The cycle of Mincing dry and group dry

(I) Fund manager, why suicide?

On April 26, 2021, Charles de Vaulx, co-founder of the famous American hedge fund IVA (International Value Advisers), jumped from the 10th floor of the luxury building in Midtown, 717 Fifth Avenue, New York. Took his life at the age of 59

On the same day, the S&P 500 hit a record high.

Who is Vex?

Why, as a fund manager, did he choose not to turn back when the US stock market was hitting record highs?

Vex is a practitioner of deep value investing, using a bottom-up approach, in-depth research on companies and a passionate defense of their values. In 2001, Voices was co-manager of four First Eagle funds and several institutional accounts, and was named Morningstar’s International Fund Manager of the Year along with his mentor Jean Marie Vuillard. He was runner-up again in 2006.

In 2008, Vex left First Eagle and found three like-minded partners to start International value Advisors, which gained popularity after the 2008 financial crisis by scouring the globe for cheap stocks. By the end of 2010, IVA had more than $10 billion under management, and at its peak had more than $20 billion in assets under management, making Vex one of Wall Street’s most prominent fund managers.

However, after 2011, companies, individuals and countries began to accumulate very high debts under the Federal Reserve’s continued loose monetary policy. At the same time, the stock market continues to rise, and the valuations of companies in the market continue to rise. Mr. Vex sees this as a sign of things to come, and to protect shareholders from losses, he insists on holding large amounts of cash. Alas, the crisis never came, leaving him to be blamed by shareholders.

In March 2020, the rare stock market crash came, but with no debt being liquidated at all, Vasquez still felt that the stock market risk had not been fully unleashed — even after the Federal Reserve’s “unlimited money printing”. This extreme risk aversion allowed Mr. Vasquez to miss the spectacular reversal in US stocks that followed.

Clients could no longer tolerate Vow’s stubbornness, they pulled out, partners started leaving, and IVA’s fund quickly shrank, leaving the firm with $863 million in net assets under management by the end of 2020.

The biggest blow to Vex was that investors and partners no longer trusted him, even though he was still worth hundreds of millions. In mid-February 2021, Vow’s IVA suddenly announced that it would liquidate its funds and close. The liquidation was then closed on April 19.

And then there’s Vasquez’s jump from a 10-story building.

You can’t help but think back to a 2014 interview in which Vex gave a definition of value investing:

“The idea behind value investing is that the market as a whole, or individual stocks within it, will be mispriced because the market is shortsighted. Perhaps the market does not reflect the subtle differences between a company and its competitors. As a result, shares are mispriced, which means there can be a big difference between the share price and the intrinsic value of the company.”

“In the case of value investing, investors need to believe that there may occasionally be market inefficiencies. If investors believe that and buy many stocks at 20 percent or even 30 percent below the real price, the more they pay below the real price, the more safety they get, it will be a wonderful thing, because on the one hand they can reduce the risk and at the same time they can adjust the risk rate of return completely to their liking.”

Alas, for many years the market gave Mr. Vasquez little opportunity to “buy shares at 20 or even 30 per cent below the real price”.

After Vasquez’s suicide, people close to him said:

“It was never about the money, Vasquez was a complex, arrogant individual who felt he had failed in his mission of value investing and had lost his raison d ‘ere.”

(Two) not full of stock God, why can’t run the S&P?

Vasquez was not alone in missing out on the stock market boom over the last decade because he was sitting on cash to avoid market risk.

Buffett, the most famous investor on the planet, has also passed up countless investments because he has a lot of cash.

Since 2017, Buffett’s Berkshire has kept more than $100 billion in cash. What’s more, in the March 2020 crash, Buffett initially picked airline stocks, but quickly realized something was wrong and liquidate his positions at a loss, which made him even more wary of bottom-hunting. Then he, not surprisingly, missed the perfect reversal of the US stock market.

After the end of 2020, the S&P 500 index, which experienced a sharp decline and surge, ended the year 16.26% higher than the closing price at the end of 2019. In comparison, Buffett’s return in that year was only 2.4%. That followed a 31% rally in the S&P in 2019, when Buffett gained just 11%.

Thankfully, Buffett has held on to Apple stock, which accounts for most of Berkshire’s gains. Berkshire’s performance would have been no different than Vasquez’s had it not been for Apple.

As recently as the third quarter of 2021, Buffett’s Berkshire, with its $149 billion cash pile, was a top financial search. Based on Berkshire’s total market value of $640 billion at the time, $149 billion represented 23% of Berkshire’s assets.

Let’s not talk about the very random investment performance of one year and two years, even if we look at the last 10 years of Buffett’s investment performance, in fact, is very mediocre.

What is the general state of affairs?

Generally to catch up with the Standard & Poor’s 500 index does not need to think!

From 2011 to 2020, Buffett’s compound return is 11.2% annualized; By contrast, the Standard & Poor’s 500-stock index, which requires no thought at all, has an annualized return of 13.9%; Not to mention, buying the Nasal 100 would have yielded a compound return of 17.5% over the decade.

In other words, Buffett’s investment performance over the last 10 years has beaten even individual index buyers.

Was Vex wrong? Is the god getting old?

To borrow a popular Internet phrase:

It’s not that Vasquez and Buffett aren’t trying, but times have changed!

Holding too much cash, waiting for the right time, not trusting tech stocks with no profits or high multiples, and looking for stocks with low valuations that can’t beat the index, is closely related!

The changing times began in 2008 when IVA was founded.

Before the global financial crisis in 2008, the rules of classical money were in effect, with lower rates freeing money and higher rates tightening it. But whether it is released or tightened, the extra “money flow” printed or contracted by the central bank each year is still a relatively low rate compared with the existing monetary base.

Take the dollar base money supply and growth rate as an example.

Before 2008, the annual growth rate of the dollar’s monetary base fluctuated around 5%, with few years below zero or above 10%. Although in the long run this still creates inflation problems, on a yearly basis the rise and fall of asset prices across society, triggered by the printing of money by central banks, is kept within limits (see chart).

However, since the outbreak of the global financial crisis in 2008, the growth rate of the monetary base in the United States suddenly soared, once exceeding 100%. The result of this massive “money printing” saved the credit freeze at the time, but it also meant that central banks largely set asset prices in the markets.

From 2009 to the present, central banks around the world have formed a consistent requirement for stock markets:

Can rise, slow up and small fall, but never allowed to crash!

At this point, as Ray Dalio puts it:

Cash is trash! Cash is trash!




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