Better Late Than Never

Over the last few of weeks, I’ve spent quite a bit of time meeting with managers and talking about how they manage money — where they generate returns and their expectations for the markets and their funds. At the same time, I’ve been meeting with investors of all shapes and sizes, asking them where they are looking for returns and how they are evaluating managers before investing capital.
All their stories are similar: The managers focus on generating returns for investors by using a top-down or bottom-up strategy that may or may not employ an algorithm that is modified every time it fails to work while using a “proprietary” methodology to buy and sell securities.  All in a search for alpha. Investing in this or any market environment is hard, regardless of the Trump rally. Managers understand this, but are afraid to discuss it and investors are not willing to admit that finding managers that generate consistent performance is not something that they can find by simply checking a box or two.
Investing is hard. Period. End of story. Delivering alpha is harder, but delivering a constant stream of stable returns is next to impossible. If both managers and investors were honest with each other, it would be a lot easier to meet both group’s expectations. The actively managed investment industry does not understand how to communicate this to investors. The messages are cloudy, confused and focused on the wrong thing – how a fund performed to a relative benchmark. Well, my friends, a dear friend once told me, “you can’t eat relative returns.” However speak to so-called financial professional and well you seem to hear is how well they are doing compared to the benchmarks.  The lack of understanding of alpha is not helped by one of the industry’s most vocal and constant critic and its investors: Mr. Warren Buffett. Being critical of hedge funds has become a pastime of the Oracle of Omaha, much like playing bridge, enjoying a Coca-Cola and tossing newspapers at the Berkshire Hathaway annual meeting. And while Mr. Buffett continues to attack hedge funds, he seems to forget that investors of all shapes and sizes need the liquidity that hedge funds provide the global markets. Hedge funds fill a gap left by former Wall Street firms that are no longer able to act freely in the markets. Mr. Buffett may be correct in his comments about fees and in his comments about active investing. In some cases the fees are too high and the performance is clearly not there. Nevertheless, to damn an entire industry is silly and irresponsible

Things that drive me crazy

There is a true a lack of civility in the world today.  Either that or I am just hanging around obnoxious, self-obsessed people. I’m not sure which, but I am sure that people need to be nicer to one and other. The rudeness has got to stop. People need to have a level of mutual respect for one another. I mean, this is how wars get started. I recently witnessed a disgusting display of attitude in the taxi line at LaGuardia airport. The line was moving slowly and a woman started screaming some not very nice things at the dispatcher about how important she is and how not important he is. It was just plain rude and unwarranted nonsense. It happens all the time and it just needs to stop. Being nice, normal and courteous isn’t hard to do.