Cats in the cradle.

I no longer feel special. This realization has dawned on me when I heard a group of grandmothers talking about exchange rates, markets going up and down and walking more than they used to so that they can save money because their pensions have got effected. In a years time nearly everyone have become experts in the financial markets. With each of them having their own view. I was blissfuly unaware of the LTCM and Russian default crisis when it occurred. Today I can bet a year's wage that most of the teenagers would know about Lehman, RBS and the collapse of the financial markets.
One of the people I learnt a lot from about hedge funds is today the person in charge of Alternative Investments at one of the major banks. I had invited him and his sons for a Chelsea football match. They must have been around 10. I watched with great intent when he was explaining to his son the concept of a P/E ratio. It was then that I had hoped that my kids would be interested in my line of work and I will be able to teach them about the markets along with a whole bunch of other things. Part of this is possibly the guilt of now knowing the details of my Dad's work.
I do not know if I would push my children to work in the financial industry. However I will tell them about LTCM and Lehmans so that they will be prepared to handle the situation in whatever facet of life they end up being.
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The fall of the monarchy

It would be irresponsible of me not to make any comment with the one year anniversary of what would become one of the biggest financial crisis in history. It was one of those events which was supposed to be a six sigma event. However those six sigma events are becoming more frequent. There are various theories which seek to explain these phenomenon but I will save it for another day.
The collapse of Lehman,AIG, the selling of Merrill Lynch and Royal Bank of Scotland created a paradigm shift which changed the face of banking and the way people viewed bankers and people working in the financial industry. Last Halloween the hottest costumes were that of a banker and Sarah Palin. Suddenly bankers were placed on the same platform as Guy Fawkes, Osama bin laden and George W. Bush. The irony of these three names are that they are viewed as super heroes by some people and villains by others.
Hedge Funds are placed in the same basket and the recent ads by Stella Artois are a hit below the belt. My view was and continues to be that Hedge funds are the only instruments that could have eased the fall. However the brilliant members of the central banks of the world over decided to ban short selling. I liken that move to blaming an undertaker for making profits during an epidemic and preventing from digging graves to bury the body.
The big banks were a monarchy. They ruled the world. Now the people are fighting back. I cannot say whether their cause is just or whether they are even aware of what they are fighting for. The people will win this round but the big banks will be back to their behemoth best in some form or the other. In the mean time I continue to believe that Hedge Funds are one of the best alternatives. I end with a quote made about a person who was a prince in a lot of people's hearts. Jennifer Grey paid tribute to Patrick Swayze on his death by saying "Gorgeous and strong,he was a real cowboy with a tender heart." "He was a rare and beautiful combination of raw masculinity and amazing grace" In my view Patrick Swayze in Dirty Dancing provides a good metaphor for hedge funds. Johnny Castle was exotic, attractive, kind,misunderstood and had humble beginnings. However he was the only one who had the strength to say "Nobody puts Baby in a corner."
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August 12th 2009

My friend Sunil Chandy made the following statement "A good song is one where the meaning of words and the meaning of the music meet and enrich each other." Sunil is a gifted musician and a gem of a guy. The wisdom and simplicity of the quote is filled with sublime beauty.
I have from time to time described myself as a singer who plays the guitar and not a guitarist who sings. A year back I used to joke that if I had to lose my job then at least I had some chance of earning an income by busking in the underground. Music to me should be pure. There should be as few physical barriers between the audience and the musician. A simple stringed or percussion instrument and an audience. The best songs are those that are played with the three major chords and at the most using the two related minors. However this by no means makes a song less complex or interesting.
Investments should follow a similar philosophy. If a hedge fund is supposed to be a long/short equity fund then it should invest in purely liquid equities or have the option of placing cash. Having portions of the fund in shares of unlisted companies should not be part of the portfolio although the manager will have such a clause in the Private Placement Memorandum.
Transparency in hedge funds is needed. However not to the extent that each and every deal should be made available to the public. If that had to happen then there would be no money to be made. Huge profits can be made only in environments where positive and negative returns results in a good volatility. A good hedge fund is one that comes as close as possible to providing absolute returns year after year just like a good song is one that touches you no matter when you listen to it.
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28 July 2009: Authors or Analysts?

