liquidate their stock holdings imn the same approximate time frame.
"In 2005, the average hedge fund returned 9.3%, below the 11.4% average for the past decade, according to Hedge Fund Research Inc., a Chicago consultant. By comparison, the S&P 500 index returned 7.7% last year. A record 848 hedge funds closed up shop in 2005, many of them hobbled by poor performance, according to Hedge Fund Research." Trading is NOT easy and thus guys like SAC deserve full respect and admiration. Buy and Hold is easier to handle than 'hit and hammer' type trading. What surprises me is SAC has 225 portfolio managers and analysts, that's a bit too high and noisy.
Lets see what does it say: 1 A great trader has burnt out. 2 Due to other things in his life he has lost motivation. 3 He has already made enough money. Does not need to trade for it anymore. Rest is all rationalization/ marketing or lowering of investors expectations.. It has nothing to do with more hedge funds or markets. Read biography of every great trader. It always ends with how the great time are over now and next generation of speculators will not be able to profit in the same way.
Thks for the article cat. An interesting read. I don't see him as burnt out, just the opposite in fact. Recognizing the writing on the wall and changing his approach to continue to deliver the numbers. His active role is what I found really interesting, delivering 15% of the numbers himself. That's amazing, when you think about it. The guys that work for him, really have the opportunity of a lifetime.
I hope mr SAC bought this nurse an early retirement or the "mona lisa" painting - One morning, Mr. Cohen woke up with numbness in his arm. A doctor told him he needed surgery on his neck, and in September 2003, he had a disk removed. After the operation, he says, he briefly stopped breathing. He was saved, he says, after a private nurse he had hired to be in his room noticed the problem. -
I am so tired of all these jealous journalists, the lowest creatures in the financial sector, trying to stab hedgefund managers, the ones at the top. This one actually had a little different wrapping, but still the same sh8... yawn.