Goldman Global Alpha Fund Fell 22 Percent in August

[Soultrader 12]

Article here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aNuaC.IG9pWs&refer=home

 

"We still hold our fundamental investment beliefs that sound economic investment principles coupled with a disciplined quantitative approach can provide strong uncorrelated returns over time,'' Goldman said in the unsigned report.

 

Wait... didnt they say this about the Global Equity Opportunities quant fund when it lost 28%?

 

"Goldman blamed its losses on too many quantitative funds making the same trades, and said in mid-August it would have to develop new strategies."

 

You would expect Goldman to figure this out before losing money. Ive had it with funds blaming liquidity problems, other quant funds, etc... Didnt we all learn in trading that we must be reponsible for our actions?

 

Alot of hedge funds seem to be still losing money. Bank and securities numbers are coming out this month with fed rates next week. Are we likely to see further decline if these funds start unwinding their positions? Expect a volatile week next week. Should be a whole lot of fun for private traders. You get to take the big boys (funds) money!

[Nick1984 10]

You should rename this thread...When Automated Systems go Wrong during Income Distribution Quarters!

 

Those guys got hit hard when the markets turned against them and their rigid systems couldn't cope. Then on top of that they are up for income distribution payments to investors at the start of the September quarter.

[Dogpile 10]

something smells. these guys had many, many different strategies on and they all went bad? doesn't sit right. its like a 20-team football parlay hitting a $10billion fund.

[thrunner 10]

You would expect Goldman to figure this out before losing money. Ive had it with funds blaming liquidity problems, other quant funds, etc... Didnt we all learn in trading that we must be reponsible for our actions?

.......... Should be a whole lot of fun for private traders. You get to take the big boys (funds) money!

If only if it is that easy, GS had one of the best quarters ever .... the press has a way of reporting at a time when it is the worst to take a position based on the reporting .. that is by the time the retail reader gets the news and acts, it is usually the time to fade (trade against) the retail. The only thing you should do is to trade the price action and not what some press or guru says is the news.

 

Commentary: Goldman Sachs textbook case of contrarian analysis in action

By Mark Hulbert, MarketWatch

Last Update: 12:01 AM ET Sep 21, 2007

ANNANDALE, Va. (MarketWatch) -- The time to buy, Nathan Rothschild famously said, is when the blood is running in the streets.

But how to put this apocryphal advice to actual use? What does it look like in practice?

For an answer you need look no further than what Goldman Sachs Group Inc. did in mid August, when it looked like the capital markets might dry up completely and the stock market appeared to many to be on the verge of a meltdown.

The blood most definitely was running in the streets.

So what did Goldman do? It invested $2 billion (that's billion with a "b") of its own money in one of its hedge funds that was hemorrhaging. See Aug. 13 story

The payoff? Its $2 billion investment has grown by a cool $320 million in the short time that has elapsed since then a 16% return in just one month.

In the newsletter arena, the closest analogy to Goldman's contrarian coup, at least that I can think of, is what the late Al Frank did on Oct. 20, 1987. Frank was the editor of The Prudent Speculator, and his letter's model portfolio, like most hedge funds today, was highly leveraged. (The newsletter is edited today by John Buckingham, who employs much less leverage than did Frank.)

And Oct. 20, 1987, of course, was the day after Black Monday, the worst single-day crash in U.S. stock market history, with the Dow Jones Industrial Average falling some 22%. Frank's highly leveraged portfolio fell 57% on that day alone, according to the Hulbert Financial Digest's calculations.

That's a whole lot of blood.

What did Frank do? Far from running for the hills, which was what almost everyone else was doing, he urged subscribers to buy.

That took guts, and his newsletter's ranking was amply rewarded for having them.

Since then, the Prudent Speculator is far and away in first place for performance among the newsletters tracked by the Hulbert Financial Digest. Over the nearly 20 years since Frank's post-Crash buy advice, the newsletter's portfolios have gained 3,857%, in contrast to "just" 825% for the Dow Jones Wilshire 5000 index On an annualized basis, this is the difference between 20.4% and 11.9%.

To be sure, opportunities such as the one facing Al Frank in October 1987, or the one facing Goldman Sachs last month, don't come along every day. An integral part of the job of being a contrarian is being patient, waiting for those occasions in which panic has come to dominate investor emotions and brought prices down to fire sale levels.

Being a contrarian is not for the faint of heart. But outsized profits can be earned by those who have the fortitude. End of Story

Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.

[Soultrader 12]

Yea they came out with strong earnings mainly from their investment banking. They also made good money betting against the credit crisis. So basically they just robbed Bear Stearns

[Dogpile 10]

<<So basically they just robbed Bear Stearns >>

 

The Goldman Sachs prop traders also basically robbed the Goldman Sachs Alpha Fund. Alpha Fund was -30% and Goldman Sachs trading desk kicked serious arse. Feasting on your own -- a Wall Street tradition.

 

I really have to think there is more to the story of the Alpha Fund than meets the eye. It really doesn't make sense to have 2 very, very smart guys running many different strategies and they all go bad at the same time.

The fund was designed to have uncorrelated strategies and they somehow ALL got correlated. These guys either totally dropped the ball in execution of their top-down strategy -- in which case they should be fired -- or something very major happened here that is non-public, material information. This one just doesn't add up.

[torero 10]

Unexpected events do happen. I don't think they saw the subprime problem and hasn't happened in a long long time (I may be mistaken here) due to laxed legislation over the industry. I think credit liability has never been this extended. Be that as it may, even it comes to crashes or mini-crashes, many strategies don't take this into consideration to minimize the damage. LTCM was caught in a tech bubble burst, something that's happen before but not 9/11 to push it down further. The other issue is size, elephants can't drop pop without others smelling it, especially dung bettles. It takes a while to unload else others will catch on and make the situation worse. So instead of 30%, could be 50% or more.