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Someone raised a very interesting question - why would people continue
to hold substantial assets with a bear fund that is down 50% in the past
five years? A few possible explanations:
1) The supposed negative correlation of such funds theoretically should
reduce overall portfolio volatility, although who cares about volatility
when you're down 50%?
2) Some investors are contrarian by nature and don't want to admit being
"wrong", which is the greatest curse for a trader.
When 25 year old Matt Berger was promoting his Manhattan Hedge Fund
during the 1990s with the professed strategy that he would be shorting a
lot of the high flying New Economy stocks, he ended up having to
generate false return reports because he was (not surprisingly) getting
hammered. The Nasdaq was up 85%+ last year, and he was reporting a
positive return, and his investors BELIEVED HIM.
Why would they do that? Because they wanted to maintain faith in one of
the great pillars of American thought: that it is possible to make great
profits by bucking the trend, and when the public is the most bullish,
that is when the most money may be made.
Unfortunately, trends do occur, even in the Nasdaq, and the market will
make people pay the full price for their stubborness.
Just my two cents.
Michael Strupp
Now appearing at the University of Chicago!
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