What Ospraie taught us (again), and how the turtle wins the race

Valuable investment management is simple but not easy. The investment world is full of hares that seem at times, to be sprinting ahead at breakneck speed. And in a world of short attention spans and systemic impatience, hares often attract great interest.
But the thing is this. In the long and medium run, it is humble turtles that win the money race. Turtles win by collecting steady, low risk gains, not losing capital and sticking to their buy and sell discipline in good markets and in bad.
Like the Tech funds managers before them, from 2003-2007, hedge fund managers attracted enormous capital and adoration. As commodity markets went parabolic, those “genius” enough to keep playing them were proclaimed prolific. And now we come full circle.
In the down cycle that began last October, high risk managers have been falling on their swords. Hedge funds that once sprinted on ahead are now trying to quietly close their doors. This is a very old story. The managers are sorry and bow their heads. The leverage that was a wonder drug in the bull market becomes a lethal potion in bears.
This week the next “surprising” casualty is the demise of the once exalted Ospraie Fund, the flagship fund of Ospraie Management, the commodities-focused money manager. Having lost nearly 39% of its value this year — or almost $1.3 billion, with more than half of that in August alone — the fund is being wound down. No longer pushing for returns on their money, investors are now hoping for just the return of some of their money. For several years Ospraie enjoyed a solid reputation. It appears they have been hurt by the rapid fall in resource companies, particularly in energy and mining. Apparently they have been taken unaware.
“That such a large, experienced fund manager was tripped up doesn't bode well for many others who have crowded into the commodities bull market.”
See WSJ: What Ospraie taught us.
Meanwhile in the category of “I wouldn’t be surprised” comes this story today in the WSJ: Oil supply data probed for manipulation. Park prediction: next will come a wave of managers and investors who will claim that they are not responsible for big losses to capital, because they relied on other people’s data to make their bullish bets. Cue the lawyers.
Away from the thunder and the fray, we turtles will methodically and humbly continue to advance.

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4 Responses to What Ospraie taught us (again), and how the turtle wins the race

  1. Anonymous says:

    Danielle,
    If there was one sector, one place that a small investor could park their money and sleep at night?
    It is such a gong show in the markets, with scores of analysts making predictions contrary to one another that for the small investor it becomes almost impossible sorting out fact from fiction/spin.
    I really like your 'Turtle' approach to the markets and was wondering if you could provide directions so we may follow the Turtle path also.
    thanks

  2. Anonymous says:

    R, the answer is simple. In the last stage of the business cycle stocks, bonds and commodities drop in concert. CASH is king!!

  3. Anonymous says:

    What indicators should an investor look for, in determining when stage 6 of the cycle has finished, and stage 1 has begun? On BNN you mentioned there are only so many business cycles in a person's lifetime and therefore it is of paramount importance to get it right.
    Regarding cash being king, but what currency are we talking about? The EURO seems to be in free fall, and as hard as it is for me to believe, the USD is showing considerable strength. I had thought Gold was a safe haven in such turbulent times, especially with the US Fed printing money out of thin air but it also is in free fall – so where do you park your money?
    Lastly, being in the final stage of the business cycle wouldn't it be prudent to short the markets and take advantage of the downside? Perhaps buy an ultra-short ETF like SRS? Or is shorting too risky and contrary to the 'Turtle Way' of investing? 🙂

  4. Anonymous says:

    see my post today on cash and currency. Re shorting and inverse ETF's they can be used within very strict rules and timing discipline. Unless you have this, you should not attempt it. The downside can be very harsh. Turtles can win without shorting. Turtles can be wiped out if they get shorting wrong.

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