When I started my fund a year ago I did it because I knew I could get great results in any market using my own investing style. While my general thesis has been correct and I have been able to pick up new investors along the way; I never quite understood the complexities of it all. Running money for yourself and your own portfolio is a whole different ball game than investing for a fund. When running my personal portfolio I would focus on what is a great company for the long term not concerned with the short term results.
I now know why when Warren Buffett started his hedge fund back in the 50's, he only showed yearly results. When you start showing quarterly results then the yearly gets out of focus. I have found myself on a few occasions getting rid of a great company simply because I did not think they would do anything within the next 3 months. That is not my investing style, and while we are getting great results I feel it is at the sacrifice of even greater results on a longer term basis. While I am not under contract to give quarterly results, the catch is this: in order to pick up new investors quarterly's are detrimental.
When running my own money I would do my research on a company and update my thesis every year, now when running a portfolio my thesis updating is about every month to three months. And if the market like it is this last week is utter crap, then I look at my thesis on an hourly basis. This is not the path to stock market wealth. I know now why hedge funds which are supposed to be a safer bet than mutual funds should really be called "risk funds". Mangers on a quarterly panic basis are always willing to take extra risks i.e use more leverage, in order to beat their last quarter. 3 months is simply not enough time for a company to turn itself around in times of crisis. 3 months is not enough time for any investment to reach it's potential. I understand that investors feel quarterlys or even daily results are pinnacle to their investment decisions.. One has to wonder, why? Especially when investing in a value orientated hedge fund, where the focus is on long term results. It seems rather silly that everyone is so focused on 3 month results. In any case, I think the markets will have a consolidation soon: Hedge fund managers can only do so much to keep the everyday investor happy. It's really not so strange there are so many insider transactions and dealings on Wall-Street, it's not at all unexpected that so many hedge funds go bunk because of bad investment decisions. Usually resulting in massive losses for the investors.
While I run a hedge fund, I have all of my own investment dollars in the fund. This protects my investors from an overconfident manager, at times I would like to take a little extra risk, but I just can't do it. My own funds are on the line and I will sacrifice a bad quarter for the good of the yearly results. I think that all hedge fund and mutual fund managers should have their own money on the line, this is really the ultimate protection from stupid decisions and over leverage. If it was a requirement for managers to have all their own saving and investments in the fund they manage, I can guarantee you that the quarterly will be considerably more boring, and most mangers will focus more on fundamentals.
So where is this headed you ask? Because of the style of my fund I will revert to my original goal with the fund: To create the worlds best long term value investment firm and fund. To keep my goals aligned with those of my investors. Unlike Buffett in his early days with his fund, I will show 6 month reports to at least let my investors know I am alive. However, I will revert from any quarterly results as it simply is a ridiculous practice that hampers the over all returns of the fund. While I understand that the investment conditions are a bit different than they where in the 50's, with information available to all at the click of a mouse. I can't help but feel that this has not helped the average investor even the slightest. Fund managers are hired because investors don't want to do the investing themselves, they have no interest or time for it. They do however expect a fund manager to work in their best interest. Which is unfortunately rarely the case.
Well, that's it for me for today.. I would like to hear your opinions on this, on quarterly results on fund managers having to invest their own money as well.
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