I’ve just finished reading Running Money: Hedge Fund Honchos, Monster Markets and My Hunt for the Big Score by Silicon Valley investor Andy Kessler.
It’s a fascinating read. It’s a diary, or sorts, of Kessler’s wild ride on the tech boom, turning $100 million into $1 billion from 1996 to 2001.
What was unique about Kessler’s fund is that it was 100% long. That is, the fund only bought stocks with the intention to hold them for the long term, and then selling them for a large profit.
Most other funds, however, will employ derivatives and various investing techniques that provide them with a hedge against various scenarios… hence the reason they are called hedge funds.
You see, Kessler had a unique vantage point by virtue of his professional background (a micro-chip designer and an investment analyst). He realised that there was a lot of money to be made in an industry about to explode. An industry that was about to change everything.
The real interesting part of the story, however, is that the fund sold up and paid out most of its investors just prior to the bursting of the dot-com bubble, based on the change in market sentiment that Kessler had become aware of.
Here we have an inside investor who very actively and deliberately changed their investment strategy based on a change in market circumstances.
Today, in perhaps the most disturbing and volatile market of our generation, the vast majority of investment advice out there is the same as it was prior to the GFC. That is, the old mantras, buy for the long term, and diversify.
Of all of the inside investors that you are following, how many are offering different advice today than they were 5 years ago?
The markets today are wildly different than they were 5 years ago. So anyone who’s still spouting the same mantra is either focussed on a secular trend (such as the current secular bull market in gold), or is clearly out of the loop with regards to the new investing realities that the GFC has initiated.
What are some of the broad strategies that the sharp inside investors are now advocating? It seems that liquidity is the paramount consideration, along with security of your assets and the preservation of your wealth.
Think about this as you make decisions about what you should do with your capital in the current market climate.