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Most people invest their savings in large institutional mutual funds, Buy Cheap Seroquel Online Markenpillen Viagra Online pension funds, Buy Kamagra Cheap Buy Ventolin Tablets and other funds thought to be the safest places to put their money, Buy Viagra Jelly Online Alcohol 24 Hours After Flagyl when in fact in the coming years these may be the most dangerous places to invest. Many of these larger firms invest people’s savings in primarily long only strategies. That is they invest most of your money in a way that assumes things will only go up.  We believe that these investments strategies are not adequately hedged against severe corrections likely to come as we have seen over and over in recent times i.e., 1987, 2000 and 2008.  Institutional managers are often judged on how less bad they perform with your money vis-à-vis the benchmark they peg themselves to. In other words in a stock market downturn it’s a race to the bottom. Most managers justify their salaries by reminding investors that “While everyone else has lost 40%, I only lost 38.7% of your money” We don’t think that is good enough to justify paying them.  As long as the institutional firms take in millions or billions in management fees regardless of their performance they have nothing to lose but your money. For them it is always a win-win strategy. On the other hand for you it’s usually a small win, after their fees when the market goes up and a big lose, after their fees, when the market goes down.

In a volatile and directionless market as we see for the coming years smart money will go to managers that have developed more refined hedging strategies to perverse capital.  The government for the most part will only allow rich people to directly invest their money in firms that use adequate hedging strategies. But also remember there are many firms that employ hedging strategies poorly as well. We are now seeing more pensions and larger institutions seeking out the best of these more nuanced strategy firms as sub-advisors so that retail investor’s can also be invested with safer risk management strategies.

Because there is a major shift in economic and political world power from west to east as well as rising food, energy and other basic commodity prices, we believe there will be more frequent turbulence and corrections in the market over the coming years. Hence, it is becoming even more important to protect against downturns in this volatile market environment. It is our conviction that the savings and pensions of most people will continue to erode unless more risk managed; money management firms employ capital preservation strategies.  Why do most of the firms continue to management money without good hedging and risk management strategies? Well the answer may be quite simple and surprising. They don’t know how.  As people continue to pile up their money into large institutional funds and the funds take fees based only on the amount of money under management regardless of performance, why should they particularly care about preserving your money?  They believe they are the only game in town and since they hold an overwhelmingly large amount of invested dollars for the most part they are.

Who manages your money in large institutional funds? After you put your money in the black hole of large institutional funds, chances are you don’t’ know who manages your money and probably will never know.  They will just tell you “trust us” we know what we are doing. Until the market takes a huge hit and you notice your “401 K” or pension fund is down 25% to 40%. There goes twenty years of your savings.  You’ll never know what hit you or that there may have been a way to prevent most of that lose.

Steven Delco      February 9, 2011