Back The Bros Against The Hedgies

Another severe problem for hedge funds is their dependence on outside money and their need to file quarterly returns. Bros do not have this problem; they can therefore just “HODL” for years if necessary, waiting for an investment to come right. The spectacular success, albeit on a small scale of Bro investments in the cryptocurrency Dogecoin is an example of this. Founded in 2013, with a picture of Woofles as its symbol, it was intended as a joke, and subjected to the most intense Keynesian money-printing, so that 128 billion DOGE are now outstanding. For years it languished, even though the crypto-currency bonanza of 2017. However, in the last six months, it has soared to around 150 times its initial issue value and a market capitalization of some $6 billion (while still sporting Woofles – a brand is a brand).

Those Bros who have held DOGE right through have enjoyed a true bonanza; even the Bros who bought in six months ago have made 10 times their money. Hedge funds, subject to quarterly reports of investment returns and meetings with their unimaginative investors, would have sold years ago. The liquidity and price transparency of DOGE and other cryptos is in this respect a disadvantage for hedgies; a private equity fund could have ignored the market price and pulled the wool over its investors’ eyes, making deep meaningful statements every quarter about DOGE’s hidden technological potential and the Blockchain.

The other difficulty for hedge funds is that of trusting their colleagues. Bros don’t have this problem; they are lone operators, and how hard they try to stay out of jail is therefore up to them alone. They never need to lie awake at night worrying about the integrity of their colleagues, because they don’t have any colleagues.

Fifty years ago, this was also true in the better financial institutions, where integrity was unquestionable and unquestioned. But in the 1990s, with the advent of massive “compliance” requirements, things changed. A good friend of mine was struggling gamely with the difficulties of compliance for one of the more sporting brokerages of the late 1990s – think a mini-“Stratton Oakmont” the dodgy Long Island brokerage in the movie “Wolf of Wall Street.” When told by a snooty gentleman at a party that he did a similar job for Morgan Stanley, she responded: “Listen, buster! Anybody can do compliance for Morgan Stanley because they never do anything bad. But to keep my bosses out of jail, you need REAL compliance ability.”

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(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of "sell" recommendations put ...

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