More money is lost by players who know what the right thing to do is, but don’t do it, than for any other reason. Having a strategy, a game plan and the discipline to stick to it are, along with a sufficient bankroll, the four most important thing that a player needs to be a winner.
– Ken Warren poker writer on Texas Hold ‘Em
Poker is a game. You play the odds. You play your opponents. You manage the risk, size your bets, and control your funds. The hard part is sticking to the plan in the face of losing and not letting the other players or your recent performance dictate your behavior. This is the discipline necessary for success.
The same applies to investing even though the markets will be tougher game. The nice part of any poker game is that the rules of the game are known. The players are limited and betting occurs with set bounds through turns. Investing is more difficult and thus requires even more discipline. There is more noise, more uncertainty, and more ambiguity even on what are rules being played. In this case, the only way to prevail is to change the dynamics to make it more structured through your own controlled behavior.
After hundreds of discussions with hedge fund managers, I am still surprised that there is a fear of revealing investment processes under the assumption that someone will steal their ideas and intellectual capital. There are few investment styles that are truly unique and special. What is special is still strategy execution – the practical process of delivering returns. Skill is with the decision-making execution of information and strategy.
All hedge funds are not created equal as the return box chart shows for the post Financial Crisis period. There is a significant amount of dispersion across hedge fund styles. Over the period 2009-2018, the difference between the best and worst hedge fund category is almost 7 percent after we account for global equities and bonds.
The attraction to private equity and other less liquid alternatives is clear from the Guide to Alternatives by JP Morgan Asset Management. The return profile is much higher for private equity and debt funds than more liquid alternatives and global bonds; however, the dispersion in returns is multiples higher than what can be expected from other public categories.
