A TALE OF TWO MANAGERS

2017-01-12 7pm EDT  |  #Warren Buffett #Crispin Odey #BRK/A

There were a lot of tongues wagging at Crispin Odey’s recent performance numbers. The outspoken UK based hedge fund manager managed to lose 49% in 2016. That’s a big loss, even for Odey.

Although many pundits like to shit all over Odey, I enjoy his recklessness. The hedge fund world is filled with too many managers who are merely asset gatherers. These funds have become boring, low volatility places for pension funds and the super rich to park their money in a hope to beat t-bills by a few hundred basis points. Gone are the days when hedge funds were ultra-secret, insanely volatile funds whose managers would attempt to knock the ball out of the park. So in that vein, my hat is off to Odey. He is definitely still swinging for the fence. The investing world needs more Odey’s. He keeps us young (although his investors probably feel differently).

Yet even my affinity for the wild Odey couldn’t stop me from smiling when I saw this terrific tweet by “Two and Twenty” (a must follow for Twitter users):

What a great line! The monkey who typed Shakespeare… I am still laughing. But “Two and Twenty” is spot on correct with his comment that it is so hard to tell the difference between luck and skill. Sometimes the supposed “great” investors are simply the ones who were willing to push their bets hardest. Lord knows I have seen my fair share of levered up beta masquerading as alpha over the years.

I will not judge whether Odey falls into that camp. He very well might. I don’t know.

But I want to bring something to the attention of all those fuddy duddies who are shaking their heads at Odey’s halving. My guess is that many in this group would consider Warren Buffett one of the greatest investors of all time.

Yet I bet many don’t realize the Oracle of Omaha shares a very dubious honour with good ‘ole Crispy. They have both suffered 50% drawdowns.

Yup, that’s right. Although it is not exactly the same as Buffett’s holding company does not reflect his NAV but instead represents what investors are willing to pay to invest alongside Buffett, it nonetheless accurately measures an investor’s returns. And if you invested with Buffett, over the years you would have had to sit through not just one, but two halvings!

The most recent halving is probably pretty easy to guess. The 2008 credit crisis did not spare many. Even rock solid Berkshire saw its share priced halved during the panic. Buffett has already been divorced, otherwise he probably would have been using the most popular joke of that time - “my net worth has been cut in half, but the really bad part is that I am still married.”

But the surprising other Buffett drawdown occurred in the dotcom bubble. No, not during the unwinding of the bubble, but during the run up! Yup, you got that right. Buffett lost 50% while everyone else was busy flipping Pets.com.

I am by no means comparing Buffett to Odey. They are almost polar opposites. I have watched Odey’s portfolio turn over, and he makes a Chicago pit trader seem inactive.

But I want to highlight that even though Odey has been halved, his real sin is that he didn’t do it with everyone else.

Let’s not chastise the one hedge fund manager intent on keeping hedge funds crazy unpredictable dynamic places to work. After all, I don’t know about you, but I would rather go out drinking with crazy Crispy than boring Buffett any day of the week.

Thanks for reading,
Kevin Muir
the MacroTourist