Global macro investing is a tough business. Your position sizes are big, and they’re often leveraged. And “relative value” trades have the nasty property that sometimes the “cheap” side gets cheaper while the “expensive” side gets more so, leaving you with a “hedge” position that’s losing money at double the speed.
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That seems to be what’s happened to Chua Soon Hock of Singapore-based hedge fund Asia Genesis. It was short Japanese stock markets and long Hong Kong and China, a lethal combination that led to an 18.8% drawdown in the first few trading days of January. And this seems to have taken its principal to a dark place.
According to the letter he sent explaining the “painful decision to close the fund and return your investments”, Chua had “reached the stage where my confidence as a trader is lost”. He judged that “my past experience is no longer valid, and is in fact working against me”. Signing off with “utmost apology, thanks and deepest appreciation”, he decided that “I have lost my knowledge, trading and psychological edge”.
Wow. It’s something of a stark difference from the arrogance of “It’s important to remember we are 36, and even though it doesn’t feel this way today, we are just getting started—and this too will be an unfortunate blip on a very long-term chart of our returns “, a recent apology letter from American fund Spruce House . Or indeed, from the sort of response you might get from Pierre Andurand , the commodities trader for whom a 19% adverse move is just part of the general thrill of it all. People might admire Chua’s humility; they might also think that if you can’t handle a drawdown, you shouldn’t be in the business.
But there’s
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