Hello traders,
I wanted to draw your attention to this rather surreal interview on Bloomberg last week. Former celeb fund manager Hugh Hendry was on there talking about him closing down his Eclectica fund after 15 years. Having made a fortune, and a name for himself shorting banks during the GFC he’s found the going since then rather tougher. His fund was at one time approx. $1.3bn AUM, but he’s managed to whittle that down to his last $30 million. That will no longer allow him to cover his fees and other commitments so he’s shutting up shop and handing the pennies back (whilst presumably keeping his fees.)
The clip below is a shortened version of the full interview, but personally I think it’s TV gold. It gives us some great insight into how hubris can get us into trouble. How believing your own bullshit leads you down the path of eventual ruin. How easily it is for us to become euphoric and over-confident after a period of success. And why demonstrating humility, and good grace for your successes, is always the right path.
A few points that annoyed me about this….
- “I died in active combat…” No you didn’t chumpy. You f**ked up, quite spectacularly, that’s what you did. As a Veteran I take umbrage at this. Watching numbers on a screen, is not active combat, its nothing like it at all. It’s disrespectful to use such words, and shows me how out of touch you’d become.
- “The markets are wrong!” No buddy, they are not. They maybe irrational, they maybe totally outside of your comprehension, but they’re never wrong. To think that your view and bias of the markets is the correct one is the kind of page 1 mistake I expect from a complete beginner, not from a seasoned professional. Another example of believing your own bullshit. The map is not the territory. As Keynes said “The market can stay irrational longer than you can stay solvent.” That’s a perfect quote for what happened here.
- “If I succeeded at anything, I succeeded at being idle.” Listen up Hugh, perhaps if you’d put a shift in, then maybe you wouldn’t be sat on huge losses and having to close your fund. I know that success is a personal thing, however if I was one of the investors in Hendry’s fund I’d be livid at that comment. I’d be getting ready to sue him for professional negligence! Anyway after this debacle Hugh is, I suspect, going to be spending a lot more time being ‘successful’ at home on his own.
- Absolutely no contrition – for a man who has just spunked $1 billion up the wall you’d think he’d be somewhat contrite or at least humble? I saw no evidence of this – filled with his own hubris he blamed North Korea, Trump, Governments, Central banks etc for his woes. Not once did I catch any real admission of guilt. There was to be no mea culpa.
I felt not one ounce of sympathy for the man after watching that. I wondered why he’d go on TV and be like that? Maybe he’d become accustomed, or even addicted, to the celeb status he’d acquired? To the attention of fawning finance sycophants around him? Who knows – but he’s going to have a lot of time to reflect upon that from now on.
One of the reasons I started trading and investing for myself was for characters like Hugh. In an earlier role and life I used to spend time with fund-managers, and analysts, and was so often left underwhelmed by the experience. Lots of plummy talk, lots of fake bonhomie, lots of grandiose ideas, and bragging. All to cover up for having very little talent. As the Americans would say, all hat and no cattle.
I remember thinking to myself “If you can’t join them, beat them.” And so it became not about beating the market (a term I’ve never liked) – but about beating the cheesy, talentless players who filled up lots of fund-management roles back then. In many ways it was the worst decision I’ve ever made. In many ways it was the best decision I’ve ever made.
So what can we take away?
- You’re only as good as your last trade/month/quarter – never get complacent thinking you’re the bees knees.
- Stay learning – the moment you think you know it all is the moment you’re about to get smacked in the face. Stay humble, and stay addicted to learning. Stay curious about markets.
- Your biggest drawdown is the one you’re yet to have – having that sort of mindset will help you focus on risk management and minding your business.
- Have a good network around you that keep you grounded and level-headed. It’s easy to surround yourself with people who share the same view as you (this could be about every element of life: trading, relationships, politics, whatever) but this is fatal. Make sure you have friends from all side of the spectrum. Engage in good constructive debate about your ideas with these people. Enjoy it, learn from it, hone your ideas and sharpen your edge upon them.
- Youre only human – during the time of the Roman Empire whenever a general or leader won a great victory or had a great prize bestowed upon them they would have a lowly servant ride in the chariot with them at the victory parade. The servants job was to whisper in their ear “you’re not a god, you’re merely a mortal human-being.” This was to remind them of the vanity of honours and for them to be vigilant about their behaviour lest it destroy themselves. It’s pretty clear Hugh never had that slave in his chariot. Who’s the slave in your chariot?
- When a major bear is routed and throws in the towel to join the bulls….is that the sign of a top? Discuss.
Anyway, rant over – I hope you can take some learnings from my words. By all means let me know what you think – perhaps you disagree? That’s ok, I’m happy to hear that – (see point 4 above!)
I’m going to be touching upon Hugh, and markets in my presentation at the London Traders Forum this coming Saturday in London. Come along if you want to hear more of my rants!
Trade well,
Paul
FXTraderPauls Trading Adventures 
September 19, 2017 at 6:52 pm
Hi Paul, a great post to read and read again.
Read not so long ago an inspiring article with a similar story yet with a different outcome…. so far …. https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nearly-shut-bridgewater-hedge-fund.html
Wish i could make it to the upcoming London traders meeting.
Thanks for sharing
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September 19, 2017 at 7:09 pm
Hey thanks for the feedback – it’s always appreciated. I shall enjoy the article on Ray Dalio!
