COMMENT: Why hedge fund managers make dreadful dinner guests
"The stock market is going to tank soon. How bad? Like black swan bad. I can feel it. With slowing growth around the world, threat of tariffs, and geopolitical instability, there’s no way the market can continue reaching
new all-time highs. But why isn’t the market pricing in any of this risk? Is it because investors are a bunch of sheeple, who believe anything they’re told!?!?!?
Forget that I’ve been calling for a downturn the past 6 years. This time I’ll be proven right!"
If you know anybody that works at a hedge fund, you’ve probably heard this spiel before. Yes: we’re the crazies with the tin foil hats, warning everybody about the impending doom and gloom on the horizon. And yet, the market has been on a tear for the past 10 years.
I used to think that I would eventually be proven right, except my timing was wrong. Or the economy caught lucky breaks, like tax reform. Now I think hedge funders are just inherently pessimistic, because it justifies
the whole reason for our existence.
When I talk to my long-only friends, they all seem happier. I used to think it was because they’re not worried about getting blown out in the next two weeks. I used to think it was because they’re not worried if
their bonus is going to be a big, fat zero. But now, I’m starting to think it’s all about what you WANT to believe.
The whole point of a hedge fund is to hedge. If the market only goes up, then any hedge will naturally lower your returns. A hedge only helps when the market goes down. So if you work at a hedge fund, you want the market to decline, because it’ll boost your returns. But if you work at a long-only, you would prefer it if the market keeps chugging higher.
If you’re trying to host an upbeat dinner party, therefore don’t invite anybody that works at a hedge fund. We’re like those people calling for an end to the world. But instead of asking you to repent or whatever they ask for, we just want your capital and the fees that come with it.
Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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