We had a meeting with one of the banks we have an account with. The person managing the fixed income portfolio said that we would have to see whether what we are going through are green shoots or weeds. Sometime back the finance minister of Germany said that she gardens and she would call something a green shoot only when she is able to see some green. A person I know wrote a commentary titled "Apropos the Stock Market." In the years I have known her, I think this is the first time I have heard her opinion on the market. However I have never heard her use a word to the quality of Apropos before. I am one of the gateways to the family and it is my solemn duty to protect the family. All of us in the family office are either second generation employees of the company or directly related to the company. We are who we are because of the company. I do not know where the future will take me. However I do know that it would take a cataclysmic event to do anything that would compromise or hurt the family. I like my job and what I do. As a kid I wanted to be a Priest. My friends tell me that I should be an author,poet or musician. However I do not think I am going to go away from the world of finance and this blog is not a path to penetrating that space. Writing should come natural to all of us in the field of finance. We rarely state the reality. Everything we say is open to interpretation. What trades or strategy we do is dependent on what we perceive as the truth or it may be because we are letting the mass public hear what they want to hear. Very few people have the guts or talent to tell things as they see it. I am a poet. Every word I write is carefully measured. In my poetry especially I purposely write things so that they are ambiguous. Next Monday City Girl who writes for the London Paper will be revealing her identity and will be publishing a book as she has quit her job. Another person to walk away from the evil of the city. All of us in the world of investments are guilty of some sin or the other. Finally I guess our humanity catches up with us. We see the city for who she really is. However should we blame her for what she has become? After all it is we who have created her.And we end up walking away once we either tire or get guilty of prostituting her. I shall end this by quoting the same quote from Oscar Wilde that city girl did; "The only way to get rid of temptation is to yield to it." Sent from my BlackBerry® wireless device

July 21 2009

One of the best feelings I get is when the "experts" from the major financial institutions comes up with the same conclusion that I have after I have realized it. Yes it is narcissistic of me but that it is the flower of my birthday and therefore it is to be expected. The latest episode was last night when one of the sports commentators on Sky said "One small step for Flintoff, one big step for England." Earlier in the day I wrote on my facebook "One small step towards the Urn and one big step for England." The ASX increased by .01% today. That .01% increase can be attributed to the applause the populace at Lords gave Ricky Ponting an applause when he admitted that they were outplayed. The FTSE on the other hand has increase by over 1%. The share price of all the sponsors of the English Cricket Team have increased since yesterday. The only sponsor of the Australians who have had their share price increased is 3G. However 3G is 50% owned by Vodafone. Now what would a normal Aussie bloke do if he knew that? Does the average Aussie cricket fan know that Fosters have sold the rights to brew Fosters in Europe to Scottish and Newcastle which is owned by Heineken? In Europe the beer associated with Australia is not Australian!! Everything is not what it appears to be. Pure transparency among equity funds and hedge fund does not, will not and should not exist. If transparency did exist then everyone from a 90 years old grandmother in Timbuktu to Wall Street would be buying the same things. If that would happen then there will be no money to be made. Efficient markets cannot exist. It is the risk and uncertainty that gives rise to opportunity. All creation stories and theories begins with Chaos. Since that is the case then who are we to go against the Gods?

July 16th 2009

Matthew Lynn who is a columnist for Bloomberg wrote a very interesting article on whether the seriousness of Steven Jobs health was of material consequence to release the information earlier than when Apple actually did. I believe that this is a gray area. A line should be drawn. However the question is where the boundary between public and personal space should start for a prominent public figure. Humans are voyeuristic in nature. This is not about which celebrity is sleeping with whom. Yes there are people who feed on this but Katie Price breaking up with Peter Andre will not have as much of an effect on the world as the health of Steve Jobs or Warren Buffett. The value of companies and funds are associated with the people who lead it. Will the successor of Apple and Berkshire Hathaway be the same without Jobs or Buffett? The performance of Absolute Capital Management fell dramatically after Florian Homm who co-founded the company suddenly walked out of the company. The point of all of this is that there is a big possibility of people losing a lot of money if something had to happen to prominent people in industry. I am not insinuating that CEO's twitter their life but if there is any issue that will potentially influence a company or a fund then full disclosure should be made as soon as possible. As usual I have to bring cricket into the picture. The very next day after the first test match was over a public declaration was made that Andrew Flintoff had to undergo a scan on his knee. The results were not published but immediately Steve Harmison was called up as a precaution. However there were also pictures published of Flintoff practicing in the nets and the announcement by Flintoff that he was going to step down from Test cricket after this series. Flintoff is the talisman of the English side and a very important part. His departure will have a more profound effect on this series than if Andrew Strauss who is the captain on the side got injured. I do not know if Flintoff will play today but the English Cricket Board handled his situation in a significantly better way than Apple did with Steve Jobs.

July 13th 2009

The Ashes season has started. Probably it was one of the most exciting first test match of an Ashes series. Australia won the first test match in 2005. The Australian index outperformed the FTSE by 2.36% starting from the Monday before the Test match to the next Monday. In 2006 the ASX outperformed by .19%. Australia won that match too. Last week the FTSE outperformed by 2.61%. England drew the match. However Australia missed a golden opportunity to win the match. If Jenson Button had to win the German Grand Prix instead of Mark Webber then I would guess that the the difference would have been in excess of 3.0% Ricky Ponting was furious that England used time wasting tactics. At least Nathan Hauritz was honest enough to admit that Australia would have used the same tactics. Besides I am pretty confident that had the Aussies taken the last wicket and won the match then they would have been totally pompous about it. It is not that England breached the spirit of the game but the Aussies are just sore losers.