![\"S&POneYear2\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2016\/05\/SPOneYear2.jpg\")
<\/a><\/p>\nThe last ten years have been more “normal.” Long-term dollar cost averaging continues to make huge sense:<\/p>\n
\u00a02015 was an awful year for hedge funds, but that didn’t stop the fees. <\/strong><\/span>From the magazine Vanity Fair:<\/em><\/p>\n Hedge-Fund Managers Got Way Richer, Even as They Lost Investors’ Money<\/strong><\/p>\n Talk about income inequality.<\/p>\n Last year was the year when hubris struck hedge-fund managers. Activist investor Bill Ackman swallowed his pride after his firm, Pershing Square Capital, had its worst year in history. “It certainly does a good job reinforcing the humility-side of the equation that is necessary for long-term investment performance,” he wrote in a mea culpa to his investors. Third Point’s Dan Loeb called the choppy market that plagued these firms for much of the year a “hedge fund killing field.” As a result, some hedge funds closed their doors entirely, a handful of managers retired to greener pastures, and roughly half of all hedge funds lost money for investors.<\/p>\n That didn’t stop the kings of the .01 percent from making a killing, however. Despite their dismal returns last year, the top-earning hedge-fund managers collectively earned close to $13 billion, according to Institutional Investor’s Alpha magazine’s annual ranking-a 10 percent increase from a year earlier. Hedge-fund managers are often immune from the shorter-term market swings that their investors have to weather, since many of them skim fixed fees off the top of the total amount of assets they have under management. On top of that, they earn bonuses based on their performance. This means that even if their funds do poorly, they are still making money. If they do well, they’re making much more.<\/p>\n For the second year in a row, Chicago billionaire bachelor and head of Citadel Ken Griffin topped the list, earning $1.7 billion in 2015, as did Renaissance Technologies’ James Simons. Renaissance’s main fund gained about 16 percent last year.<\/p>\n Griffin’s paycheck did not come out of nowhere; Citadel’s hallmark funds returned 14.3 percent last year. And he spent as if those returns would never end. After settling one of the most high-profile and expensive divorce cases out of court last fall, Griffin reportedly went on a $300 million property-buying blitz, laying down $200 million for one New York City triplex alone. He shelled out another $500 million on two paintings-a Jackson Pollock and a Willem de Kooning-and paid for Katy Perry and Maroon 5 to perform at two Citadel parties last fall.<\/p>\n Not all the highest earners on Alpha’s list had as much to celebrate. In fact, five managers who made the ranking saw their firms lose money in 2015, including Ray Dalio and two other top guys at Bridgewater, BlueCrest’s Michael Platt, and Och-Ziff’s Daniel Och. Yet, there they were, raking in billions of dollars as their investors watched their own fortunes slip away. This, it seems, is the .01 percent’s form of income inequality.<\/p>\n It hasn’t been an easy time for hedge funds (or for any of us). From a magazine called the Weekly Standard:<\/em><\/p>\n Chelsea’s Husband to Close Greek Hedge Fund After Losing 90% of Value<\/strong><\/p>\n Chelsea Clinton’s husband is reportedly closing his Greek hedge fund. The news from Marc Mezvinsky comes after the fund is said to have lost 90 percent of its value.<\/p>\n “It was a hedge fund portfolio pitched by Hillary Clinton’s son-in-law, Marc Mezvinsky, as an opportunity to bet on a Greek economic revival,” the New York Times reports.<\/p>\n “Now, two years later, the Greece-focused fund is shutting down, after losing nearly 90 percent of its value, according to two investors with direct knowledge of the matter who spoke on the condition of anonymity.<\/p>\n “Investors were told last month that the fund would close. The fund, Eaglevale Hellenic Opportunity, had raised $25 million from investors to buy Greek bank stocks and government debt.<\/p>\n There are lessons for us all:<\/p>\n 1. Fees continue, while performance doesn’t.<\/p>\n 2. Hedge fund managers fall in love with stocks and ride them down. My own philosophy is simpler: If my brilliant bet is going against me, I’m out. Hope is not an investment strategy.<\/p>\n 3. I once asked a money manager if he would forgo his 1% fee if he lost me money in one year? \u00a0He said, NO. I asked Why? He said\u00a0that he was registered with the SEC and\u00a0the SEC wouldn’t allow him to reduce his fee. I never checked with the SEC. But I suspect that argument was total horsesh*t.<\/p>\n Keeping away is a reasonable strategy.<\/strong><\/span><\/p>\n Personally, I haven’t done brilliantly in the last year. But I have avoided some of the heavy losses some of the hedgies have taken. For example, Bill Ackman’s hedge fund is now down over 30% since the beginning of 2015. His results — down 20.5% in 2015 and down 18% in 2016.<\/p>\n My avoidance strategy:<\/p>\n 1. Stay away from stocks being hurt by Amazon, i.e. all the retailers.<\/p>\n 2. Stay away from stocks being hurt by low interest rates and government regulation, i.e. the banks.<\/p>\n 3. Stay away from stocks being hurt by low oil prices, i.e. the oil and energy companies.<\/p>\n And, most importantly, don’t try to second-guess trends.<\/p>\n As regards banking, here’s the story on them, courtesy James Surowiecki, a wonderful New Yorker writer (from the present issue)<\/p>\n Banking’s New Normal<\/strong><\/p>\n If you listened only to speeches from the Presidential campaign trail, you’d come away with the strong impression that, eight years after the financial crisis, Wall Street reform has been a bust. Every Republican candidate called Dodd-Frank, the centerpiece of the Obama Administration’s reform effort, a dismal failure. Donald Trump called it “terrible”; Ted Cruz said that it had only helped “the big banks get bigger and bigger and bigger.” Hillary Clinton has been tepid in her defense of Dodd-Frank, and Bernie Sanders called it “a very modest piece of legislation” that changed little about the way the Street does business.