Klarman Made $1 Billion Hedging Markets. He Still Lost Money

[dealmaker]

Klarman Made $1 Billion Hedging Markets. He Still Lost Money (Bloomberg)
Seth Klarman made $1 billion betting against stocks and corporate credit. That wasn’t enough to prevent his hedge fund from losing money last month. His successful hedges were offset by deeper losses in the portfolio and overall Klarman’s Baupost Group declined as much as 8% in March, according to a person familiar with the firm’s performance.

 

[Scataphagos]

Hedging is NOT a "no-brainer". Sometimes BOTH sides of it will go against you.

 

[Atikon]

I wonder how Dalio faired. He got into Puts for Europe after the Market was down 20%. Poor guy.

 

[Handle123]

Hedging is NOT a "no-brainer". Sometimes BOTH sides of it will go against you.

Totally agree with you. I will have both sides take a loss when price will not continue after underlying has stopped out, but it is a low enough percentage if overall done right. That is why I take profit on ten percent of the position when price has gone far enough to change trend to help with losses of putting on hedges. Nothing works 100% but if one keeps testing and keeps open mind, losing percentages get lower.

The years I been studying/testing/applying how to hedge better been illuminated what has recently happened, am very happy with results, but have more work in areas where it could have done better. One area is more protection during change of trend which would be hedging the open profits of the hedge. I have often done this last 3 years with good results but market was not as violent as recent price action. Luv the challenges of risk management.

 

[Tony Optionaro]

Klarman Made $1 Billion Hedging Markets. He Still Lost Money (Bloomberg)
Seth Klarman made $1 billion betting against stocks and corporate credit. That wasn’t enough to prevent his hedge fund from losing money last month. His successful hedges were offset by deeper losses in the portfolio and overall Klarman’s Baupost Group declined as much as 8% in March, according to a person familiar with the firm’s performance.

How can you make money when hedging? If you have a perfect hedge, your P/L would be 0. Now if you make money when you hedge, then you had a "heavy" hedge on, which imo is same as speculating.

Hedging is NOT a "no-brainer". Sometimes BOTH sides of it will go against you.

Yep, basis risk.