Stocks ended sharply lower Friday after weaker than expected data in China and Europe exacerbated concerns of a global economic slowdown. The Dow lost 496 points, falling to its lowest level since early May. For the year, the Dow is now down 2.5 percent. The S&P 500 is also down 2.75 percent for 2018. At this point, it is becoming increasingly clear that global growth is slowing and there is no way to dance around that fact.
The one industry that is hurting the most and is the one that also charges the most – is the hedge fund industry. This year has laid to waste the who’s who of the hedge fund industry and almost of all of them due to big bets gone wrong. T. Boone Pickens decided to hang up his hedge fund spurs after almost 40 years of thriving in oil bets until the recent whipsawing of oil prices cleaned up his fund. Leon Cooperman’s Highfields Capital is gone in the wild ride in October. Izzy Englander decided to euthanize Millennium Capital after a painful 11 months, and, just this week, former Lehman Brothers President Bart McDade’s hedge fund career ended in pretty much the same way Lehman did. And, former GLG Partners star trader Philippe Jabre has also joined them this week for dinner.
Future Wealth’s View
The problem with stock picking and timing the market is – it simply does not work in the long term. Some of the fund managers of recent fame – David Einhorn of Greenlight Capital, Bruce Berkowitz of Fairholme Funds and Bill Miller of Legg Mason are all in the dog house. Market timing does not work in bond funds either – just ask Bill Gross, formerly known as the “bond king” of PIMCO, who is now struggling to attract investors and boost the performance in his fund while his title has quickly transformed to “bond serf”. All these guys had streaks of out-performance and drew down millions of dollars in bonuses until they could not do it anymore.
The average investor, on the other hand, who has neither the millions of dollars in bonus nor their streak of out-performance, is left holding the bag. The cardinal truth is – when the market is doing well, everyone is a great stock picker. But, how many are able to go defensive and go into cash before the downturn, separates the “men from the boys”. The reality of managing money is not as easy as turning the light bulb. And increasingly, as the market heads south, investors are going to figure out that turning the light bulb is not as easy as they once thought it was either.
The information contained in the report does not constitute an offer, or a solicitation of an offer, to buy or sell any securities or other financial instruments, including the securities of companies listed in the report. Investors should not rely solely on the information in the report in making an investment decision.