Barton Biggs and Hedge Hogging, plus NHS Dysfunction

I managed to finish reading the book Hedge Hogging last week during my 7 days in hospital. Here is a longer review.

The author Barton Biggs spent 30 years at Morgan Stanley building up their investment management business. In 2003 he formed his own hedge fund named Traxis Partners which was wound up after his death in 2012. But this is no out of date history of past financial events as much of what it covers is topical and relevant to today’s stock markets.

It’s partly a journal of events in his life but with extensive diversions into the big issues most investors face particularly the psychological difficulties that you can face. Topics such as short-selling, private equity, emerging markets, market bubbles and investment cycles are covered – we certainly seem to be in a down cycle at present rather than a temporary correction. As an investment strategist over 30 years he obviously experienced a variety of market conditions. He covers the two main investment approaches – based on growth and value but in essence was agnostic.

He has some interesting comments on Ronald Reagan and Margaret Thatcher – the latter he met more than once. He explains the success of the Yale Endowment Fund under David Swensen and explains to an audience of tech stock fanatics that “the human emotions of fear and greed that drive the stock market to excess have not changed over the course of human history and remain as valid today as in the past. Busts are busts, booms are still booms, and bubbles always burst, but this was boring stuff, and the crowd stirred restlessly. The glitterati understandably had no interest in hearing about busts or bursting bubbles. On to the next IPO and salacious stock idea”.

A good paragraph that gives you an impression of his writing style is the following: “If you hang around the investment business long enough eventually you experience some mysterious, almost supernatural events because the stock market is a capricious beast, almost a force of nature like the sea or the arctic. It can be bountiful and loving in its embrace but also hard and cruel and sadistic. Making your living from the stock market is a strange, hazardous, yet beguiling occupation. It’s a little like being a ship’s captain back in the time of wind and sail. As the master of a whaler out of Nantucket in those days of yore, in good fair, you blissfully rode the ocean’s friendly currents. Then suddenly without warning, the sea would turn and you would find yourself driven helplessly toward some distant rocky shore by one of its fierce, irrational storms. Men and women who live at the mercy of the whims of the sea and weather are a superstitious lot”.

He ends with a review of the biography of John Maynard Keynes by Robert Skidelsky which I have lined up as my next book to read. In all Hedge Hogging is a fascinating look at the world of hedge funds but there are many lessons to be learned from it for ordinary investors.

Lastly let me say about a few words about my stay in an NHS hospital, which was not for the first time. The popularity of the NHS is falling and quite rightly. It is a dysfunctional organisation that does not compare well with the systems in other countries (bar the USA).

I cannot complain about the treatment I had but the big problem is the culture. Treating patients as children to be organised and disciplined, not as people. It was also very wasteful, keeping me in bed when I was only “walking wounded” as the army might say when I could have been treated at home for most of the time at less cost. How do you reform the culture of an organisation? With great difficulty is the answer. Easier to start from scratch.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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FT Article on the NHS

There is a very good article in the Financial Times today concerned with the panic over privatising the NHS. I added this comment on-line: ” I write this from my NHS hospital bed. There can be wonderful service from the NHS but it can also be very bad – waiting lists for surgery or cancer treatments are examples. I would hate to have to rely on the NHS solely for medical treatment as most people do. Over 30 years I have learned that the NHS is slow to reform and adopt new technology. It’s a bureaucracy and not run like a business with customers. The NHS still treats you in what they consider is best and most efficient for them. There is little response to customer demands or views. That is what needs changing with more financial incentives”.

It looks like I may be here some time but I expect they will keep me alive as they have done for the last 30 years (I am a kidney transplant patient). It does enable me to finish reading Barton Biggs book Hedge Hogging which I mentioned in a previous blog post. This is a really good book that everyone involved in the financial world should read. I’ll try to do a more expansive review at a later date as it’s not easy to use a laptop in bed. It’s not just relevant to hedge fund managers!

Glad to see the market is in soporific mode with no big movements in my holdings. Trading from your sick bed is never a good idea as treatments can affect your brain or your emotions.

Roger Lawson

Hedge Funds Scale Back Big Bets

An interesting article published over the weekend was one in the Financial Times headlined “Hedge funds scale back big bets”. It said “Hedge funds focused on US equities are pulling back sharply on their bets after the longest stretch of sustained selling in more than a decade left many managers nursing stiff losses”. It also reported that “Long-short equity funds, which pitch themselves on the ability to protect client money in down markets, have lost 18.3 per cent for the year up to and including Wednesday, according to Goldman Sachs estimates”.

The opaque and murky world of hedge funds is well described in a book I am currently reading entitled “Hedge Hogging”. This is by Barton Biggs a former hedge fund manager and contains lots of interesting stories about his experiences. For example, he covers going short on oil stocks based on fundamental analysis when the market started going in the other direction and he was in danger of clients taking their money out of the fund.

But it’s a book that any investor can learn from. Just looking at some of the chapter titles gives you some flavour of the content: The Odyssey of Starting a Hedge Fund: A Desperate Frantic Adventure; The Violence of Secular Market Cycles; Nature’s Mysticism and Groupthink Stinks; The Internet Bubble; Great Investment Managers are Intense, Disciplined Maniacs; Three Investment Religions – Growth, Value and Agnostic; Bubbles and the True Believer; Divine Intervention or Inside Information – a Tale That Will Make Your Blood Run Cold.

It makes it clear that the hedge funds world shows the natural survival of the fittest in the extreme. Those who make big bets and win are the survivors but those who make big bets and lose disappear and are soon forgotten as investors move their money elsewhere. Whether there is clear out performance in the long term by anyone is not clear but the high fees charged mean it can be very lucrative for the fund managers who can stay in business.

In summary it covers a wide range of topics including the dangers of shorting stocks if anyone has an urge to dabble in that as the market falls.

Ideal summer reading on your holidays.

FT article is here: https://www.ft.com/content/8495545c-74e1-4150-8207-4855c66c9750

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

You can “follow” this blog by entering your email address below. You will then receive an email alerting you to new posts as they are added.