Better Than a Hedge Fund – Wall Street Daily

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Editors’ Note: Welcome to the new Wall Street Daily Weekend Edition.

In addition to our regular roundup of top content featured at Wall Street Daily during the week that was, we’re now including extended commentary from Editorial Director David Dittman.

And highlighting this new digest is the video-based Saturday Spotlight, which will “shine” on one member of our talented and hard-working team of market analysts each week.

Enjoy! And please let us know what you think of the new format by contacting us here.

When I first came aboard the good ship Wall Street Daily, Founder and Publisher Robert Williams handed me a copy of Maneet Ahuja’s The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds.

Ahuja’s book comprises biographical sketches of some of the top minds in the hedge fund industry – breaking down the “whats,” the “whys,” and the “hows” of their strategies.

One of the key lessons Ahuja draws from her long and deep interactions with these leading lights of the global financial world is to be different in an intelligent, sustainable manner.

The Alpha Masters also “captures, in a lot of ways, what we’re trying to do” at Wall Street Daily.

A couple profiles stood out to me as I read The Alpha Masters, those of Ray Dalio of Bridgewater Associates and Pierre Lagrange and Tim Wong of Man AHL.

Bridgewater is the biggest hedge fund in the world.

Dalio is a widely quoted personality who regularly appears on CNBC, Bloomberg TV, and in other financial media. Ahuja’s profile of the man and his fund is highlighted by Dalio’s seemingly never-ending effort to create rules to govern the running of a machine.

It’s a multidisciplinary approach. Indeed, history – how countries, markets, and people react to events or sets of circumstances over time – is important.

The question, “How do we contribute to making a better system?” informs the management philosophy at Bridgewater as well as Dalio’s conception of the role of markets in society. He’s a big thinker with big ideas.

And his “Pure Alpha” and “All Weather” have strong, market-beating performance records over the long term.

“There’s an equal opportunity up or down in any kind of environment,” concludes Dalio. If any simple reduction qualifies, this is the raison d’etre for hedge funds.

Dalio urges us to “make the most of the process of encountering reality – especially the painful obstacles.”

Like Dalio, Pierre Lagrange and Tim Wong emphasize the importance of systems, a methodology, to guide investment decisions.

And they too recognize the value of experience, especially on the downside.

“It’s not a crime to make mistakes in the investing business,” says Lagrange, “but you have to recognize your mistakes early and take decisive action to reverse the decision.”

It’s actually a tough time for hedge funds. They’re suffering under heightened scrutiny, as not many generate the types of track records that continue to sustain Dalio’s Bridgewater funds and Lagrange’s and Wong’s work at Man AHL.

In fact, as the prolific blogger and groundbreaking money manager Barry Ritholtz noted earlier this week, the No. 1 goal of hedge funds isn’t “performance.” Rather, the main priority is gathering assets under management (AUM)… and generating fees.

Ritholtz cited a piece published by Chief Investment Officer on November 10, AUM Growth Is Hedge Funds’ #1 Goal, in support of his rather unstartling conclusion.

Outhedged

Let’s take a look at a couple Wall Street Daily services that, paired together, provide a reasonable approximation of a hedge fund strategy.

Alan Gula’s strategy in The Shockproof Investor marries a dynamic asset allocation model with macro risk management – anticipating and preparing for adverse scenarios.

The Shockproof Portfolio held up better than the S&P 500 Index and the Vanguard Balanced Index Fund in the two months leading up to and including the August 24, 2015, market shock.

And it pulled ahead of its two benchmarks in the two months following that day, when the Dow Jones Industrial Average dove 1,000 points at the open and closed down 588 points.

That’s a pretty good indication that The Shockproof Investor lives up to its name and does what it says it will do. It’s a great foundation for any investor.

When it comes to adding “alpha,” which, in the mathematical sense, simply means “excess return over the market benchmark,” Wall Street Daily’s lineup of premium services is pretty deep.

Let’s take a look at one of them, Trigger Point Pro.

Senior Analyst Jonathan Rodriguez, under Robert Williams’ strategic guidance, leads the research effort. Jonathan occupies this weekend’s Saturday Spotlight.

Over the past four months, Trigger Point Pro has closed five trades for an average gain of more than 43%.

We’re not here to collect “assets under management.”

Yes, we do want to accrue subscribers.

But to do that – and keep them over time – we have to perform. By that measure, Trigger Point Pro is killing it.

The Wizard of Wall Street Daily

John Wooden’s UCLA Bruins won 88 straight games from January 1971 through January 1974.

The Wizard of Westwood has nothing on Lee Lowell.

It took more than seven years and 139 trades.

But Lee finally – finally – had to close a position due to the underlying stock hitting its stop-loss level. And it’s his first losing trade in two years (eight days shy of two years, to be exact).

UCLA’s dynasty was built on preparation, consistency of effort, and commitment to principles.

In the investment world we might call this “risk management,” the key aspect of building wealth over the long term.

Lee’s Instant Money Trader is a rules-based way to instantly generate cash while providing opportunities to buy high-quality stocks in the process.

Learn more about Lee by checking out the October 31 Weekend Edition, where he’s featured in the Saturday Spotlight.

Around WSD

Control of the Bosphorus – the strait that forms part of the boundary between Europe and Asia   – has formed the basis of many a conflict going all the way back to the beginning of recorded history.

Global Markets Analyst Martin Hutchinson crosses that narrow but contentious waterway for a look at investment opportunities in Turkey in the aftermath of a critical election.

Senior Correspondent Shelley Goldberg, following up on her look at a strategy that helps you get paid while waiting for your favorite stocks to come back to you, breaks down the key elements that determine the real value of an option.

Shelley also dissects one of the major trends shaking up Main Street and Wall Street, the so-called sharing economy.

Chief Income Analyst Alan Gula has highlights from what is already “the year of the mega deal” on Wall Street.

Alan’s main message amounts to a warning: “Frenetic M&A activity represents late-cycle behavior that typically corresponds with major stock market tops.”

Indeed, “At some point before 2020, M&A activity will nearly grind to a halt. Instead of making acquisitions, many companies will be shedding assets to survive the downturn.”

Finally, Senior Analyst Jonathan Rodriguez serves up an opportunity for me to indulge the type of facepalm-driving dad humor my daughters love so much: buy-o-tech.

In other, less corny terms: It’s time to buy biotech stocks.

And thanks for taking time out of your Saturday to spend with Wall Street Daily. Enjoy your weekend.

Editorial Director David Dittman is an investment newsletter professional with more than 10 years’ experience at staff, management, and strategic levels. Before joining Wall Street Daily he was Chief Investment Strategist for Utility Forecaster, Canadian Edge, and Australian Edge. David, who was present at the creation of several highly successful newsletters, founded and wrote the noted e-letter Maple Leaf Memo. Learn More >>