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In the 80s and 90s Ravinder Mehra worked as a Fund Manager for a number of well known global fund managers and in 1996 established his own Vega Asset Management and in less than a decade had $12 billion under management with offices in key global financial centres. Impressive.
One of the funds, Vegas Select Fund, bet against bonds earlier this year which saw this particular fund’s value diminish from $US1.5 billion to $US1 billion in the space of a few months with most of the losses being in the last two months.
They were right for a while, but as we discussed in this column a few weeks ago USA bonds would rally and so they did (and may continue to do so albeit with some easing). But as bonds moved higher, Vega maintained its strong held view and hung onto their position until it became too painful and sold down in late September. But bonds then started to fall! Ouch!
Now we have all experienced this but when you get to a point of running a fund – made up of other people’s money – you reckon some lessons would have been learnt.
So don’t be too tough on yourself, but by the same token, it is worthwhile to recognise two important points here - worth reiterating to even the most successful of investors.
Firstly, be careful about placing a heavy bet against a major move in any market. Take a view by all means, but do not be so locked into it that you become intransigent.
Secondly, have a risk plan with stop losses that kick in before you lose a third of your capital.
Sounds straight forward but I still regularly talk to investors who either have a firm view of the market and/or do not have a risk plan.
They are skating on thin ice.
Enjoy the ride
Tom Scollon
Chief Analyst
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