Festival of Stocks Reminder

The next edition of the Festival of Stocks begins Monday. It's being hosted by Stock Market Beat.

If you're a regular visitor of this particular Festival, you know it's a great resource of ideas and information relevant to stock investors. I wasn't able to submit an article this time, but no matter. Each previous edition has had great stuff and I'm betting this week will be no different.

So if you've never gotten around to visiting, be sure to make a point of checking it out this week.

Comments

[Jack Doueck]

Dear Controlled Greed,

long time reader, first time poster, I thought you might appreciate some thoughts I have about hedge funds....I work at Stillwater Capital, and was thinking about hedge funds and some of these funds blowing up, and thought that I would add my two cents and see if you had anything to add too – I hope I’m not being too off topic from your post here, but I just wanted to say a few things after reading your last thought here… many investors were hurt by Amaranth and other funds, and I was thinking about the ways some of those affected are going to sort through the damage, here are some principles they may want to have in mind:

1. Sophisticated hedge funds apparently have no clue about should have basic concepts like money management, position sizing and ‘risk of ruin‘ knowledge, and should use stops or have a point where they know to exit.

2. Bennett McDowell once said that, “Money management in trading involves specialized techniques combined with your own personal judgment. Failure to adhere to a sound money management program can leave you subject to a deadly “Risk-Of-Ruin” exposure and most probable equity bust.”

3. The smaller the amount you risk for any one trade relative to your capital base the lower the risk of ruin.”

4. And of course it goes without saying that a good hedge fund investor has to pick good funds to invest in. The key, though, to success in this business, is not to choose the best performing managers, but actually to evade the frauds and blowups.

5. With both frauds and blowups, contrary to public opinion (and myth), size does NOT matter: Beacon Hill was $2 Billion, Lipper was $5 Billon, Amaranth was $9 Billion).

Suffice it to say that these should be some of the main points investors should think about as they interview and select hedge funds to entrust their dollars to.

Do you agree with this?

Jack Doueck
Stillwater Asset Backed Strategies
Stillwater Capital

[John]

Jack: I basically agree with everything you write. But I should add that I have never invested in a hedge fund, and don't know that much about the hedge fund terrain. It's just not an area I focus on.

If I was looking to hire someone to manage my investment capital, I'd keep in mind your points -- and apply them when evaluating partnerships or even mutual fund firms.

Thanks for reading. Let me know if I'm not answering your question fully.