<\/p>\n Tell that to the bankers. Banks performed dismally last year, and their 2016 first-quarter-earnings reports show that this one is off to an even worse start. Returns on equity have fallen. Bonuses and salaries are being slashed; in the past quarter, Goldman Sachs cut the amount it set aside for compensation by forty per cent. Payroll is down, too: banks have eliminated tens of thousands of jobs in the past couple of years and are now embarking on a new round of severe job cuts. Some of these struggles can be attributed to short-term factors, such as low interest rates and unusually volatile markets. But there’s no avoiding the deeper conclusion: regulations have simply made banking less profitable than it once was. Before the financial crisis, financial companies (not including the Federal Reserve banks) accounted for nearly thirty per cent of U.S. corporate profits. By 2015, that number had fallen to just seventeen per cent.<\/p>\n “Dodd-Frank was supposed to curb certain kinds of risky behavior on Wall Street,” Mike Konczal, a fellow at the Roosevelt Institute who studies financial reform and inequality, told me. “And by that standard it’s gone very well.” Big banks now have to carry almost twice as much capital as they did before the crisis, and new Fed rules will require them to set aside another two hundred billion dollars on top of that. Those capital requirements should be even higher, but the current ones have already made the system safer. And, since the bigger the bank, the bigger the capital requirements, there has been a welcome move toward downsizing. Citigroup has shed seven hundred billion dollars in assets over the past seven years, while Goldman and Morgan Stanley have shed a quarter of their assets. JPMorgan cut assets last year to avoid a capital surcharge. And G.E. effectively got out of the financial business altogether by selling off most of G.E. Capital.<\/p>\n Profit-making opportunities for banks have also shrunk. Thanks in part to the new capital requirements and to new rules curbing banks’ proprietary trading, fixed-income trading has dried up, costing banks billions of dollars in revenue. Dodd-Frank has also reduced the middleman fees that banks collect-for instance, by moving much of the trading of derivatives onto the open market. More than half of credit-default swaps and seventy per cent of currency swaps now trade through a public clearinghouse. (Before the crisis, only a small percentage did.) Until recently, big banks were able to borrow money much more cheaply than small ones, because investors assumed they’d be bailed out in a crisis. But recent studies suggest that that funding advantage has nearly disappeared.<\/p>\n Dodd-Frank’s success is important in its own right. But it also teaches us an important lesson about regulation more generally. For decades, the debate over regulation in the U.S. has been dominated by those who believe that, in the words of the Chicago School economist Eugene Fama, “even the best-constructed regulation is bound to fail.” As Fama put it a couple of years ago, “Eventually, the regulators get captured by the people they regulate.” Regulatory capture is always a danger. But the history of financial reform after the crisis shows that it’s not inevitable: if you have well-designed rules, and if regulators have the resources and the public support to enforce them, industry does not always win. Before Dodd-Frank became law, Wall Street lobbied furiously to emasculate it, but the attempt failed. Likewise, the banks’ efforts at softening the bill’s provisions during its implementation have often been unsuccessful. A paper by the political scientists John T. Woolley and J. Nicholas Ziegler looks in detail at the fight over derivatives-trading regulations. “Most of the industry was violently opposed to the new rules,” Ziegler told me. “But a combination of small but very engaged advocacy groups and gutsy regulators made sure they got through.”<\/p>\n Of course, there’s much about Wall Street that Dodd-Frank has not changed. Bankers still make absurd amounts of money. Hedge-fund and private-equity managers still benefit from the carried-interest tax loophole. The big banks, though smaller, are still too big. “If you wanted financial reform to radically downsize the financial sector, or thought it was going to make a major dent in income inequality, you’re bound to be disappointed,” Konczal says. And Dodd-Frank’s work is still unfinished: many of the rules it authorized have yet to be written, and the banks are lobbying to have them written in their favor. As Ziegler told me, “The progress that’s been made is precarious. It can be unravelled.” But precarious progress is progress. Regulation involves a constant struggle to keep rules in place and to enforce the ones that are there. Dodd-Frank shows that that struggle is not necessarily a futile one: sometimes government really does regulate business, and not the other way around.<\/p>\n \u00a0The best photography lesson ever.\u00a0<\/strong><\/span>The lesson is based on photographs by one of the best photographers in the world, Steve Curry, e.g. The Rule of Thirds:<\/p>\n For the five minute lesson, click here.<\/strong><\/a><\/p>\n Magic for your bicycle.<\/strong><\/span><\/p>\n A dear young relative landed in hospital after a car turned suddenly in front of him. My “solution” is the\u00a0CygoLite Dash Pro 450 USB Rechargeable Bicycle Headlight:<\/p>\n It’s unbelievably bright. Cars in front of you and on your side see your flashing white in their rear mirrors. They know you’re there. Trust me. I use it every day. And I watch the cars “see” me.<\/p>\n Buy it at Amazon for $52.48. Best investment in your bicycle (and your life) you’ll ever make. Click here.<\/strong><\/a><\/p>\n Two wonderful quotes.<\/strong><\/span><\/p>\n + “My mother had morning sickness after I was born.” – Rodney Dangerfield<\/p>\n + “I want my children to have all the things I couldn’t afford. Then I want to move in with them.” – Phyllis Diller<\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n