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September 20, 2017 at 10:10 pm
He’s probably looking to his new career as an “expert” on Bloomberg
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September 26, 2017 at 5:57 pm
Hello Paul, I ‘m not sure this is something you’d be willing to explore on a blog let alone post it …but I feel & felt the same about many things you’ve mentioned though every journey is somewhat different..not running a hedge fund :-)…I feel the same about trading ” the worst and the best decision I’ve made”. I wanted independance and freedom and yet being stuck at my screen ( which i find it harder and harder ) is one example of my living paradox or ambivalence …other people do or rarely get it …i could go on and on about “clichés” like “the hardest way to earn what seems like “easy money”…when i teach trading sometimes , people and wanabees usually don’t get it when I say trading is not complex but it can be incredibly difficult …it’s like alpinism in a way..the concept is simple : climb , doing it is something else 😉
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September 28, 2017 at 6:06 pm
Hi Paul , i’ve watched the interview and read the piece you wrote again. This is very very interesting and several points he made did not really add up yet i would not be as ” severe” as you are ..but i agree it is rather insensitive to compare this with people dying and being injured in combat.
To his defense , it’s been very tough for active fund investment when their returns are lagging their passive benchmarks not many would have the guts to admit that they’ ve “fucked up” on TV …
BUT I disagree with several points he ‘s made in this interview and the journalist is either ignorant or complacent , perhaps a bit of both as he’s nodded several times as if what Hugh Hendry made perfect sense .To me it did not.
True for the past decade or so “cheap money” and extreme monetary policy implemented by the FEd and other Central Banks are the most often cited reasons for poor performances and many wonder if “alpha ” is not dead ..
In addition , as far as institutional and / or wealthy investors are concerned, most would rather suffer larger drawdowns than a downside deviation to the benchmark ..just like for a stock analyst , it feels somewhat better to be wrong with the crowd as being only slightly wrong alone… apparently given hedge fund data , downside deviations are more painful for investors to stomach compared to drawdowns ..in other words as long as everyone else is feeling the pain, it is easier to handle & less painful apparently. Not very logic but true …hence Warren Buffet’s recommendations ..invest in passive investment vehicles rather than pay high fees for active investment and star HF managers when investing in ETF and passive Benchmark are offering greater returns on a 10 years average ..so why pay the fees ?
So like many HF he probably has suffered from money pouring out of his fund while the costs for running a HF are fixed and elevated.
I disagree on his explanations he offered …but perhaps I am dumb , who knows?…i find it a lie to say that before 2008 and the FED implementing QE and low interest rates you could invest in bonds and use the future generated return ( ie: coupon + nominal ) to invest in highly leverage products to create returns ( “alpha”) and provide almost capital risk free investment vehicles ( i translate what he said in simple terms ). While I was studying and as a trainee with some “brains” ( namely french quants for French banks offering hybrid products supposed to deliver 15% returns no matter what the market direction) the very idea of what he described already no longer existed for over a decade …too little returns , already low interests rates ( not like the ones in the 80’es ( double digits interest rates) or 90’s) and way too much competition in this type of approach …so in short this kind of strategy has been outdated for years way before the 2008 financial crisis and the FED intervention.
And according to me and my humble opinion , it is not exact either to translate this in ” being long volatility” ..because it implies that by investing in bonds and use the proceeds in highly leveraged products , for instance derivatives is being long volatility …it only means that one needs volatility to generate returns from large moves in the derivatives or the underlying etc …and the recent and increasing markets extreme movements have been cited too as one of the main impact along with Fed “Fiat money” on the very poor performance of active stock picking.
Just hitting the wire ; another manager closing his fund because of poor results :http://www.businessinsider.fr/us/reporting-sustained-underperformance-to-you-was-making-me-miserable-whitney-tilson-is-closing-his-hedge-fund-2017-9/
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September 29, 2017 at 3:32 pm
very good, on point….hugh is (was?) a hero to me……irreverent and not afraid to die in a blaze of glory….but at the end the you capture the essence beautifully
thank you for a really great article…it’s rare to read this sort of thing these days of fluff and garbage
“You either die a hero or you live long enough to see yourself become the villain”
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September 29, 2017 at 5:18 pm
Hi again..an after thought after a long daily walk…you have nailed it with the title of this post and many points you’ve highlighted ..Mr Hugh Hendry does not deserve any indulgence… while listening to the interview I wondered why he even bothered to come on TV to deliver a pack of (semi) lies and wrap it up with “excuses” and “confusion” especially a lot of “confusing explanations” about his fund strategy … whatever is well conceived is clearly enunciated .. so should we assume he did not even understand what he was doing or what he was pretending to explain … why did the journalist let him get away with it ? It feels as if the sole purpose of this interview was to save his reputation with the journalist getting along with it … hence I suppose the disastrous and disrespectful analogy he made comparing blowing off his fund with ” dying in combat” … .. …why on earth a fund manager would end up fighting a bull market from 2013 to 2017 with leverage !!?? ..plus loosing money while charging management fees and paying himself …one of the quality of traders / money managers should be to ” feel” and know when a strategy or methodology is no longer suited to market conditions or at least reassess. And is he aware that while he’s been loosing vast amount of money , other HF and stock pickers have delivered 16 to 20% return per year over the very same period. On wonders if he was chasing his moment of glory too … wanting to emulate Paulson who had been shorting the market on margins for months before the final collapse of 2008.Would he have done the same if it was his own money ?
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