A Legend Passes

For those young folks newer to the markets you may not have heard of the professor/money manager/newsletter writer Marty Zweig.  He sadly passed away yesterday (I had no idea he was 70).  

He is one of the all time greats, a professor that pioneered the trend into also managing money (also sadly, Bob Haugen also passed recently).  That is commonplace now with DFA, LSV, AQR etc but relatively rare back in the day.  He blended technicals, fundamentals, and sentiment in his newsletters and two books Winning on Wall Street and Winning With New IRAs. (The latter I noticed was still on my bookshelf at home in CO last trip over the holidays.)

His stock screening methodology (a nice blend of grwoth, value, and momentum) is often replicated on sites such as AAII (since 1998 19% vs. 3% SP) and Validea (since 2003 8% vs. 4.5% SP) with very strong performance. 

RIP, Martin Zweig.  (BloombergMark HulbertClusterstock) via Abnormal Returns

How To Get A Hedge Fund Job

I get a lot of emails about career advice, (which of course is strange considering my winding road and biotech engineering background), so I thought I would suggest a few ideas to the aspiring hedge funders out there.  Or, ETF managers/RIA PM’s what have you.  While the advice of course would be more specific to your situation there is one key element that will land you far above almost all other candidates.

The key?  

Be of value.  

That of course is the challenging part, as finding something of value is usually by definition pretty hard to do.  But at least making an attempt is far better than doing nothing, which is what most candidates do.

Jim Cramer used to talk about showing up to his office with Krispy Kreme doughnuts (link via @Greenbackd).  Steve Sjuggerud talks about creating your own luck, and showing up with 12 ideas for them to improve their business.  

We used to do a fairly active internship program.  The challenge of course is that for every 10 interns we hired, only 1 would be actually interested in really working.  Most simply want a resume filler.  In our case, we had an intern that worked for free for a few months, and went out of his way to demonstrate his abilities and initiative, and now is a research analyst (probably soon to be PM) with his name on an academic publication next month.  

If I were to go interview at a new fund (besides doing hours and hours of homework on the fund), the first thing I would do would be to memorize the past three years of their 13Fs so I could have an intelligent conversation about their style and holdings.  Research their competitors, spend time on SumZero and AlphaClone (and VIC if you have access).  Go to the local B-School and spend time on Bloomberg and download all the research reports.  Try and do some value added research no one else has done, no matter how basic.  

You should be prepared to discuss at least three stocks you like long and short (if it’s a fundy shop) or perhaps the research papers and books if a quant shop.  These things are a minimum.  Show up with write-ups to leave behind for them to review.  And no matter how small your PA is, trade your own money.Whatever you do, don’t BS, or you’ll have someone like Altucher call you out and actually challenge you to a chess game you put on your resume as a passion.

Get creative.  I would search every PM and co-founder at the fund on unclaimed.org.  Interviewing at AQR?  I’d tell Asness he has some unclaimed property in CT (2 claims).  Interviewing at Appaloosa?  I’d tell Tepper he also has two claims in PA.  There’s nothing hedge funders love more than free money, and there is no easier way to find a job than to show up with essentially free money (that the government has no less!).  While most people have unclaimed assets <$10k, these guys are at a different pay level, so could have big claims.  You could easily show up and pay your first year salary with found cash. 

Anyways, we’re hiring for a few spots, all paid $.  

1-  Create content over on hedgefundletters.  

2-  Marketing and distribution for the RIA/ETF business.

3.  Run operations of The Idea Farm.

4-  You tell me. 

Trading System Software

I haven’t downloaded or played around with this, but looks promising (it’s free):

TSSB Software

Housing Market vs. Financials

…with a 2-year lag….great chart from SocGen:


Black Swans

People spend a lot of time talking about black swans, which are usually things that are not black swans, just an occasion where they didn’t study enough history and an event surprised them.  We tackled the black swan topic in our paper Where the Black Swans Hide and the Ten Best Days Myth, and below is a fun infographic on your chances of dying from an asteroid or choking from the Economist (HT: jaq):


If You’re Not Top Quartile…

…then there is no point in investing in PE.  And now, lots of that edge has been whittled away.  That is one reason we rec’d against PE in our book.  

I think there is a big opp for a research boutique focused on the crowdfunding space as people are going to get their heads handed to them.  Most spend more time researching a TV than they do investing in startups. (Via Abnormal Returns)

Limited Partner Performance and the Maturing of the Private Equity Industry


We evaluate the performance of limited partners’ (LPs) private equity investments over time. Using a sample of 14,380 investments by 1,852 LPs in 1,250 buyout and venture funds started between 1991 and 2006, we find that the superior performance of endowment investors in the 1991-1998 period, documented in prior literature, is mostly due to their greater access to the top-performing venture capital partnerships. In the subsequent 1999-2006 period, endowments no longer outperform, and neither have greater access to funds who are likely restrict access nor make better investment selections than other types of institutional investors. We discuss how these results are consistent with the general maturing of the industry, as private equity has transitioned from a niche, poorly understood area to a ubiquitous part of institutional investors’ portfolios. 

The Other Tail

Fun interview with Tadas and Wes, and some Thorp and Buffett.  


I’ve had a great time at the always solid IndexU Inside ETFs conference here in Miami.  Lots of interesting products and ideas flowing.  On of the interesting presentations involved Jared Dillan who writes The Daily Dirtnap, a publication we featured on The Idea Farm a number of months ago.

