Gambling for a living

Do you wonder why the market is so wildly volatile these days? I think it is because we are seeing a growing trend of money managers and specifically hedge funds managers trading like crazy and turning over their portfolio at ridiculous levels. One extreme example is Greg Coffey with GLG partners who turned his portfolio over 56 times in May alone.

portfolio turnover

That works out to 2.8 times a day he turned over his portfolio. That is almost twice what I turned my portfolio over for the year! (My portfolio to me seems a bit high, but I actively manage the short portion of my fund to minimize risk)

I have a friend who is a hedge fund manager, who I respect. He tells me he has been trading this market and making something on the order of $100,000 a day. That’s nice work if you can get it, but it doesn’t last. This is called gambling, and it may work for the short run, but in the long run you lose or you do no better than coin flipping.

Watching all of this volatility should make long term investors very, very happy. Because this means that all of this short term trading and schizophrenia means that there are some long run opportunities to see past the turmoil and make great returns. So, bring on the volatility! For value investors this is the best kind of market to pick up bargains and take advantage of irrational investing.

The part that bugs me is who is giving people like Greg Coffey money? By the way, all of that trading didn’t seem to help, when last I checked he was down 13% plus for the year.