if these guys are so confident about predicting how markets will end, why do they need to invest in any outside entity???

Leave ‘em in the dark. The more unbelievers the better, as far as I’m concerned.

last time i checked the bull mkt in silver ended “abruptly”. i bought plenty of silver Friday and Mon. Let’s see.

Having work extensively with “asset allocators” the above letter is simply standard. Enormous sums of money are invested each day by committees like the one in the letter that simply know nothing about investing. Believe me, not terribly proud of this, I won many finals telling them exactly what they want to hear.

What they want to hear
- proprietary filter that ranks all stocks in a particular benchmark to filter out the “best” one’s (that statement has no meaning but it works)
-we then perform fundamental analysis to pick out the really good ones (we have this many MBA’s and CFAs so they are really smart.
- we have tremendous discipline on the sell side so trust me we will protect you on the downside.

A few holes with that process. Some of the most obvious, they have all their managers fully invested at all times. The committee makes the asset allocation decisions. So when stress comes and correlations rise the entire portfolio gets hit. Regardless of what happens in the world this clearly poor strategy simply will not change.

Clearly, a trend following system that could take advantage of changing markets (L/S) would fit nicely into the system but just doesn’t gain traction.

As for the references to LTCM, they all wanted to give them money. Those that tried and didn’t get in now use the LTCM blow up as a sign of their brilliance. They also use it as a shield from actually doing research.

If you could sit in the meetings with consultants and the “Committees” you would be shocked by how little they know about investing. They are “institutional” investers, smart money. They take poor models and dole out $ to the managers that tell them what they want to here. If you want to get $ from them come up with a way to “optimize” your portfolio. Essentially do the above nonsense analysis and then have a couple of PhD’s that then put buy/sell candidates through a couple of more screens and then we will have an “optimized” portfolio. Ask any of the jokers on the board what that means and they woun’t be able to tell you but they know it is important.

Michael:

Great comment – I tried to go the route of Trend Following with my prior company when I was C.O.O. Actually got them to invest with Salem Abraham after meeting with Shaun Jordan and Salem in Canadian, Texas. Initial results were good – I was suddenly torpedoed out of the company but had invested privately with Abraham Trading. The company pulled its $5 million dollar investment at the urging of the Treasurer and their “financial advisors” who were strongly opposed to this investment structure. After they pulled out of Abraham Trading the firm registered monthly gains for 5 consecutive months. There appears to be a major “raodblock” into creative thinking and analysis and just “plain common sense.” Firms such as my past one are convinced that mutual funds will be the road to “financial heaven” – sadly they will wake up one day with a protfolio that is severly diminshed and their advisors will tell them that it is “amrket conditions.” Thanks for the great articles and work. By the way I am still invested with Abraham Trading and very satisfied with their approach, results and candor.

All of the mainstream buy-and-hold cement heads didn’t believe Nicolas Darvas either. He provided extensive documentation of his success and they rationalized it away. That’s good, though, somebody has to take the other side of the trade.

Comparing LTCM to trend following is deliberately misleading. TF *makes* money from the big market moves, either up or down. LTCM relied on markets being rangebound to make money.. and got killed when they moved too far in one direction.