Twas Ever Thus

One of the greatest top ticks of all time comes from the October 1968 edition of New York Magazine (emphasis mine):

“You’ll hear fabulous success stories- like the hedge fund guy who made 20 per cent on his money in a week, for seven weeks in a row. ”

“If, then, our hypothetical hedge fund can make 50 per cent on its money in a year- a modest figure the way most hedge funds have performed– the fund manager’s 20 per cent of the take amounts to $1 million.

“To be sure, hedge funds are an extremely intelligent way to manage money, as those fortunate enough to get in on the early ones have learned.”

Only these stories of sophisticated risk management with eye-popping returns turned out to be nothing more than story telling. The market would top less than two months later and the bear market that followed would wipe out a lot of money and goodwill hedge funds received from their investors.

From Sebastian Mallaby’s More Money Than God:

“Between the close of 1968 and September 30, 1970, the 28 largest hedge funds lost two third of their capital, Their claim to be hedged turned out to be a bald faced lie; they had racked up hot performance numbers by borrowing hard and riding the bull market. By January 1970, there were said to be only 150 hedge funds, down from between 200 and 500 one year before; and the crash of 1973-74 wiped out most of them. The Securities and Exchange Commission gave up on its campaign to regulate a sector that was now too small to bother with, and in 1977 Institutional Investor magazine ran an article asking where all the hedge funds had gone. As late as 1984, a survey by a firm called Tremont Partners identified only 68 of them.”

Morgan Housel had a great description of the career cycle of money managers.

  • Manager has a winning streak.
  • Investors pile in, hoping winning streak will continue.
  • Manager puts new investor money into sub-par ideas. Returns drop.
  • Investors pull money out.
  • Manager finds new opportunity.
  • Few investors are left to enjoy it.
  • Manager has a winning streak

Because money chases performance, even some of the best money managers of all-time have delivered terrible returns for their investors. All the technology and investor education in the world won’t stop investors from piling in at the top and piling out at the bottom.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.