Friday, 11 June 2010 01:11

The BoomBust vs the Two and Twenty: An Anecdotal Comparison

Yesterday, I sat through a conference sponsored by Andrew Schneider's on starting and marketing hedge funds. As I sat through the various presentations focusing on transparency, performance results, etc., I though to myself, " You know Reg, you probably rank in the top echelon of these guys in terms of absolute performance, and in terms of transparency you actually publish what you do on the web for all to see." Shortly thereafter I glimpsed at the latest issue of HedgeWeekly2010_No21 and decided to compare my blog results with that of the top funds.

For 2008

fund 2008

As you can see, many funds were hurt in 2008, but there were some who did quite well, with the top of the pile pulling just over 72%. That's pretty damn good! Below is an excerpt from the BoomBustBlog post "Updated 2008 performance":

Below are the raw, absolute returns for my proprietary account. These returns are calculated by calculating the difference between my starting point and ending point, and is the number that I use for comparison (since it is the number that shows how much money I actually made).

Reggie’s gross avg. return S&P return
For all 2007 (6 months)
42.93% -8.23%
For Q1 2008 50.03% 0.68%
For Q2 2008 53.46% -8.66%
For Q3 2008 32.40% -8.30%
For all 2008 196.11% -8.69%
Since inception 481.04% -35.72%
2008 absolute return 335.42%

to S&P 500

The numbers below are average monthly numbers. They are posted for the sake of uniform comparison.

Click to enlarge to print quality


As can be plainly seen, we have absolutely trounced all of the hedge fund indices, both for the year and since inception.

Click to enlarge to print quality


2009 saw my performance dip to -39% for the year (see Year End Note to BoomBustBlog Readers and Subscribers) as compared to the best of breed in funds of 229%. 2009 held my best quarter ever, and my worst 3 quarters ever, plus a father diagnosed with cancer which (admittedly) thoroughly distracted me.

This year was a disaster for many (if not most funds) and last month was pretty bad for funds in general, with most big funds posting negative numbers. 2010 saw the best of breed at 37% and many deep in the negative. It should become apparent to many that most funds are offering leveraged beta that simply amplifies the returns of the broad market, in lieu of actual alpha and/or uncorrelated diversification. In addition, it is obvious that very few hedge funds actually hedge! My subscribers and I have done very well over this time period, showing both alpha and a true lack of correlation.  As a matter of fact, the research returns, if traded appropriately returned multiples of many of the top funds in the report above for both the month and the year. Yes, it looks as if I was right and simply had to ride out the bear market rally. What tripped many firms up was riding that bear market rally spike as if it was truly a fundamental bull market instead of the central bank and government engineered ponzi scheme that it actually was. The gist of the blog research returns for the year stemmed from the Pan-European Sovereign Debt Crisis thesis that I started in January of 2009 and formalized in January of this year. See The Coming (now arrived) Pan-European (soon to be global) Sovereign Debt Crisis for details. I have now started a bankruptcy search to find those Ponzi scheme bull benefactors that will collapse in the coming liquidity crunch.

Major Trades for the year...

In a recent Bloomberg article, it was pointed out how many funds were caught with their pants down by the sovereign debt crisis (Boaz Weinstein Profits From Credit Market Distress Handing Paulson Losses). The crisis was (and still is) an opportunity for significant gains.

I stopped posting blog and personal numbers as of last year due to the work involved and the consequences of publishing personal information. Readers can easily determine the success of this month, quarter and year by going through the historical research. Hint: the blog was probably on top of the best of breed performance list once again. Here are some examples of...

400% plus on Greece and the Greek banks

Greece cds spreads

Yeah, that’s right! Listening to the former EC President would have gotten you on the wrong side of the TRIPLING of CDS spreads. Not to fret though, the ECB allocated 1 trillion dollars to alleviate this problem, and now spreads have just more than doubled, but are still rising. And for those of you who believed me over Prodi (I apologize again for the “liar, liar pants on fire” bit, though)…

nbg - may 15 - June 8th

500 to 600% on Spain and Spanish banks

std opt. research time purchase

Due to the subscription nature of the content, I can't reveal much else, but we did well on German banks, US asset managers and the current whipping boy of the media, Goldman Sachs (see The Brown Stinky Stuff is Splattering Off the Fan Blades and Landing on That Shiny New Building on the West Side Highway):

