Investors face a conundrum. Funds seem most attractive when their track record is at its best - and about to decline
Saturday 29 July 1995
All professional investors are faced with the conundrum that the most money comes in when your recent track record is at its best - which, more often than not, is exactly the moment when your future performance is about to decline. That is why recent performance figures can be so misleading.
As one of the most successful traders and hedge fund operators, George Soros undoubtedly knows these truths better than most. Three years ago, the New York-based speculator achieved notoriety when his flagship Quantum Fund made an estimated pounds 1bn out of betting against sterling on the foreign exchange markets.
Since then, his record has been poor, down 6 per cent this year by the end of June. All this in a year when the stock market in the US has been booming and every Mom & Pop investor has been coining money from stocks and shares, whether or not they know what they are doing.
This year's darlings of the American press are the Beardstown Ladies investment club, a group of one-time investment ingenues from the south- west of Chicago whose pooled investment funds, started for a bit of a laugh, have been beating the professionals hands down. A book about their exploits has been in the New York bestseller lists for weeks.
Nor is Mr Soros's embarrassment unique. One of the most notable features of the last two years has been how many fund managers with a previously impeccable record in the professional investment arena have seemed to lose their touch. Most, like Mr Soros, were badly caught out by the sudden and dramatic reversal in the American bond market last year.
As the biggest securities market in the world, the bond market inflicts proportionately greater losses on those who get it wrong than any other. It too can have violent mood swings.
It is not entirely a surprise that Mr Soros should seem to have lost his touch. Hedge funds, such as the ones he runs, use a lot of borrowing (gearing) to raise their potential returns and typically do a lot of short selling too - betting that prices will fall as well as go up. Inevitably, they are more volatile.
One little-known fact about Mr Soros is that his experiences with speculating on the UK economy have not been all good. In 1981, the worst year in his fund's history (down 23 per cent), he took a disastrously wrong view on British gilts prices. He lost half his investors and nearly went out of business.
Will Mr Soros recover his lost touch? I expect so, but maybe not just yet. According to research quoted last week in Barron's, the Wall Street weekly, being featured on the cover of Time magazine is a normally reliable indicator that your fortunes are going to take a turn for the worse. We shall see.
25 October 2014 12:38 AM
'A third extra for free', gift sets, recommendations for a present for Grandpa - just some ways to make you pay more than you intended
17 October 2014 07:45 PM
The ethical investment industry is giving itself a makeover, but the problem seems to lie more with getting its message and its methods into the mainstream
17 October 2014 07:08 PM
Going down the wrong road: parking fines are nudging people into debt difficulties
17 October 2014 07:58 PM
Stacks of income: Drax is among the companies in Neil Woodford’s portfolio that he believes will pay strong dividends
17 October 2014 07:23 PM
Don't panic, it’s a wise idea to check investments regularly to ensure they are on target for your hoped-for returns
17 October 2014 08:18 PM
With little or no wage growth being seen in the UK, increasing house-price inflation could see the number of first-time buyers slide further, unless there’s a new accelerated house building programme
17 October 2014 07:19 PM
You should ignore the headline offers and trickery and work out the total cost of borrowing under different deals
17 October 2014 07:24 PM
Denise Leigh, who appeared in a production of Rigoletto with Alan Opie, was left without an essential service
10 October 2014 06:13 PM
A charity has calculated the cost to us all of unmanageable debt – from lost productivity to the extra demands on the NHS
10 October 2014 06:36 PM
The regulators are at last tackling the high-profile payday lenders, but they appear to be ignoring the growing problem of internet loan firms
10 October 2014 06:35 PM
As the cold weather hits, the question of soaring bills will be felt by each of us at home
- 1 Revolutionary lost Caravaggio painting 'Mary Magdalen in Ecstasy' identified
- 2 McKamey Manor: This 'extreme' haunted house is the stuff of nightmares
- 3 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 4 Watch what happened when food critics were unknowingly served McDonald's
- 5 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
Poppy Appeal 2014: This is why I won't be wearing a red poppy this year
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village