Lessons from a Hedge Fund
Amaranth hedge fund participants lost half of their money as the fund suffered the losses from several bad bets, $5 billion in the last week alone. Analysts suggest that Amaranth was overly dependent on bets on natural gas and on one trader in particular, 32 year old Brian Hunter of Calgary, Alberta. Analysts further suggest that Hunter illustrates the problem of over dependence on debt by hedge funds, estimating that Hunter had to borrow $8.00 for every $1.00 of funds in order to cover his positions.
Broader diversification within the fund would have mitigated losses, though at the expense of the better than 20% returns that the fund had been enjoying. Still, the staggering losses of the past month underscore the value of the diversity principle, that the standard deviation of a portfolio is less than the weighted average of the individual components.
The Week Ahead
The end of summer rally that brought the DOW within 110 points of its all time high lagged last week like a first-time, marathon runner hitting “the wall.” Though a correction of some measure was likely, the Philadelphia Fed’s report on economic indicators gave it an excuse. Treasuries rose, the dollar declined and stocks sagged. The measure of comfort was found in lower oil prices as crude dropped below $61.00 dollars a barrel.
The market is probably due for some more declines in the short term, but shouldn’t pull back too dramatically, said Paul Rabbit, president at Rabbit Capital Management for CNN Money. He noted that the tail end of a quarter can be challenging as companies tend to warn investors if quarterly earnings are on track to disappoint.
In addition the last week of September is often rough, the Stock Trader’s Almanac notes, in that its the end of the fiscal year for a lot of mutual funds, and so managers tend to sell their losers for tax purposes.
But beyond the next week or so, “I think we’ll see an upward bias,” Rabbit said.
Marketing 101: What’s In a Name?
I came across a web site for one person’s home, child-care service. I suspect the general market’s booming but with a name like “Little Buggers Child Care,” this business might have a lot of spare real-estate in the playroom.
It’s in a gated community but would you feel secure enough to send your child there?
Faint Praise for Medicare, Drug Benefit
The Kaiser Family foundation released studies on Thursday showing that most Physicians and Pharmacists believe that the Medicare, prescription, drug benefit is helping people save money but feel that it is overly complex.
Among the findings in the survey of 834 Physicians and 802 Pharmacists:
For the complete article visit the Kaiser network.
Can anyone say “Nationalized Healthcare?”