A 300 million USD hedge fund manager "trading mistake" after Japanese earthquake

Quote from nutmeg:

bought Japanese stocks on news of the earthquake,

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I wonder what he was thinking on that one.

Re the Japanese earthquake, my first thought was Livermore and the San Fran quake destroyed the infrastructure of the railroads and if memory serves me railroad stocks did not react, yet livermore shorted the railroads.,, and was dismayed because they kept going up.

ps. I suppose I should finish the rest of the livermore story but I don't feel like it. :p read the book.....:D
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If you read the article in detail... he actually didn't "buy Japanese stocks". He just closed out his short hedge on the Nikkei futures, while leaving his long positions on individual stocks.

I agree that decision doesn't make any sense. He should've either left the hedge on, or (more probably) taken some risk off the table both sides.

Actually... no, I take that back. You can't fault him for the decision. The Nikkei markets were closed for the weekend by Friday (US time). He wouldn't have been able to trade individual stocks, just the futures via CME. And I guess he thought the impact of the earthquake had been over sold.

You know, truth is... even the best managers will be wrong 40-49% of the time. He was wrong on this one. But if he gets it right 51%+ of the time and manages his exposure better, a manager will eventually succeed.
 
You can't label a decision 'a mistake' based on the consequences in hindsight.

If he takes a decision outside of his investment strategy or outside of the risk management policies and then earns $100M it is still a mistake...
And if he makes a decision based on the strategy within the risk policies and looses $100M it isn't a mistake.

You get fooled by the probabilities if you attribute success to consequences of a decision and not to its source.

Ninna
 
Quote from nLepwa:

You get fooled by the probabilities if you attribute success to consequences of a decision and not to its source.

Ninna
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You have no idea how many times I've heard

1) "what a mistake I made" when they lose
2) "what a great strategy" when they win... :D

and it could be the same trade or hand ( poker).
 
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