So, How Many Banks and Analysts Were Bearish On Goldman Before Today? and Is the Threat to the Banks Over? Implied Volatility Says So. Some may ask why I’m being so generous in regards to the extent of this quarter’s earning review. Well… A European institutional  subscriber recently stated he was able to get the same content found in my offerings from his investment bank research. Whaaatt!!! I told him that he probably wasn’t reading the subscriber content. He wrote back stating that that wasn’t the case. He also said that he doesn’t see any fundamental analysis  in the work. I nearly fell out of my chair. Hmmmm. Well, on the day that Goldman executives are due to testify before the Senate, let’s review the opinions of the ONLY entity that I know of that had a bearish perspective (rightfully and profitably so – twice and counting) on Goldman Sachs. If I am not mistaken, nearly every bank and analyst (save Meredith Whitney, you know I love you :mrgreen: ) had a strong buy or hold on this company both back in 2008 and last month. So much for relying on that name brand investment bank research.  For any others who may hold the sell side propaganda machine in such high regard (or is it me in such low regard), might I recommend the following two posts before we move on: For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks, and Blog vs. Broker, whom do you trust!”.

Map those base Jumping, spilunking, sky diving drops in Goldman's  share price with the research linked below. This company is very, very  risky and the risks are there for all to see. All you have to do is look for them!!!

Reconciling the 3 down quarters of 2009

Again, excerpted from Year End Note to BoomBustBlog Readers and Subscribers:

...I tried to put it in perspective in my year end note to subscribers and readers, though. A short term outlook simply will not work with my investment style. I actually had hedge fund structures and documents drawn up in 2007, and those structures had a 2 year lock up period. It is impossible for me to control securities prices (I'm not Goldman), hence I need time for  my theses, to run their course to be proven right or wrong. 3 quarters going against you may hurt, but it may happen. I can handle it, particular with 36 quarters running in my favor... Reference this excerpt from the afore-linked blog post:

Click any graphic to enlarge.


I need to run a delicate balance here, for I definitely don’t want to understate how disappointed I am in 2009’s performance, but at the same time it is pertinent that a realistic view is attained. I don’t want to flagellate myself, yet don’t want to be a braggart as well.

It has been 2 to 3 quarters of what I consider under-performance thus far, and I see the fundamentals coming to the fore in a very big way for the year 2010. To recap, I started the blog 9/07, and my personal account return for that quarter was about 14%, roughly annualized at 55%. The following year saw a time weighted return of about 450%, and the first quarter of 2009 saw a rise of around 50%, but I finished the year down 39%. Again, the last three quarters have been very disappointing to me as I can imagine it has been for others who are bearish, but I do want my subscribers and readers to know that this blog’s (and particularly, my personal) record bests the records of the vast majority of market participants – and by a very wide margin.  We are talking in the range of about 150% annual blended return for my own performance. I had 7 winning quarters out of 10, which although pales to  Goldman Sachs’ statistically impossible 97% win ratio (again, mine is unpowered by government hook-ups and multi-billion dollar subsidies, but I am working on that), should be commendable by most but is still quite disappointing to me. I need to hold myself to a very high bar.

The significant drawdown from the second and third quarters of this year stemmed from the fact that I waited too long to adopt a market neutral stance. This fault has been corrected and we plan to be well protected against extended movements against the fundamentals in the future through going long volatility via market neutral strategies, if the events call for it. The market neutral strategies allowed me to trade the volatility in
lieu of the fundamentals and still benefit from the potential of the fundamental research bearing fruit. See the researched strategy analysis released for subscribers at the end of this blog post that proved profitable in many of the preferred cases.

