I started my hedge fund in 1998. I started it because I was coming off a hit consumer product and some great years trading stocks with the profits from our product. When I pitched the fund, no matter what your financial goals were, our fund matched them because I was just going to make you money.
Six months in, I realized the business of managing money was different from the business of raising money. Smart and hard working did not equal returns.
Yesterday I was reading a story about the talented and famous Peter Thiel, part of the Paypal mafia, who could do no wrong with his fund in the early days. These returns were coming off his Paypal glory days. As a hard working money manager myself, hearing how easy someone like Peter made his outsized returns was deflating. He made big bests, that in hindsight seemed obvious. They worked. Much like Tiger Woods coming into the golf world and just changing all the metrics.
Like Tiger, it has taken Peter just a few years to lose his way. Peter has had two big down years in a row and lost hundreds of millions of dollars, if not billions for his partners and seen his fund’s assets drop to less than $1 billion from more than $8 billion.
Does this make Peter stupid…NO.
Peter, according to my friends in my investing community is wicked smart.
Once again though, we see that smart and returns are not enough.
My friends have seen the Clarium (Thiel) position reports for 5 years. Their opinion is that Peter has always been a gambler. From the looks of Peter’s return curve and the recent results, gamblers have cold streaks. In reading Peter’s thoughts about the US dollar in this piece, Peter does not seem confident about his strong dollar position.
People ask all the time why we don’t post people’s track records on Stocktwits. The answer is simple, I don’t think most people are cut out to be in the money management business and even fewer can make returns that justify being in the business for the long-term. I don’t want to be in the platform business of supporting failure. By being in the idea business, everyone can participate, even the money managers.
Everyone that invests his/her money should do so with the goal of outsized returns. The only way to do so though is with disciplined speculation. No strategy works all the time. Your money manager is not likely the next Warren Buffett and you can just buy Warren Buffett in the meantime.
PS – If you want to build on our Stocktwits API to create a tracking mechanism for people’s ideas and picks, just his me up by email
the point you make about how smart and hard-working does not equal returns is an important one. tons of smart hardworkers frustrated by investing/trading
great post
Clarium’s research has generally been insightful, no doubt there’s smart people there. The problem I think is that they hypothesize a macro theme and then just have problems executing it. Not sure if that’s due to market timing issues or the investment vehicles they select to ‘benefit’ from the themes they’re trying to play. Has been a volatile AUM ride for sure. As far as I know, they don’t charge a management fee upfront, only performance.
breaking news: howard lindzon smells
great post, pretty crazy and shocking to read about Clarium. reading this reminds me of John Meriwether, despite how smart/talented him and his team were, both for LTCM and then even in the fund he launched yrs later after its demise, both were hit hard from extremely risky positions, it stems from Meriwether’s risky gambling personality.i think there are a lot of cool ideas that could be baked w/ the Stocktwits API, will hit you up later on!awesome tweet btw: “smart does not equate to staying on top” – http://twitter.com/howardlindzon/status/4027185891385344
Successful people make money. It’s not that people who make money become successful, but that successful people attract money. They bring success to what they do.
Thoughtful post. One question. You said: “Your money manager is not likely the next Warren Buffett and you can just buy Warren Buffett in the meantime.”Did you mean an investor can just “buy Buffett” via shares in Berkshire ($BRK.a or $BRK.b) or buy following his ideas, picks? If you did mean by following another’s ideas, picks then I guess we can apply that to just about anyone (and it makes sense along with your “idea platform” theme).
both.
Peter is an idiot. He is a bad investor (at least in public, liquid markets).
Tiger Woods is good at golf. Does that make him smart? Does that make him a good father? Should he launch a hedge fund.
Thiel loves the spot light. Talking about his positions. The $5B+ in investor losses since his peak… should embarass him
“Smart and hard working did not equal returns.” So true. There has always been a rather dangerous supposition that application of superior intellect leads to trading success. In the hundreds of traders I know, that hasn’t held up. Some of the great ones are brilliant, but I also know plenty of smart people who outthink themselves as traders, and plenty of superior traders who are disciplined and competitive, but not the brightest.