Mailbag

Often times there are comments left on old posts that would probably be of interest to the community.  Below is a thoughtful comment from DP that I wanted to respond to.  My comments in bold:

I don’t think people realize that all this data is free.  All this hedge fund, endowments, etc. is public domain.  Goto SEC and search for Appaloosa and find their quarterly filing.  Takes 1.5 minutes.  Or there’s several sites who aggregate these filings for free….yes, I said free.  This timing strategy, nor the data, is proprietary in any way.  Faber’s just giving you a means (and thoughtful organization) to the information – which he charges for.  It’s kinda like paying for a butler cuz you’re too lazy to walk to the fridge.

I was totally transparent about this in my book, even showing investors how to find all the info on the SEC or any of the numerous sites like GuruFocus or Stockpickr.  The huge problem is that you don’t know if the data is of any use.  If you look at the top 5 portfolios on Stockpickr, 4 of the 5 underperform their benchmark.  So, not only is the free information useless, it is misleading and hazardous to your wealth.  There are over 100,000 people on Stockpickr that have used this information to their detriment.

On top of that, one of the biggest benefits of using AlphaClone is the ability to combine groups of funds and other strategies.  So, I think this is a good example of you get what you pay for.

Also, you have to realize that this data is ‘old’.  Funds are required to file their holdings/activity 45 days after quarters end.  So do the math…one quarter..plus 30 days = ~ 120 days.  Yep, thats 1/3 of a year late.  Market volatility is pretty high these days; so keep your eye on the ball.

Even more important to backtest the info.  Some funds simply trade too much for 13F data to be useful.  Stockpickers with longer term time horizons are the best choices.  Using AlphaClone you would realize it doesn’t make sense to follow a Rentec or SAC.  And guess what the worst performing fund in the database was – yup, Galleon.

One of the biggest mistakes a casual investor has is getting lured into these large, advertised % gains.  Ever hear or read: “past performance is not indicative of future results”?  Unfortunately, this post is a little suspect and selective in nature.  Any sentence that starts with ‘If you bought __’ is merely a “claim” based upon past performance.  I’d advise the author to be careful with such wording.

I totally agree with this, and if you were a long time reader you would recognize I don’t engage in selling snake oil.  That having been said, we have been tracking Appaloosa since 2007, and included the fund at the beginning of 2008 for the World Beta clone.  I’m not trying to grandstand here, Appaloosa simply had an amazing year – but don’t forget they lost money in 2008.

Also one of the points of the article was how well cloning can work, and can even outperform the net returns of the fund (namely due to the 2 & 20 drag).    Note how the traditional media picks up the story (but has yet to catch on to the AlphaClone angle) with articles from the Journal, the Atlantic, and New York mag.

But you raise a good point – using AC assumes two things.  1.  The market can be beat.  2.  You can identify managers ahead of time.

We think we can, and a great real world proof is the group of funds we’ve been tracking since 2007 on the blog.  The strategy has outperformed nicely.

Since most of the followers are casual investors; they need to know all the details.

Totally agree, but most of my readers are professionals that are HNW.

 
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