Although one could theorize that I could have knocked it out of the park this year if I went net long, I would not have done so. I am a fundamental investor and there were, literally, absolutely no fundamental nor macro reasons to be long most stocks, and the only reason to buy stocks was because the price of stocks were going up. – that in and of itself should give the fundamental investor pause. Now, this has been a glorious three quarters for the momentum investor and swing trader, both of whom relish in chasing trends, but the fundamental investor had to take a back seat as profits and losses, assets and liabilities, balance sheet strengths and insolvencies became inverse to share price performance in the investment space. The weakest companies literally gained the most while the strongest companies stood relatively motionless. I suspect the shenanigans played by the “powers that be” will wither in 2010. See the following articles for more on the possibility of significant manipulation that postponed the inevitable crash in the markets. Even for the optimistic, this must spur some thought:

If the pre-ordained crash is not the case, I have polished the market neutral strategies so as to attempt to prevent myself and my subscribers from being left out, or even worse, hurt by extreme market rallies that fly in the face of the fundamentals for an extended period of time. In essences, no more significant drawdowns unless I am literally wrong, this time around. Remember, the price of a stock’s movement in the short term does nothing to dictate whether one’s thesis is right or wrong. I, for one, believe that fundamental investors need to stick to their knitting and not become momentum chasers when the breeze blows in a different direction. This was painful for three quarters of this year, for the bulk of the year was a trader’s market.

For the record, I would not have taken the risk of forging ahead after the 2nd quarter if I was managing outside money. The reason? I easily made my year’s compensation, being up about 50% in Q1-09. Why jeopardize the 10% of that gain I would have received on a 2 and 20 basis. If I was running $100 million dollars, I would have been able to pocket a $10 million incentive fee plus the AUM fee of 2%, which would have doubled. Better to sit in cash and collect me fees. Now, since I didn’t have the leverage of other’s money to incentivize me to do so, I plowed forward. This was actually a time when greed would have been good.


For those who do not follow me, please refer to The Great Global Macro Experiment, Revisited” for a glimpse into my investment style. Reference the graph from this treatise below, and compare it to the actual graph of prices below that.

Understanding my proprietary investment style


My 10 Year Track Record

Case Shiller index has been amplified by a factor of 10x for the sake of comparison to the S&P 500.


In the spring of 2004, I sensed the market getting much too overheated with the hurdle rate for risk adjusted returns based on rental income becoming harder and harder to attain upon property acquisition (which is where the money was made, in my opinion), hence I started putting buildings up for sale in a very heated market. I sold off the bulk of the properties between the end of 2004 and the 3rd quarter of 2005, with a final listing in the 1st quarter of 2006. As you can see from the chart above, the NY market peaked early 2006. My timing was apparently on point. To be honest, it really had nothing to do with timing, and everything to do with the fundamentals. You see, although rents and incomes in the areas that I invested in had increased dramatically due to gentrification and a bubblicious economy, they were increasing nowhere near enough to justify the price spikes that were occurring. I would have loved to have considered myself a really smart guy, which is why it appeared I was making money at a clip that easily bested the broad equity market and many other real estate investors, but the truth of the matter was the market was simply in a over-heated bubble, and I was fully aware of it. Sensing the top somewhere proximal, I decided it was time to go. I believe that all who were in the real estate game at that time and had access to a calculator or a spreadsheet knew the jig would be up relatively soon. It’s just that they wanted to pick up every single dime off of the table. I am of the mindset that it is always best to leave a little money on the table. Don’t be greedy. Often, that last dime costs about $1.20 to pick up!!!

Last modified on Saturday, 12 June 2010 07:16


  • Comment Link Pie_row Wednesday, 16 June 2010 20:40 posted by Pie_row

    Well said Reggie

  • Comment Link Reggie Middleton Monday, 14 June 2010 12:31 posted by Reggie Middleton

    Fair enough, since I tire of having this silly debate with you. My research is public and quite easy to follow, hence it is quite easy to back into prospective returns as well. Since you don't believe me to be a straight shooter, may I suggest that you vamoose???

    Have a good day, simply have it on someone else's site.

  • Comment Link Fernando Monday, 14 June 2010 12:26 posted by Fernando

    Well, frankly after all the arguments with you I started to doubt your integrity, you are not a straight shooter. you sound like those massively rich CEOs who cling into any argument that will prevent him from losing his job

  • Comment Link Reggie Middleton Monday, 14 June 2010 11:50 posted by Reggie Middleton

    You fail to give me any credit. Many companies that I was short dropped nearly 100% in price, the tripe digit swings were up, not down.

  • Comment Link Fernando Monday, 14 June 2010 05:56 posted by Fernando

    lmao. You are the guy claim a dude swinging triple digits doesnt have any implicit leverage and I'm the guy pointing out the most obvious self-evident thing of all time.

