Diary of a Financier

Bookshelf Update: The Alpha Masters

In Bookshelf on Tue 21 Aug 2012 at 08:10

Continuing to dip into my Bookshelf, I decided to pull some more excerpts from another book I finished this summer, The Alpha Masters by Maneet Ahuja…

~~~~

In her Preface, Ms. Anuja summarizes the commonalities among the great investors she interviewed for this, her first book. This was something Jack Schwager did in each installment of his Market Wizard series, and I find it massively valuable–albeit somewhat cliche advice:

‘Each [manager] instilled their core personalities into his work… So long as you do your own research and make the trade your own, you will always land on your feet.’

~~~~

Dan Loeb, founder of Third Point, discusses what he looks for in an employee and a good investor:

‘For Loeb, having an MBA isn’t as critical as having training…

‘”I don’t like the word instinct,” says Loeb, “because it sounds like a gut thing. I think what we call instinct is really a type of pattern recognition, which comes from experience looking at companies and industries in situations that work.”

‘Loeb looks for another quality as well, success at something other than work and school.’

~~~~

Dan Loeb of Third Point again. Mr. Loeb’s concluding comments are an interesting bit of counter-culture. In a world where the buzzwords are “risk-adjusted return,” “risk management,” and “low-volatility,” Loeb opts for the big risk/big reward mantra. It articulates an interesting theme laced throughout the book’s interviews with event-driven managers; essentially, these managers only want Limited Partners who treat hedge fund investing like private equity by fading quarterly (and even annual) performance for sake of the enormous gains derived from a few opportunities that pan-out over the long-term. In such managers’ eyes, the unlimited upside presented by such opportunities is an irresistible business proposition–at the expense of limited/defined downside risk since almost none of the interviewees employ leverage:

“Make sure you have confidence… managers who lack confidence go out of their way to try to anticipate what their investors what them to do. Look, this is a business that requires willingness to take risks and generate returns. You can’t do that unless you have a healthy appetite for risk. Too many of my colleagues have sacrificed a performance culture for one of low volatility and risk management. It’s sapped the industry of creativity and diligence because people are basically fear based, and they think that if they have that bad quarter or year that they’re just going to go away.”

–Maneet Ahuja, The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds

Advertisements

Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s