Lessons From a(nother) Fund Collapse
I saw this story over at Josh Brown’s site about an “apple only hedge fund” that has apparently imploded. These sorts of stories are nothing new, but it does get frustrating to see how people keep falling for these sorts of investment schemes. And yes, they are schemes because they can’t deliver what they promise. This doesn’t mean the fund manager is always a bad person or that they have malicious intent, but it often means they don’t have a sound understanding of portfolio construction or they don’t fully understand the role that savings/investment plays in your life.
I try to teach people who work with me through Orcam that their savings is not a replacement for their primary income source. In other words, the savings you generate from your primary source of income is a repository. You can gamble with it. You can blow it all on booze and women/men if you want. But like most of us, you need to protect it. But too many people reach. They get greedy with these funds. Or they fall for the usual Wall Street sales pitch that they can/should beat Warren Buffett. You know, if you don’t “beat the market” you’re a loser. The truth is, most of us don’t need to “beat the market”. We need to max out our primary income source and protect the savings repository in a manner that achieves one thing:
- We need to allocate our savings in a manner that protects us from the loss of purchasing power and the risk of permanent loss in a manner that is consistent with positive risk-adjusted returns.
There’s a place for true “investment” in all of our lives. Most of us only truly invest in ourselves and don’t actually invest in anything else (except maybe your kids or the people you love). But understanding proper portfolio construction is all about understanding the difference between savings/investment and designing portfolios that don’t put you in front of the permanent loss steam roller….
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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6 Comments
People get what they deserve. Most have no understanding of the concepts you discuss even though they think they do.
What do you mean?
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I’m clear on the importance of saving. At some point, your savings does become your substitute for your income, right?
And I understand the importance of protecting your savings from loss of purchasing power AND principal risk. … But in a low interest rate world with stock market volatility, and with Suze Orman railing against annuities, finding that solution can be tough.
There’s an old saying that the people who do best in the market are the ones that don’t need it. In other words, they view investment markets as a place to protect their savings, not to make a killing.
I especially like the last paragraph of this piece Cullen.
Maybe a good way to think of investment is playing your part in coordinated actvities. Investment takes effort and a willingness to immerse yourself in someone elses venture. Its not just gambling and waiting to see a bet pay off. Investments will rarely make huge returns but the more people who get behind the effort the less the chance of failure too.
Too many people are just lazy and want to throw money at something and wait for a payoff. And the time people wish to wait is getting shorter and shorter.
The trick is getting a lot of people behind a venture, and too many people try to “trick” people into getting behind a venture by over-promising them something.
Trying to beat the market is for fools, the market knows more than you, and is smarter then you……..you have to play the market, play the price action, have a tight and serious set of RM rules and you can make as much as you can.
I can’t imagine paying someone 2/20 for any strategy, let alone to merely day trade apple.