  • Comment Link shaunsnoll Sunday, 13 June 2010 23:11 posted by shaunsnoll

    sometimes I appreciate the anonymity of the internet and then I run across someone like this who makes no sense and can slander someone without any recourse. This guy clearly has no idea what he is talking about. Implicit leverage in options is nothing like using margin....

  • Comment Link gjk313 Friday, 11 June 2010 22:06 posted by gjk313

    It's always amazed when some folks make such critical comments on this blog. Who cares what his primary residence is worth? Maybe he rents. What does it matter? What matters is that this blog provides an incredible amount of actionable information for FREE. Every day I come to this blog and I shake my head in disbelief about the amount of detailed research Reggie provides absolutely FREE OF CHARGE.

  • Comment Link Reggie Middleton Friday, 11 June 2010 15:39 posted by Reggie Middleton

    Now you're simply guessing and speculating and literally have no idea what you are talking about. I try to keep my accounts at least 50% cash, often much more. This is much more liquid than the vast majority of hedge funds. I went up more than I went down because I research.

    As a matter of fact, if I ran a hedge fund I would have been up much more since I would have never risked my 20% performance fee on the bear market rally.

  • Comment Link Fernando Friday, 11 June 2010 13:20 posted by Fernando

    The fact that you went up more than you went down shows that it appears you have an edge in trading and might have methods for cutting some of the downside(some kind of anti-martingale system). It does not change the fact that you have an effectively highly levered account that would never be able to fit the liquidity requirements that hedge funds face and that you are comparing yourself to

  • Comment Link Reggie Middleton Friday, 11 June 2010 12:47 posted by Reggie Middleton

    You should be a story teller. Leverage would mean being right and making 3 digits, and being wrong and getting wiped out.

    I was right and made deep triple digits, and when things went against me I lost 39% of my profits. Equity was never touched, and as a matter of fact profits still totaled 2.5X equity even after a horrible year. You see, it sounds a whole lot better after you tell the story correctly, doesn't it?

    A 10 to 1 levered account would have had equity wiped out with an 80% move against it, but my account was mostly cash and was not levered.

  • Comment Link Fernando Friday, 11 June 2010 12:03 posted by Fernando

    Yes, you deserve credit for being correct(about some things). But you should consider becoming a chef, you would get rich selling free lunches like this. You were right and made triple digits, wrong and lost almost half your equity, that is an levered account, whether technically is or isnt, doesnt matter, EFFECTIVELY it is
    Otherwise you are claiming you have some magical wand that enables you to earn huge returns above the stock market and nominal GDP that no one has, there is no wand and no free lunch

  • Comment Link Reggie Middleton Friday, 11 June 2010 11:46 posted by Reggie Middleton

    To begin with, options are not leverage, leverage is leverage. Options are more volatile than the underlying, but again that is not leverage.

    Many hedge funds use much more leverage than I do. Even if one were to consider derivatives a form of leverage, they use CDS which I don't, they use option (both listed and OTC, which can have massive amounts of leverage built in), total return swaps, etc.

    Long story short, stop trying to deny credit where credit is due. I do well, I'll admit. Things don't go my way, I'll admit that as well. There are no tricks here and I'm not trying to fool anyone. As a matter of fact, I think I am one of the most transparent blogs out there.

  • Comment Link Fernando Friday, 11 June 2010 10:36 posted by Fernando

    If you remove cash and kept the same LEVERAGE(whether through options, margin borrowing or futures), your % returns will be bigger. Reggie says he beats the hedge fund guys but the same HF guys would NEVER be able to run the kind of leverage he uses(he will quote this and claim he uses no leverage, just options, lol), therefore his comparisons mean nothing

  • Comment Link shaun noll, CFA Friday, 11 June 2010 10:17 posted by shaun noll, CFA

    fernando, that makes no sense. how does removing cash from an account positively impact returns??

  • Comment Link Fernando Friday, 11 June 2010 08:55 posted by Fernando

    Lmao, 'account returns', that is a total joke dude. One can easily withdraw cash from an account, ump up the leverage and make positive returns look bigger. What matters is RETURN ON YOUR NETWORTH(including primary residence), do you understand?

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