Thursday, September 4, 2014

The Invisible Hands

Steven Drobny interviews a number of hedge fund managers who profited through the recent financial crisis in his book, The Invisible Hands.

The book has a classic "It's different this time" feel to it, as the attitude prevalent in the book (at least, as I interpreted it) is that bottom-up analysis no longer works, because busts will kill you. Instead, the book describes a number of strategies employed by some macro hedge funds.

I'd really like to see how these funds have done since the book's publication. A lot of the strategies they suggest would have done quite poorly in my estimation, whereas going long stocks has been a good strategy since the crisis. Unfortunately, the names of these managers have not been revealed! The author argues that the level of detail provided would not have been possible had the managers gone on record with their interviews.

Amazingly, very few of the managers with their macro strategies attributed even some of their success through the crisis to luck. At the same time, few appear to employ a margin of safety in their investments (speculations?), making it hard to believe luck didn't play a predominant role. In many cases, manager decisions are made based on gut feel. It's hard to believe that this kind of behaviour can lead to sustainable success. Again, because the identities are kept secret, it's hard to follow-up on these guys and see what has happened since.

As you may have guessed, I didn't get a whole lot out of this book. If you're a value investor looking to use your time wisely, I would recommend staying away.

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