From Bloomberg:

“Chapman Capital, a Los Angeles- based hedge fund, is seeking a private investigator to monitor the private lives of company executives, the Financial Times said, citing a job advertisement on a New York Web site. Robert L. Chapman, who runs the fund, is known for writing blunt letters to companies and has warned in the past he would use covert intelligence, the newspaper said. “Understanding what is motivating executives of underperforming companies is a big part of our efforts,” the newspaper cited Chapman as saying in an interview.”

Would you put money with Chapman Capital? Seriously, they view this as part of their investment process?

Barton Biggs doesn’t like trend following much. Some feedback from a reader:

Michael, I asked for and received as a Christmas present Barton Biggs’ book “Hedge Hogging”. Barton makes it very clear in the introduction that the book is to be read for entertainment purposes and not lessons in trading. After reading pages 24 through 30 of the book I can see why. Pages 24 through 30 contain a discussion of his hedge fund’s short position in oil in 2004. The short position was taken, and I quote, because “We believed that much of the open interest represented speculative longs that were in the trade because of trend-following models. In other words, they were momentum investors who bought oil mindlessly (in our opinion), simply because the price was going up.” After that particular piece of fundamental wisdom I will definitely be reading the book for entertainment purposes only. Of course they lost money and, worse, they lost clients because of their oil position. They actually increased their short position as oil went up. If you’re going to trade fundamentals only then fine. The biggest danger to these fundamental guys (and some quant-driven guys) is that the more their position goes against them the more attractive it becomes and so they wind up throwing more money into a losing position (LTCM, anyone?). As a CFA charter holder, I find it especially appalling how few of these guys are able to recognize and resist the siren’s song (where’s the money management?) and wind up crashing onto rocky shores. Regards, Paul

Feedback:

Hi, I have been listening to your podcast and I must say that am quite impressed! It is so refreshing to finally hear some intelligent comments in a world full of BS. I have been in academia for the last ten years and I have to constantly (at least for the first 5 years) fight to get my professors to understand that CAPM, APM etc are very flawed models. Firstly because they don’t take into consideration market anomalies. Secondly because of their very limited way of looking at risk by not including trends (slope of the moving average). Fine, markets are random in the short term (short-term=bull/bear traps=Devil) but in the long term it is so obvious that markets are trending. A Nobel prize for a flawed model what a bunch of …. Anyway, I am finishing my PhD in economics soon and I am thinking of applying to all top investment banks. My question is: Is there any bank hedge fund that applies systematical trend following that you recommend that I could apply to? Regards, Marcus

Exclusively? None, but its not their mission to begin with. Hedge funds? Many.

Jesse Livermore’s bio ‘Reminiscences of a Stock Operator’ is always good reading (PDF).

Michael Martin sent me Friends for Life: An Emerging Biology of Emotional Healing (PDF). He noted that this may be one reason why Ed Seykota’s Tribe is successful.

I just caught a Forbes article about the current US stock market. An excerpt:

“The message for investors from all this is to be cautious. There’s no reason to think the market is about to tank - on the whole it isn’t obviously overvalued. But there’s good reason to fear that big profit increases may soon be a thing of the past, and with them the big market gains of the past four years. Even Quinlan, who doesn’t think corporations are going to give up the ground they’ve won from labor in recent years, is worried that slower economic growth will nonetheless mean slower profit growth. What it all adds up to seems to be a forecast for a relatively flat stock market. But for some irritating reason, the market doesn’t usually do flat. Beware, then, of falling stocks.”

Boy I needed that during this slow week after Christmas. Nothing like heading into the new year with a solid prediction!

The Legend of Robin Hood (PDF) is good reading for the holiday season.