hedge fund manager：‘Diary of a Very Bad Year’

定性（story，expectations，data，etc）定量（TA，场重心与边界，i.e.50%retracement）分析risk

More From a ‘Diary of a Very Bad Year’
August 13, 2010, 2:30 pm From autumn 2007 to autumn 2009, when things looked like they were falling apart, Keith Gessen, one of the founders of the New York literary magazine n+1, had a series of conversations with an anonymous hedge fund manager known as just H.F.M.

With H.F.M. holding forth, Mr. Gessen said he was “dumb in just the right way.” In June, nine of their interviews were published in a thin, red volume called “Diary of a Very Bad Year,” reviewed in The New York Times and various other publications shortly afterward.

In an exclusive, DealBook has selected and condensed some passages from a 10th interview, which (like an extra Prince track not listed on the liner) has been hidden until now. With the markets wobbling, and the specter of a double-dip recession hovering over the American economy, a few thoughts on surviving the first dip seem timely.
Excerpt 1: On shrugging off the crisis, and character strength in investing

n+1: Last time we talked about how banks are again not taking enough margin. What other things are you seeing that make you nervous?

H.F.M.: What makes me nervous really is the speed with which the financial markets have kind of shrugged off some of the damage of last year — signs of extreme risk tolerance and risk acceptance that we see in the financial markets. Currency that had gotten killed coming back, credit spreads that were very wide coming back. Look, if the economy is truly healed, then all of those variables should go back to the levels where they were before the crisis. But if everyone believes that the levels before the crisis were indicative of a pathological attitude toward risk — a pathological risk acceptance, and skewed incentives that led people to take too much risk, and poor oversight and poor management of financial institutions that led to the underpricing of risk — then you really wouldn’t want to see those variables go back to the levels that prevailed before the crisis.

n+1: Are you having meetings, conversations — how is this playing out? In addition to seeing this in the numbers, are you having conversations with people where they’re being, in your mind, irrational or crazy?

H.F.M.: No, not enough time has passed for people to forget the lessons. The problem is that, ideally, when you’re trading financial assets, when you’re trading risk, you’re supposed to be forward-looking. You look at the fundamentals, you project the fundamentals, and from that you form an opinion about where financial variables should be. In reality, financial markets are reflexive. Sometimes movement in the financial variables causes you to re-evaluate your perception of where the fundamentals are. And because the markets have bounced back, suddenly you say, “Oh, everything’s O.K., it must be that the fundamentals are O.K.” And then you invest as though fundamentals are O.K., and for a certain period of time that actually helps make the fundamentals O.K. But that can go right back to having another bubble.

Many people are still stung, they haven’t forgotten what they went through a year ago. But they see where financial variables have gone, they see where credit spreads are, they see that equity markets have come back, and they don’t want to fight that trend. It’s very punishing to be a skeptic and to come in every day and say, “No, I think there are still fundamentally unaddressed problems. I think there’s still rot in banks’ balance sheets. I think unemployment continues to be an issue in the U.S. I think there’s potential that the Fed won’t be able to unwind its monetary stimulus and we could inflation.” To be talking about all those negative factors day after day, and then to watch the market give you the finger day after day — that’s very difficult. People, rather than get hit in the face every day, they’ll change their view. It’s like a test of your strength of character.

Excerpt 2: On American hegemony, the BRIC countries, and whom to blame for our overconsumption

n+1: One of the things that we started talking about with these interviews was the standing of the U.S. in the world. How has it changed over the past two years?

H.F.M.: Well, to the extent that the U.S. exercised financial hegemony precrisis, that hegemony is seriously diminished. I think a great piece of evidence of that is something that’s been going on this week, at the G-20 conference in Pitt*****urgh, and how the leaders of the G-20 in their communiqué said that the G-20 is really going to take over the role of the G-8 as a coordinating body for international economic policy. That to me is a sign of the diminishment of the financial hegemony not just of the U.S., but of all of the developed markets.

That said, I think a lot of the diminishment of U.S. dominance is rhetorical rather than real — investment banks talk about the BRIC countries (Brazil, Russia, India, China) and focus more on them than they did two years or five years or 10 years ago, and there’s some good reason for that, but the amount of rhetorical space that those countries take up has increased more than the amount of real economic space that they actually take up.

Excerpt 3: On weight loss, and the benefits of dumb optimism

n+1: How have you changed over the past two years? You’ve lost weight.

H.F.M.: (Laughs.) I don’t want to give away who I am.

n+1: A lot of people have lost weight!

H.F.M.: I joke that I have some reverse Dorian Gray thing going with the fund’s capital base. So if the fund’s capital base shrinks, I shrink, too. So if we don’t raise money, I’m going to disappear. It helps motivate our marketing people.

n+1: How much has the crisis changed your thinking?

H.F.M.: I think there’s a lot of evidence that you need to be maybe a little bit overoptimistic to be a good investor — that if you are a very realistic assessor of risk, you will in fact take too little risk, and that sometimes a certain amount — a slight amount — of irrational optimism helps in investing. I think also a little bit of ignorance of how bad things can get, and a little bit of ignorance of the particular ways certain kinds of efforts can go wrong, helps. Because it’s like a dog that’s been beaten. If you know that doing something can lead to your being beaten, you may just shy away from doing that thing entirely, even if sometimes it’s appropriate to do it.

I have a pretty long memory and over the many years that I’ve been doing this, I’ve been screwed and lost money in so many different ways — I’ve made more money than I’ve lost, but the losing is somehow more vivid — and there are new ways every year and in a crisis, you get a whole bunch of different ways at once, you never really forget those experiences. And each one of those screw-jobs is like a scar until by then end of 15 years, you’re just one big scar.

n+1: So is investing really for the young and stupid?

H.F.M.: It’s hard to know. You asked how have I changed. I’m definitely less confident in my judgment than I was precrisis. And I think after every bad stretch, you’re always less confident of your judgment. But I’m not sure my confidence ever fully recovered from any of those incidents. Now I’ve been through a really horrible stretch, and let’s just say my confidence has not recovered as fully and as quickly as the Dow.