Markets
My Year in Hell
Like many better-known value managers, I seem to have lost my touch last year.
By Andrew Feinberg
From Kiplinger's Personal Finance magazine, March 2009
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"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.
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Reader Comments (8)
Posted by: Closer at 02/07/2009 09:35:13 AM
Mr. Feinberg's account of his miscalculations in 2008 and his reactions to his clients should be a wake-up call to investors who rely on so-called professional money managers who stood like helpless deers in the headlights as their preconceptions prevented them for taking defensive action to protect their client's capital. Rather than re-reading Dante and Alexander Pope, I suggest that Mr. Feinberg read the late Benjamin Graham, the great John Bogle, and successful bear-market navigators like John Hussman, Steven Leuthold, and David Tice.
Posted by: mike at 02/16/2009 01:20:17 AM
I always enjoy your columns very much and last year was challenging for all investors. I am wondering what your thoughts are right now on three of the stocks you mentioned, ThinkorSwim Group, Premier Exhibitions and Live Current Media. At these prices, do you like them or has your thesis changed. Thanks a lot and keep up the great work.
Posted by: Ufredo at 02/23/2009 03:45:32 PM
That's what you get for recommending PRXI, one of the most ethically bankrupt public companies today.
Posted by: Brian at 02/23/2009 03:55:46 PM
I had a good investing year in 2008. I stayed out of the stock market except to go short. How come you professionals couldn't see the imploding credit bubble?
Posted by: sanjay at 02/23/2009 08:19:51 PM
I rode LIVC to a 85% loss. Thought about getting out when I'd lost 50% but then read your column that you still thought it a good investment and held on for another 2-3 months. Should I be blaming you? no. I listened to you but the decision was in my hands. Ces't la vie.
Posted by: Bobby at 02/24/2009 02:01:12 PM
Can someone explain to me why shorting stocks is allowed in the stock market? I have just no idea how the market benefits from short stock investing.
Posted by: burt at 02/27/2009 05:34:34 PM
As a personal investor who lately continues to make one bad investment decision after another, I do have to say that reading well-written mea culpas from pros like Andrew Feinberg make me feel less like an idiot than I already do. I remember reading in his 12/09 Kiplinger's column in regard to LIVC.OB: "What's to stop this 75-cent stock from going to 50 cents..?" The fact that it closed today at 27-cents reminds me not to beat myself up too badly for all the mistakes I'm currently making too!
Posted by: Bob at 05/21/2009 03:06:18 PM
Closer: Funny your comment as Mr. Feinberg worte an article trashing Bogle's strategy and his and his brother's ability to "trounce the market". Everyone is a genius in an up market. Search Kiplinger for Andrew Feinberg and Jack Bogle and you will find the article.