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My Year in Hell

Like many better-known value managers, I seem to have lost my touch last year.

"I am losing so much money," one of my hedge-fund clients told me recently. "You are doing a terrible job. Why should I pay you to lose so much of my money?" The call seemed like a bad dream, but it was all too real. After apologizing to my disconsolate client, who clearly had one foot out the door, I asked her to give me two more months to demonstrate the investment prowess I used to have -- but which apparently deserted me as soon as I started my hedge fund in January 2008. Like many better-known value managers, I seem to have lost my touch last year.

The past year was hell. Clients who once liked me now sound a lot like my former wife -- not a good thing as far as I'm concerned. In fact, these days I'd much rather talk to my ex-wife than to many of my clients. And sometimes I get so upset that I think I'm starting to sound like my ex-wife. What a year.

Quick losses. Beginning in January 2008, stocks I thought would double, such as ThinkorSwim Group (symbol SWIM) and Premier Exhibitions (PRXI), were promptly cut in half. Not only was I off to a lousy start, but I also began to doubt my judgment.

And I questioned my ability still more as it became clear that, like Ben Bernanke and almost everybody else, I was absolutely wrong in thinking that the subprime-mortgage debacle could be contained. Laughably wrong. Except I wasn't laughing.


Lesson one learned by newbie hedge-fund manager: Once you realize the economy will be much worse than you thought it would be, lighten up on stocks and do some hedging. I did some, but not nearly enough. And I succumbed to the disease that afflicts professionals and amateurs alike. I thought the stocks I continued to own were special -- far better than the average stock. Well, it turns out the bear disagreed, and it proceeded to maul some of my micro caps. Which brings me to lesson two: Almost everything goes down in a bear market, and stocks of tiny companies often get disemboweled.

Of all the mistakes I made last year, the one I most regret is hanging on to the stocks of two small companies that needed to raise cash to ensure their survival. One of them, Live Current Media (LIVC.OB), dropped 85% in '08. Lesson three: In the midst of a credit crunch, don't own companies that need financing. Their stocks will be destroyed. In fact, the next time I see a credit crunch approaching, I'll sell short a basket of companies that need to raise cash.

But the worst part of 2008 was the day-to-day misery. I had some small victories (hey, I earned $24 a share by shorting Lehman Brothers), but they were almost always overwhelmed by the latest piece of disastrous news about the companies I owned or the market as a whole. After being whupped upside the head almost every day, I became just a tiny bit paranoid. I woke up each morning expecting the worst, worrying that the market would decide, in its wisdom, that my best ideas sucked. Maybe they will be fine someday, but for 2008, forget it.

Dante was born before the first stock market was created, but his words, "All hope abandon, ye who enter here," pretty much nail 2008 for many managers I know. The implosion of stocks I had sold at much higher prices -- AIG, Bear Stearns, Citigroup, Freddie Mac -- gave me no pleasure at all. Invariably, their horrific declines contributed to declines in the stocks I still owned.


I used to think I was pretty smart, but I don't feel so smart anymore. If Alexander Pope were still around, he would have found a place for me in The Dunciad, his mock-epic satirical poem. I want to have a good year in 2009 not just because I have to save my business, but because I'd like to recapture the feeling that my brain works at least some of the time. Oh, I know I'm smarter than the people who ran Lehman, Freddie, Fannie, Bear and AIG. But really, how much better is that supposed to make me feel? Besides, they still have enough money to pay people to tell them how bright they are.

After 2008, I don't


Columnist Andrew Feinberg writes about the choices and challenges facing individual investors.