Monday, April 30, 2012

Hugh Hendry quotes

From his April 2012 Commentary:
“It is my contention that value does not mix so well with debt.” 
“I do not think it is logical to try and outsmart the smartest people. Instead, my weapons are irony and paradox. The joy of life is partly in the strange and unexpected. It is in the constant exclamation ‘Who would have thought it?’” 
“I attempt to cultivate my own insights and to recognise the precarious uncertainty of global macro trends. I attempt to observe such things first hand through my extensive travel (I promise no more YouTube videos), and seek to understand their significance by investigating how previous societies coped under similar circumstances. But first and foremost, I am always preoccupied with the notion that I just do not have the answer. I am not blessed with the notion of certainty. Someone once said we should think of the world as a sentence with no grammar. If we do I see my job as putting in the punctuation. But above all, my job is to make money. 
In keeping with this theme, I want define the three ingredients that I believe make for an outstanding macro hedge fund manager. These are, in no stringent order:
1. Successful but contentious macro risk posturing. 
2. The need to choose the asset class offering the highest probability of payout should the conviction hold true whilst offering an asymmetric loss profile should the original premise prove unfounded. 
3. A best in class risk technique that stop losses the narrative and responds early with loss mitigation procedures (i.e. a method of staying solvent, rational and disciplined under pressure). 
I have always figured that the first is the real key. That success was simply a matter of contentious macro posturing. In other words, going long very rich risk premium or buying cheap stuff. It is my assertion that what makes a great fund manager first and foremost is the ability to establish a contentious premise outside the existing belief system and have it go on to become adopted by the broader financial community. Bruce Kovner expressed the idea more eloquently when he said, “I have the ability to imagine configurations of the world different from today and really believe it can happen. I can imagine...that the dollar can fall to 100 yen”. I am sure you are nodding in agreement, except Bruce was saying this when the USDJPY was well over 200, not today's rate of 80! 
That is the kind of guy I want to be when I grow up.” 
“Remember, Jesse’s [Livermore] demise was down to [i.e. because of] his shorting of the stock market. Without a doubt, as our transition starting in 2007 testifies to, bearish macro calls are better expressed through the use of fixed income strategies. There is a higher probability that such bets will pay out should the narrative be vindicated. One is long, not short, risk premium and the lower volatility enhances the persistency of the trade.”