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Happy New Year



I have spent this last year building my business, and watching Todd build his. We have a lot in common, most of all I think, in how and why we have done what we have done.

We haven't done these things to make money quickly. I think I have built my hedge fund in a different and more stable way to make attractive risk-adjusted rates of return for my clients. This requires being opportunistic: to sit and wait until things make sense. Some clients are too impatient for this; ours are not. We are very up-front with them when they talk to us; many walk away, but the ones that invest do so with their eyes open. Over time my business will take care of me, but I must first do the right thing for my clients. This requires patience.

There is huge pressure for most hedge fund managers to "take shots" (of all sorts) to make money for their clients (so they themselves can make money), even when things don't make sense on a risk-adjusted basis. This is because they promise their clients things that are not realistic in order to get them to invest in the first place. This works because the clients themselves are running other people's money and have the same pressure themselves. This is similar to the mutual fund phenomenon: true risk assessment is watered down because of the separation of capital from the true bearer of risk.

The proliferation of hedge funds and mutual funds has increased the rate at which risk premiums change. If I can say one thing about investing it is about compounding and not making mistakes. The Federal Reserve has taken away the ability for investors to "compound" through zero (or negative) real interest rates; this has forced investors, and in our new world this is hedge and mutual funds, to take more risk. This is driving almost every market as "risk" premiums get lower and lower. It is forcing investors into positions where they will eventually make major mistakes. It is painful I know to sit on the sidelines and wait during this process, but it is a lot less painful than when this process unwinds. Risk is silent until it is not.

Todd is driven by the same things as I am. He doesn't put out the same trash as others in an attempt to maximize his own wealth in the short run. He knows that if he educates his clients and helps them to most of all "not to make major mistakes" his clients will eventually take care of him. This is how it is "supposed" to be. It is called fiduciary responsibility.

Wall Street is all about the opposite. There is a direct conflict with Wall Street making "big" money (not fair money) and making realistic recommendations: clients who don't take a lot of risk don't pay a lot of commissions. Wall Street serves its master, which are companies and to some extent very large investors. It uses everyone else.

So Minyanville is not about making a quick buck at the expense of their clients, but about teaching Minyans how things work and how not to make big mistakes. Wall Street doesn't care if you make big mistakes; they will just find new clients. Todd does care.

So Minyanville is not Wall Street. As it grows it will be the answer to Wall Street. And Wall Street should be very afraid.

As for me, my own business is growing and taking much of my time. I will write from time to time as I care deeply for Minyanville and my friend Todd.

I wish everyone peace in the New Year.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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