Goldman Sachs's (GS) Global Alpha fund off 23% in August

The Goldman Sachs (NYSE: GS) Global Alpha fund is supposed to be as close to perfect as any pool of money in the world, yet was down 22.7% in August [subscription required] according to the Wall Street Journal. The fund has a multi-strategy approach that allows it "the flexibility to adapt to volatile and difficult markets and avoid problems arising from any single strategy." Global Alpha has given very good returns but the music stopped about a year ago. Over the last 12 months, the fund has lost 37% of its value.

The drops shows that even very smart people can make dumb moves and stick with them too long. The Global Alpha manager has made bad decisions about investing in the Norwegian stock market, the Australian dollar, the Japanese yen and Canada's currency.

The Journal says that the problems at the fund are an example of what happens when many large institutional investors put money into similar ideas. When the market moves against these, too much money tries to exit those investments and their value drops sharply.

Well, that may be true, but the partners at Goldman are supposed to be the best in class. In other words, they are supposed to stay away from those investments that everyone else is making and find even better markets. That is why they are paid tens of millions of dollars a year.

The fund's managers must have forgotten what got them their positions in the first place. They were smarter than everyone else. At least for a while.