As summer draws to a close, the kids are back in school, the U.S. Open is over, the NFL playing for real (with TWO Monday night games) and anti-hedge fund rhetoric is everywhere.
All the pundits seem to be over the top with joy that the funds were hit badly by the volatility that hammered global markets. Headline after headline screams about the weak performance of great and not-so-great names in the upheaval. Even GOP hopeful Donald Trump has ranted that hedge funds are “getting away with murder.” Click here for the clip. And while the debate on carried interest rages on and will clearly be an issue in the 2016 race. But my question is where are the complaints about financial advisors and mutual fund managers? Hedge funds are dressed entirely in bull’s eyes, but no eyebrows even twitch at decades of mediocre performance by mutual funds. Even more important, brokers, oops, sorry, they’re financial advisers these days, anyway whatever you call ’em, they’re never criticized. I just don’t get it. The bottom line, literally, is that most mutual funds and brokers, or whatever you call them, manage for mediocrity. They’re looking to keep up with the market, or maybe beat it by a couple of points. They keep score by relative return, you know, “The market was down ten points, but we were down only five!” Well, that’s ridiculous. I don’t pay people for relative performance. The idea about hedge funds is simple: Deliver alpha or face redemptions. Sure, there’s good and bad in both camps, but to me a manager or adviser who’s just a closet indexer is a lot worse than a hedge fund boss who doesn’t deliver alpha.That being said, if your manger isn’t doing the job, I implore you to quote Mr. Trump and declare, “You’re fired!” Find someone who can help you navigate the stormy ups and downs and deliver alpha. The real bottom line? You can’t eat relative returns.
THINGS THAT DRIVE ME CRAZY
I am sick and tired of TV weather reporters’ lack of accountability. Recently, South Florida was reported to be under siege from Hurricane Erika. The storm was going to hit the mainland with high winds and lots of rain. Batten down the hatches! Load up on batteries, diapers, water, beer, medicine, chips, dips and anything else you think you might need screamed headlines and TV weather people. Sure enough, the storm moved out to sea and vanished into the abyss. I know it’s tough to predict what Mother Nature will do, but here’s my solution to bad forecasting: Pay meteorologists for performance, all or nothing. If they call a storm right, they get paid. If they fizzle, they hit the bricks. If you’re right, collect; if you’re wrong, try being a stockbroker for a while. It seems like a simple solution to me, but I doubt if it’ll happen.