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HomeFatal Character Flaws Bring Down Wall Street Titans
Posted by Larry Doyle on October 20th, 2009 8:49 AM |
Raj Rajaratnam
How is it that an individual with untold hundreds of millions of dollars in wealth could put himself in a position of risking it all?
Welcome to the world of Raj Rajaratnam, the owner of the hedge fund Galleon and the major kingpin arrested in the most recent insider trading scandal to rock Wall Street.
Who is Raj Rajaratnam and why would he take such professional risks? We learn about Rajaratnam from a London based financial site, Here Is The City:
He was born in Sri Lanka, attended S. Thomas’ Preparatory School, Kollupitiya, then moved to England to complete his schooling, and studied engineering at the University of Sussex. Rajaratnam earned an MBA from Wharton in 1983. He is married with three children.
Rajaratnam, a Tamil self-made billionaire hedge fund manager, is the 236th richest American according to Forbes (2009), with an estimated net worth of $1.8 billion.
The hedge fund manager started his career as an analyst at the investment banking boutique Needham & Co., where his focus was on electronics. In 1991, he became the President of the bank at the age of 34. At the company’s behest, he started a hedge fund, Needham Emerging Growth Partnership in March 1992, which he later bought and renamed ‘Galleon’.
Initially invested in technology stocks and healthcare companies, he says his best ideas come from frequent visits with companies and conversations with executives who invest in his fund.
He has made more than $20 million in charitable donations in the last five years. In September 2009, Rajaratnam pledged to donate $1m to help the Sri Lankan government with the rehabilitation of former LTTE combatants. He has also donated generously to clear land mines in the war-affected areas in Sri Lanka, and was also a contributor to various causes that promoted development in the Indian subcontinent and programs that benefited lower income South Asian youth in the New York area. (more…)
Beware of Money Managers ‘Talking Their Book’
Posted by Larry Doyle on October 5th, 2009 9:02 AM |
“Oh, come on, Larry, you are just ‘talking your book.'”
I can hear those sentiments ringing in my ears from many Wall Street salespeople with whom I dealt over the years. What trader doesn’t talk his book? For those unfamiliar with this phrase, it is used when a trader or money manager offers a heavily biased view of the market and economy. While it would be naive to think that individuals aren’t biased by their business in developing their opinions, the challenge for investors is to weigh the opinion in light of the bias. To do otherwise would be the equivalent of flying blind.
I see evidence of ‘talking one’s book’ in commentary provided by Bloomberg, Stock Seers Say Gross 5% May Only Be Normal In Debt,
Wall Street projections for the fastest U.S. profit growth in two decades are putting some of the biggest equity investors at odds with Bill Gross.
Money managers are betting that more than two years of declining earnings, the longest stretch since the Great Depression, will end in 2010 when net income rises 26 percent before expanding 22 percent in 2011, according to data compiled by Bloomberg. Gross, who oversees the world’s biggest bond fund at Pacific Investment Management Co., says the economy won’t grow fast enough to sustain the steepest rally since the 1930s and equity returns will be limited to 5 percent a year.
Both Gross and the equity managers are in a perpetual battle for investor assets, the lifeblood of any money management operation.
One would be ill advised not to study the opinions of those involved in managing the largest equity and bond funds in the markets. These funds can move markets given their very size. That said, we need to weigh the manager’s opinions in the context of a wide array of other vastly more important variables. What are these variables and how do they impact my thought process in making investment decisions?
I initially develop an opinion about the economy. From there, I think about respective weightings I would like to allocate to different segments of the market (equities, bonds, cash, real estate, alternative assets). At that point, I review money managers to select those whom I deem to be the best. Only at that juncture would I seriously consider the thoughts and opinions of the money manager so I can most effectively make investment decisions.
I will often immediately dismiss money managers who have never offered opinions which run counter to their business.
Talking one’s book is not necessarily a bad thing. In fact, I would seriously discount a money manager who is not able to make a compelling case for his business. That said, as investors we need to be able to minimize the static and eliminate the noise that comes from managers ‘talking their book.’
LD
Caveat Emptor
Posted by Larry Doyle on February 25th, 2009 8:49 AM |
The equity markets across all sectors have gotten off to a very rocky start for 2009 (down 15% on average). In the midst of that, a lot of institutions and individuals have fled to the safety of short term government funds, money market funds that now benefit from a government backstop, and other cash alternatives. On average, these investments pay Wall Street and fund managers perhaps anywhere from .1% to .3% of the assets being managed. Those fees will not make the managers rich anytime soon. How do they respond? Welcome to the world of “principal protected notes.”
These structured notes are marketed to track an underlying index (say the S&P 500) while guaranteeing no loss of principal. Wow. Sounds like a great product. Where do I sign? Well, hold on just a second. I am not stating that structured notes do not have some degree of merit, but one needs to be very cautious in fully understanding how these notes work before purchasing. (more…)