Anyway, he made a great point in that everyone talks about fat tails and hedging against the left side of the distribution.  But he points out there are always two tails, and spoke a lot about hedging against rising inflation and the right tail of assets going up, not down.  Specifically he mentioned not selling calls against or exiting the position (and from a trendfollower you know that sounds good to me), and referred to buying out of the money calls on (I think) the Nikkei.

There is a great compilation of essays called “Cred and Credulity” from Dylan Grice’s days at SocGen that can be downloaded here via Ritholtz.  In the paper, which is a whopping 244 pages but extremely worthwhile read, is a paragraph along the same line of thinking:

“In Steven Drobny’s excellent The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money“ (which I consider a must read – almost every interview oozes with profound risk-management wisdom), Steve Leitner talks about buying out of the money call options to hedge against such a hyperinflation. Buying 40,000 strike Nikkei calls with a ten- year maturity, with a payout in a strong currency can be done for around 40bps per year. And to give you an idea of how explosive that asymmetry might be, if Japan was to follow the Israeli experience from here, the Nikkei – currently 10,500 would trade at around 60,000,000 (sixty million). So putting even one-tenth of your notional into that kind of hedge would cost 4bp per year (for reference, the Nikkei currently offers in excess of a 2% annual yield, while some JREITS offer in excess of 4% – I’d argue that 40bp is a bearable burden, and 4bps certainly is). “

More here:  Nikkei 63,000,000? A cheap way to buy Japanese inflation risk

And from the unrelated Sony world photography awards:






Munger Summary

Alex Rubalcava is a LA based hedge fund manager, and he was live tweeting the Daily Journal meeting the other day.  Since I am a huge Munger fan I asked Alex if I could share some of the best tweets, including a couple book recs….you can find all of them on his Twitter page @AlexRubalcava:

100 or so people here at the Daily Journal meeting to hear Charlie Munger speak.

“I don’t think anyone on the board or management of General Motors had one shred of guilt for destroying 100% of the equity of the greatest company in America.”

“It’s hard to predict which comfortable two company duopolies will become ghastly competitive miasmas.”

Munger on ratings agencies: they were selling opinions, not guarantees. But in front of a jury the internal emails will cause trouble.  

“Generally speaking, emails are great for lawyers.” — Munger

“They came to power at 58 and they’re gone at 63.” — Munger, on why other CEOs can’t copy the $BRK operating model

“I made zero transactions in my PA last year.” — Munger

Munger just praised Mohnish Pabrai for copying the Buffett Partnership “down to the last comma.”

Charlie just recommended a physics and astronomy book called A Universe from Nothing: Why There Is Something Rather than Nothing by Lawrence Krause.

“He wanted to hear somebody else say what he already believes. We should go to the Catholic Church.” — Munger, to a questioner.

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by Thorndike recommended by Charlie with enthusiasm.

The Best Performing Trendfollowing Fund is…

I don’t like to mix my work side of the business with the blog, which is meant to be more about strategies and ideas.  I also can’t mention the performance of our private funds unless you are on our accredited email list (although that may change in a few months depending on the laws).  But I can mention the simple leveraged portfolio strategies from our book and white paper (which we are updating and writing a ton of new material in the coming weeks/months – starting in February! when I get back from Colombia and Miami, promise).

So, I took the top ten funds by AUM  labeled as trendfollowing from the site IASG.  This list includes some of the top names in the business such as Winton, Campbell, and Transtrend.  I examined performance since 5/2009, and compared these ten funds to a simple 2X leveraged version of the basic strategy published in our white paper in 2006 and book in 2009.  I also deducted 1.50% in fees per annum from the GTAA 2X basic strategy.

What trendfollowing fund performed the best over this time horizon though 2012?

The simple GTAA 2X strategy did.  Likely reasons why are that the strategy from the book/paper is heavier in equities than most of these funds, and also has a much larger REIT allocation.

While this update is for an extremely short time horizon, it just goes to show that  a simple strategy can be very effective.  Also note that the unleveraged version would have also outperformed all of the other trend funds, and that all of the trendfollowing indexes were even worse at the bottom of the barrel.  But also note how similar all of these funds are in general direction and the zigs and zags.

However, the best performing trend strategy of all would have been to simply bought stocks or even a “buy and hold and then go on vacation for three years” allocation!  (This reminds me of the famous bet between Buffett and Protege where the zero coupon bonds and beating both managers…).





My #1 Read of the Year & $185k in Prizes

I’m taking the red-eye to Colombia tonite, so I have printed out a big stack of papers for the plane.  I am super excited to be reading probably my favorite update of the year, the Credit Suisse Global Investment Returns Yearbook 2013 (previous versions 2012, 2011) which are all updates to the excellent DMS book Triumph of the Optimists: 101 Years of Global Investment Returns.  If this isn’t my favorite investment book it is definitely in the top 5 (with only 14 reviews on AMZN, what are you thinking publishers?!?!).

We sent out a copy to the readers over at The Idea Farm today, and plenty more fun pieces coming from O’Shaunessey, Standard Life, and New Constructs.

(Also perhaps an easier download location here).





Also, the deadline for some of these contests for best investment paper are coming up this month…we’ve had a few five figure winners from blog readers, let’s get some more!

Most are offered once a year with various deadlines:

Research Papers

S&P SPIVA ($30,000 + $15,000)

AQR Insight ($100,000 prize)

Whitebox Research ($25,000 prize)

NAAIM Wagner Award ($10,000 prize)

MTA Dow Award ($5,000 prize)


Investment Idea 

Ira Sohn contest (winner presents at conference)

SumZero/VIC (winner presents at conference)

Skorina/Drobny (winner presents at conference) One time.

Capitalist Collective (six figure hedge fund job)  One time, hired two people.


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