What caught my eye this week.
I read this week of a successful US hedge fund that’s closing down because it finds the work too onerous.
“Soul sapping” in its own words.
It wasn’t the challenge of hunting for good investment ideas that did for the Echo Street’s hedge fund, apparently.
That was “joyful”, it said. (Something I can personally [1] well believe).
Rather it was a requirement to manage volatility – to “smooth the ride” – that has seemingly ruined the business of managing billions and making millions as a hedge fund.
Institutional Investor [2] quotes from an Echo Street letter to clients:
“Why is the environment for hedge funds getting harder?” the September 9 letter said.
“Managers live inside the box defined by their risk constraint. They can do whatever they want, as long as they stay inside that box…
If that box includes a need to ‘smooth the ride,’ then that box gets tighter and smaller every year.
As the techniques we use to smooth the ride get discovered, they no longer smooth.”
Interesting.
Of course, I don’t expect abundant sympathy for Echo Street’s management. It’s hard to bust out the tiny violins for fund managers paid a fortune because they have a few too many bad days at the office.
Besides, the firm may be closing its hedge fund and returning money to clients, but the business itself isn’t shutting down – it will continue to offer long-only funds.
So in that respect a decision like this is just opting for an easier life. It’s pushing the difficulty of reducing volatility through diversification or other strategies back to the customer.
Which is what makes it relevant from a Monevator perspective.
We’re all bemoaning the difficulty of properly diversifying a portfolio in today’s low-yielding, more correlated world.
For example, to just mention the phrase ‘government bond’ in a post here is to set off a torrent of anguish in the comments below.
Perhaps it’s not reassuring to hear that a winning hedge fund with resources far greater than our own also sees the difficulty – albeit through a prism of regulation and box ticking.
Not reassuring, but it’s surely telling, no?
Maybe we just need to accept that the best way to ‘smooth the ride’ on today’s investment journey is to try to keep our eyes on the distant finishing line [3], and to try not to look out of the window – at our portfolios – any more often than we need to.
The view from the Channel Tunnel isn’t very enticing. But Paris is still glorious when you finally get there.
Have a great weekend!
From Monevator
The Accumulator: I hit my FI number – Monevator [3]
From the archive-ator: Financially independent in 10 years: A plan [2013] – Monevator [4]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [5]
Boris Johnson: UK is now seeing a second Covid-19 wave – BBC [6]
UK interest rates likely to fall below zero in 2021 – Guardian [7]
Shares tank on fears of another UK national lockdown – ThisIsMoney [8]
Royal Mint to stop production of £2 and 2p coins due to excess stock – Guardian [9]
Co-op to open 50 new stores after lockdown prompts “exceptional” demand – ThisIsMoney [10]
Renters fleeing central London in ‘race for space’ – Guardian [11]
Charting the Covid-19 effect on Fintech – Andreesen Horowitz [12]
Products and services
Skipton’s 1.2% paying best buy account sold out in three days – Guardian [13]
NS&I going paperless; will stop sending Premium Bond prizes in post – ThisIsMoney [14]
Revolut saga spotlights concern over digital banks’ service standards [Search result] – FT [15]
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade [16]
Switching bonuses rise to as much as £125 for current accounts – Which [17]
What do negative interest rates mean for savers and borrowers? – ThisIsMoney [18]
How one Blackrock model portfolio tweak unleashed a flood of ETF demand [US but relevant] – Morningstar [19]
Homes for sale with a thatched roof [Gallery] – Guardian [20]
Comment and opinion
Happy – Indeedably [21]
Watch out for pension milestones at 55, 65, and 75 – ThisIsMoney [22]
Merryn S-W: Best option for the FCA to boost fund market is to leave well alone [Search result] – FT [23]
How are institutional investors ever going to hit their return targets? – AWOCS [24]
Swedroe: Sport, investing, and the paradox of skill – Evidence-based Investor [25]
9 ways to grow your wealth [US but relevant] – Of Dollars and Data [26]
Tim Harford: Can you put a number on it? [Search result] – FT [27]
Time, creativity, and wealth – Abnormal Returns [28]
Want $870,000? – Humble Dollar [29]
Steps to take if you’re afraid of running out of money in retirement – MSN [30]
Naughty corner: Active antics
Investing is easy? – Compound [31]
HGCapital Trust: A tech trust in disguise – IT Investor [32]
Big investors are desperate to know what amateur trades are doing – Bloomberg via MSN [33]
Dividend cut in a FIRE portfolio – Getting Minted [34]
Covid-19 corner
The work from home backlash is upon us – A Wealth of Common Sense [35]
6,000 new cases a day estimated in England – Sky News [36]
North East England Covid-19 restrictions start – BBC [37]
London at risk of curfew and lockdown – Evening Standard [38]
New fear grips Europe as cases top 30m worldwide – BBC [39]
Israel enters second national lockdown; first country to do so – Guardian [40]
Small steps you can take now to prepare for a winter pandemic – Vice [41]
Engagement with anti-vaccine Facebook posts trebles in one month – Guardian [42]
London’s New Year’s Eve fireworks cancelled due to virus – Sky News [43]
Kindle book bargains
Radical Uncertainty: Decision Making for an Uncertain Future by Mervyn King – £0.99 on Kindle [44]
How Innovation Works by Matt Ridley – £1.99 on Kindle [45]
The Deficit Myth: Modern Monetary Theory by Stephanie Kelton – £0.99 on Kindle [46]
How to Get Rich by Felix Dennis – £0.99 on Kindle [47]
Off our beat
How the pandemic broke online shopping [US but relevant] – The Atlantic [48]
Escaped prisoner tried to hand himself in seven times – Guardian [49]
The billionaire who wanted to die broke… is now broke […ish] – Forbes [50]
Tesla battery day: Has Musk already ‘leaked’ the revolution? – Clean Technica [51]
Technology’s revenge effects – Farnam Street [52]
Trees, birds, ponds: Mexico City’s ancient lake reclaims airport – Gulf News [53]
And finally…
“Habits are the compound interest of self-improvement.”
– James Clear, Atomic Habits [54]
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [60]]