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Gurus positive 2008 ROI

January 18, 2009
max7777

max7777

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Gurus who made money in 2008 and what they expect for 2009:

I wanted to know what does someone who was in tune with this market expect for the coming year. So I looked for gurus who actually made money in 2008, and then tried to find out what they expected for 2009. Not one of our gurus here made money in 2008 so I had to look beyond my usual list: Buffett, Klarman, Wasta, Lampert etc..

I know many here are against market timing. Aside from some core holdings, I was out of the market for most of 2008 and got in the market in October. I still lost money for the year, but it would have been much worst had I stayed all in. Maybe Buffett is right after all about not trying any market timing, still his Op Ed in the NYT sounded a lot like some long term market timing too: buy now that values are good, it will pay off in 5 years. That was his position as far as I could tell, and he probably is correct.

So, I wanted to know something simple: who made money in 2008 and what do they expect for 2009.

There are thousands of mutual funds, but amazingly the only Mutual fund that I could find with a positive ROI in 2008 was Forester Value (FVALX), this is a very small value fund that had about $50 million to invest. The 2008 ROI was below 1%, but it was still positive at 0.48% and much better than the S&P or any of our gurus here. But I can not make much out of them since the record is too short.

Given all the supposed brains on wall street, the millions paid to these MBA's, I just can not believe that this was the only mutual fund I could find that made money in 2008.

So I looked for hedge funds. The average hedge fund lost 18 percent of its value in 2008, according to Hedge Fund Research, that is still better than both the S&P's -38% and also better than most our gurus according to guru - scoreboard. So no matter what we say about them they still did substantially better than most investors or mutual funds.

By the way,the only other negative year on record for hedge funds was 2002, when they lost an average of 1.45 percent. But in 2002 there were many hedge funds with positive returns since despite a down market, there were still many other asset classes that had positive ROI's.

The returns for the most known hedge fund index, the Credit Suisse/Tremont index that tracks over 5000 index funds was at -19,07% for the 2008 calendar year. Now it is clear that some will make money in 2008 since there are some 10,000 hedge funds, and unlike most mutual funds, by definition hedge funds can short, buy commodities and play by all sorts of strategies.

Very few hedge fund categories came out with positive returns in 2008. You will easily guess the first one:

Dedicated short bias: 14.87% ( I am not too impressed with that ROI when the market was down 38%, and world markets were down 42%, all they could make in average was 14.87% ???) Here i looked up Taleb, who did very well indeed, see below.

hedge funds that trade futures, so-called CTAs were the best performers gaining 17 % ROI according to Eurekahedge. But these are beyond the scope of what we invest in, so I did not follow up on them.

Equity Market Neutral funds were horrible at: -40.32% ROI

(given the fact that these funds should not be affected much by declining markets, I think they are the worst surprise out there, maybe they should change the name from Market Neutral to market losers)

So I had to look very hard to find a few names who made money in 2008, and see what they think now, here they are:

Hugh Hendry at Eclectica Asset Management, assets under management of around US$650 million, he made around 40% ROI in 2008 by selling all stocks and commodities early on and betting heavily on T-Bill futures. His view is deflation is here and with all the deleveraging going on and past bubbles, stocks are not going to give us good returns for many years to come. Stay in T-Bills.

here is a 2009 cnbc interview: http://search.cnbc.com/main.do?keywords=hugh+hendry&target=video

Jeremy Grantham's GMO ALPHA ONLY FUND III, GGSEX. the 2008 ROI: 12.09% His views have already been posted on gurufocus. He correctly predicted in 1998 we would be here in 2008, at around Dow 8000, and stayed mostly in cash. Now he is starting to invest again in stocks, but warns we may go down to S&P 600 as we overshoot to the downside, but the next decade will be up 8% to 12% so he is allocating money to stocks slowly. here is his letter again:

:http://www.gmo.com/websitecontent/JGLetter_ALL_3Q08.pdf

Robert Romero of Connective Capital, a $120 million long/short strategy hedge fund, investing primarily in technology equities, had 3.5 % ROI in 2008. This is proof that you can make a bit of money if you stay within your circle of competence.

Chris Wang, of New York-based SYW Capital Management, $52 million in assets. Decided to short the financials and 2008 ROI was 80%. His view: “Credit is still dead, inventories are still piling up and there’s no demand to build anything,” more pain to come.

Nassim Nicholas Taleb author of "The Black Swan," a best-selling book about the impact of extreme events on the world and the financial markets. He also started a hedge fund, Universa Investments L.P., which bases many of its strategies on possible Black Swans, including how to reap big rewards in a sharp market downturn. Assets under management at Universa have neared $2 billion since the fund launched early last year with $300 million under management. Universa buys far-out-of-the-money "put" options on stocks and stock indexes.Separate funds in Universa Investments were up 65% to 115% as of October 2008. Taleb says he expects market volatility to continue as more hedge funds run into trouble. Taleb's partner, Spitznagel cautions against optimism. "You could say that so much value has been destroyed that there just isn't much left," he said. That is "a dangerous assumption, since things can always get worse."


My conclusion was that this was a rather depressing exercise. It seems that a few barley made it through on the positive side, a few others made great ROI, but mostly sound like perma bears and therefore I can not rely on their point of view. Then there is my two favorites Jeremy Grantham and Hugh Hendry. Grantham is relatively positive on equities now and Hendry is still very negative on equities.


Rating: 4.5/5 (4 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 5 years ago
Hugh Hendry at Eclectica Asset Management, assets under management of around US$650 million, he made around 40% ROI in 2008 by selling all stocks and commodities early on and betting heavily on T-Bill futures. His view is deflation is here and with all the deleveraging going on and past bubbles, stocks are not going to give us good returns for many years to come. Stay in T-Bills.



