Investing seems to be more of an art than science. It's not necessarily about hiring smart people or having super computers. It's usually about one person who has that intangible X-factor.
For example, in 2006, Goldman Sachs' mega hedge fund, Global Alpha Fund, actually sustained a 6% loss. Yet if you look at some of the hedge funds led by legendary investors, things look much better. This is the conclusion of an excellent article in Bloomberg.com.
Take Steven Cohen, who manages SAC Capital Advisors. Last year, his fund returned a whopping 34%. Or look at Ken Griffin's Citadel Investment Group, which also returned more than 30%.
These investors show that success often means going against the conventional wisdom.
In the case of Cohen, he has become more of an activist. One of his plays was to join with Carl Icahn to make a move on Time-Warner. He has also intervened in the $25.5 billion deal between Phelps Dodge and Freeport-McMoRan.
As for Griffin, he made a bold bet buying-up the portfolio of Amaranth Advisors, which was a massive hedge fund blow-up.
Griffin's firm plans to go public soon.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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Reader Comments (Page 1 of 1)
1-17-2007 @ 1:58PM
Jon said...
Youre a moron. Global Alpha was up over 40% in 2005, well above the returns of any major hedge fund. One bad year, especially for a quant fund, means absolutely nothing.
1-17-2007 @ 10:14PM
ShellyJacobs said...
I'd choose the algorithmic quants over any "x-factor" trader(s), as random non-reoccurring events don't make for reoccurring profit. Also, the management firm's "inventory," it's x-factor traders, walk out the door every day with their hat & coat. Such firms are worth less than the actuarial lifespans of their traders, if anything, verses a firm with robust algorithmic adaptive trading methodologies.
If you want to root for the personalities, just watch American Idol. If you want to earn year in, year out significant returns on your capital, stick with the quants. The rest are spaghetti thrown against the wall, wherein an occasional strand may stick.
1-19-2007 @ 7:29AM
Tom said...
The real question is not star trader vs. algorithmic trading which is a pretty pointless debate, but how GS made billions for its own book and made losses for third-party investors.