True Lies

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Credit where credit is due

I have a lot of ideas running in my head. I will start off with this. I mentioned earlier that one of our relationship managers mentioned a square root recovery. He sent me the following link and made sure to point out that it was after he told us about it. I told him that I said his description was nothing short of genius and I stick by it.

Epileptic Disaster

I have had epilepsy since I was a kid. For a brief period I was drug free but had a relapse when I had an accident. Now I have resigned myself to the fact that I will have to take my medicines for the rest of my life. Why am I revealing this? The reason is that an epileptic dance artist is planning to induce a seizure on stage by fasting, not taking her medicine and by having strobe lighting. In financial terms it would be like giving money without sufficient collateral then not hedging your portfolio and then leveraging your investment. It sounds crazy right? However that is exactly what happened. The result was to be expected as the world went through a massive epileptic fit. Once you get an epileptic attack you have to be attack free for 5 years before then can consider gradually reducing the medicine. Then small things like your weight can make a big difference. Cut the medication too fast and it will harm the patient. Similarly all this talk about the pace of Quantitave Easing is interesting. My opinion is that it should be done gradually otherwise we will see a relapse. The effects of the crisis has not been felt as yet. It will take time to see the markets stabilize in a proper fashion. Of course in 5 years time we could see another crash.
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Square Roots and W's

These times are different and they express recovery in different ways. You have the traditional J curve which is unrealistic. A W is possible but the latest research indicates a square root. I read a 2010 analysis which implied this. One of our relationship managers described this as a square root recovery. I thought his description was nothing short of genius. I have always respected his opinion and have had some interesting debates with him. I have disagreed with him on the the timing of investments. However today I shared most of his views. Marriage changes a man. After my divorce he gave me probably the best words of wisdom. He said that there was a choice of going out drinking with the boys and get deppressed or get fit, enjoy life, find someone and be happy. Today he is happily married. I followed his advice. Maybe I will be happily married sooner than I expect. Like the markets; we may be already in November but January 2nd has not come yet.
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"Blondes are more expensive to maintain that Ferraris"

Not my words!!! It is one of the many "jokes" that was circulated by Mark Lowe. I do not think that is true. A blonde can purr as nicely as a Ferrari and requires as much maintenance as a Toyota. Now by this I am not saying that Blondes are cheap. What is expensive though is a Ferrari engine in a communist or socialist car. Give me a simple "blonde" fund over an overleveraged bad fund anytime. However sometimes we can get blinded by the returns and forget about the structural integrity. Sometimes you just don't know whether your decision is right or wrong. In the long run which will perform better. Every rule has its exception and right now even though I think that a normal fund is better; I have taken a big risk by going in for the over leveraged vehicle. Only time will show me whether it is the right move. If something wrong happens then all I can say is that I would be stranded in a desert not knowing where the mirage starts and where the oasis are.
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Sex and the city

The other day as I read a headline of a lady claiming that a hedge fund manager in the city had sexually harassed her. As I read the article I saw the name Mark Lowe. The name sounded familiar and I panicked. I practically ran to my desk and checked my business cards but could not find any reference to him. I checked by emails and then I noticed that emails from him regarding his fund. I cannot recollect if I met the person but in the time that I have been in the industry, I never was taken out by anyone to a gentleman's club or were introduced to willing ladies. This I do not say with any regret. I do not know what I would have done if I was made such offers. However I can say with a clear heart that I have not taken any decision with regard to investments based on any action that could be classified as a gift.
I was and I guess I still am sheltered. However I have heard sufficient stories to know that these things do happen in the city. It is a deadly spiral. Banks want more of their clients money. Clients must be kept happy. If certain clients can be kept happy by providing sex then it will be done. In the end the bank is happy for getting the profit. The relationship manager has a more plush cushion. Part of the clients need has got satisfied. If the investments do well then that is an extra bonus.
I do not need to be taken out to keep me happy. Provide me with good ideas, warn me when something bad is going to happen and be truthful to me. Trust is a very fragile commodity. Quite a few times it has been broken by people I least expected to. Now I have learnt that I have to be careful with everyone. I hope the people that broke my trust never find out. They will act as if they love me and I will do the same. However deep down and behind closed doors we know which way the current flows.
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Emerging Markets?

Today there is no other alternative but to invest in alternative investments. However more and more banks and financial institutions are distinguishing investments by those that provide alpha and those that provide beta.
Similarly the last year and a half has seen the metamorphis of the emerging market. Exposure to BRIC and other emerging markets should be an essential part of a portfolio. If you buy into vodafone then you are by no means buying a developed market U.K. based company. Conversely you may actually be buying a company that depends more on the Asian and Eastern European markets for growth, while they lose market share in their traditional markets where O2 which is owned by Telefonica gets all the exclusive deals.
In the coming years I think the markets currently classfied as emerging will outperform the developed markets with a better risk adjusted return. I do not think that we will see years where the return would be greater than 50% but if the US markets are giving 8% with a 5% volatility and the Asia market are giving 10% with an 7% volatility then surely it will be better to go in for the latter.
This financial mess was cataclysmic and requires a paradigm shift in our thinking of investments. Are fixed income or even. Government issued bonds safe? Are investments backed by real assets safe? Are hedge funds really riskier than equities?
If it was up to me then I would get my entire exposure to the asset classes through hedge funds and ETF's. Hedge Funds I believe are flexible in nature even if they are not liquid for investors. ETF's gives you access to the broad market and asset classes. You get your beta from the ETF's and alpha from hedge funds. You don't end up paying unnecessary fees to managers. I would rather see the profits of those investments increase by the non payment of fees rather than fatten their pockets. Besides I do not think that banks actually provide sufficient service to justify their fees. But sometimes you just don't have a choice. A small sized family office will not have the manpower to do the due dilligence of a fund properly. It is not cost effective. When stuck between the devil and the deep sea it may just be better to sleep with the devil than risk drowning in the process of finding out if you can swim in the deep sea.
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