Staying in T-Bills or buying T-Bill futures now- with rates near zero- has no chance of good returns in the year ahead. It would protect you if everything get even uglier but there is no longer any upside to this strategy.


Nassim Nicholas Taleb author of "The Black Swan," a best-selling book about the impact of extreme events on the world and the financial markets. He also started a hedge fund, Universa Investments L.P., which bases many of its strategies on possible Black Swans, including how to reap big rewards in a sharp market downturn. Assets under management at Universa have neared $2 billion since the fund launched early last year with $300 million under management. Universa buys far-out-of-the-money "put" options on stocks and stock indexes.Separate funds in Universa Investments were up 65% to 115% as of October 2008.

Buying far out-of-the-money puts now is far riskier than a year ago and with much less chance of positive returns. Premiums are very expensive and stocks are relatively cheap.

Investing by looking in the rear view mirror rarely succeeds. Remember the June 2008 Fortune magazine cover story on Ken Heebner that sucked in so many people right before his funds blew up.
Sivaram
Sivaram - 5 years ago
Good post max7777. The bear funds, such as BEARX, have done well but I guess you are excluding them. I like how you aggregated some info on hedge funds, which many of us don't know much about.

As stockdox alludes to, we need to be careful to make sure that we are looking in the rear mirror.

If you can do some research, I would like to see you publish some info about John Paulson (of Paulson & Co.) He has been right on with the bearish real estate call and someone like him is far more important than some that you listed.
Max7777
Max7777 premium member - 5 years ago
Sivaram:

This is all I could find on Paulson recently:

Taken from DealJournal:

"Paulson’s Advantage fund was up 13.22% for the year to the end of August, having made 100.15% last year. Its Credit Opportunities fund was up 12.95%, having made 351.72% last year; its Credit Opportunities fund was up 12.46%, having made 589.62% last year; its Enhanced fund was up 8.17%, having made 116.48% last year; and its International fund was up 5.17%, having made 51.7% last year."

Bloomberg, January 6, 2009 :

Paulson Credit Opportunities and Credit Opportunities II funds gained about 15 percent last year through the middle of December, according to a person familiar with the returns.

-- Paolo Pellegrini, the former Paulson & Co. hedge-fund manager who helped make more than $3 billion with bets on a U.S. housing crash, said his new fund will avoid equity markets after last year’s rout.:"There will be few opportunities in equity markets in 2009 after the Standard & Poor’s 500 Index dropped 38 percent in 2008 and the MSCI World Index fell 42 percent"

Max7777
Max7777 premium member - 5 years ago
There are few other very famous hedge funds that were positive in 2008 according to my research, but I did not include them since I no idea what they expect for 2009. If you are interested here they are:

Bruce Kovner's Caxton Associates today manages over $10 billion in capital and has been closed to new investors since 1992. As of October. Their Global Investment fund was at 7.25% as of end of October and climbed to almost 13% through Dec. 22, 2008 according to a report.

The Horseman Global Fund, a $3.8 billion long/short equity hedge fund run by John Horseman, up to Dec. 17, ROI was 32% in 2008. IMPRESSIVE

Brevan Howard's flagship $15 billion hedge fund, through Dec. 12, had ROI: 21% in 2008

Jim Simon's Renaissance Technologies flagship $8 billion Medallion fund is up 58% on the year as of Oct 2008, which. Keep in mind, this fund is limited to only Renaissance employees. The portfolio in this fund is based on mathematical models and with extremely high turnover and they are very secretive so there is no comments or even extrapolation possible as to what they expect for 2009. But again, this year they beat most other hedge funds at 58%.
Max7777
Max7777 premium member - 5 years ago
Just had to add that George Soros to the winners list for 2008. His stock portfolio here does not show it, but he had a positive ROI in 2008 according to an article i read on the web.

Soros said: "I would say I was able to protect my capital, and get a rate of return that is satisfactory in normal times," he said Wednesday. "I think in the current environment, to be simply in positive territory is itself an accomplishment."

In 2008, Forbes magazine estimated Soros' fortune to be $9 billion.

He made a lot by shorting the U.K. pound from $2 all the way down to $1.4, he covered that position since. He said he made an acceptable return that he was happy with. As for his outlook, see other articles on the site.

His view for 2009: The U.S. economy will not grow return to strong growth for at least 10 years. For the next decade, he predicted. "It would be very difficult for the United States to grow by 3% in a year over the next decade,".

fk
Fk - 5 years ago
max,

Any idea how he goes about shorting currency? Is it the same way you short a stock? Borrow some shares, sell it immediately, then buy it back later at a cheaper price and return the shares?
Max7777
Max7777 premium member - 5 years ago
Soros uses future contracts, with huge leverage, usually controlling Billions. Soros is a Macro guy and has been playing currencies for decades. The Pound is how he made his biggest hit in his carrier on Black Wednesday (1992), Soros became immediately famous when he sold short more billions worth of pounds, and made $1 billion dollars in that 92 trade. In his autobiography, "Soros on Soros," he explained why he believed the pound would be devalued despite the British government's claims that they would hold it.

in 2008, Soros has been busy shorting the pound again. He shorted it all the way down to 1.40 and then took off the short position. He now says he’s neither bullish nor bearish on the pound at this point. Using fundamentals as macro economic views in currencies as Soros does is rare (most use technical analysis) but it can be advantageous in recognizing the imbalances in the currency pairs but it must be a long term trade and with a very big account to withstand the corrections and even the possible wrong timing of the entries.

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