Sirens blazing

Bloomberg has an incredible story up today about a small hedge fund putting up some crazy figures and a slew of that-doesn’t-smell-right observations about the fund, its accounting, its strategy and its manager.

I can’t bring myself to go through each and every one of them, so you should really go read the story:

How Does This Hedge-Fund Manager Make So Much Money?

There are so many red flags in this single article that fire alarms should be screaming in your head while you read it. Every basic check against fraud is missing or somehow off here. Fuzzy accounting, a manager who can’t describe the strategy, no liquidity, no questions asked, revolving door of auditors, you name it.

There are just some simple things you should expect before you invest money.

  1. Can the strategy be easily explained? Explain it to me like a 6 year old.
  2. Is there an independently audited public track record and accounting?
  3. Are appropriate regulatory filings in place?

This hedge fund can’t say yes to any of the above. And yet the guy manages millions (just how many is wildly unclear, flying in the face of regulatory disclosure requirements). And he’s able to do so because people are people. We will never, ever stop hearing about this kind of stuff, because every single human being on the planet wants to believe that they’ve found the secret sauce. We are so susceptible to fraud it’s not even surprising anymore. We all want to think we’re smart enough or lucky enough or deserving enough to be with “the guy” who has it all figured out, who has the right algorithm, who knows the right people.

I hate to break it to you, but you’re not that smart or lucky or deserving, because it isn’t out there. People will keep looking and lose incredible amounts of money and lost opportunities in the process. Don’t be among them.

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