"Running a hedge fund didn’t work out for Meredith Whitney, once one of the most famous banking analysts in the U.S. So she’s starting fresh at a Bermuda-based insurer.
Whitney has begun at Arch Capital Group Ltd., where she’s overseeing an equity portfolio that had about $800 million under management "
Sounds like a plan.
all $800 mil to her alone? definitely not. but it seems that “Whitney will oversee a portfolio with money allocated to about eight managers, including JPMorgan Chase & Co. and BlackRock Inc., Hutchings said. Arch’s investments include U.S. and Asian stocks.”
looks like she is in some manager role for the direction of the funds rather than completely being in charge of direction and execution which mitigates a lot of risk (hopefully).
There’s this school of thought in marketing that when product complexity is high, the consumer is amenable (vulnerable?) to unnecessary product and service add-ons. This is easy to see when thinking about the nightmare of buying a car and dealing with salespeople who aren’t listening to what you need and are more focused on selling you custom trim packages, versus the simplicity of buying say, true commodity items like salt and sugar (I’m ignoring the nonsense artisan varieties of each like pink salt or some specialty turbinado strain for this example and appealing to the microeconomics perspective of a perfectly competitive market here).
In investments product complexity is incredibly high for the average user of the product (i.e., the client). Even when intermediaries are involved, like say some financial advisor that has no hope himself of grasping the incredible sophistication involved with complicated strategies, the curve is just too steep. So people equate product complexity with a product being “good,” or run by “smart people,” and the human brain just gravitates towards the heuristics of complexity and celebrity. And it is in this environment that investment managers get nine lives – they can just fail and fail yet start over and find some sucker to buy into their next “great strategy.”
I am reminded of the satin bowerbird and their elaborate mating rituals which involves the male birds coloring their nests with primarily blue objects as they mature. Researchers have found that, in fact, the bluest nests allow the males to obtain the most mating dominance. This is true even when man-made junk like blue plastic trash scraps are woven into the nest structure – it doesn’t matter if it is natural or not. For the satin bowerbird, the more blue the nest the better. The moral of the story is, sometimes, adding garbage to a perfectly fine nest sometimes allows one bowerbird to be more successful than other bowerbirds, because all of the target bowerbirds are just confused into submission.
I would answer no.
But one of the weird thing about this industry, is that people who FAIL BIGTIME, keep getting another chance. I know a guy who crashed an entire market, like it’s in the history books, people just give you another chance…he failed again though. But no biggie, third time is a charm. 
^^See? I’m not sure what all that really meant, but it definitely helps to vault you to the top of the smart dude list.
Still seemed rather philosophical though. But in a smart way. Like, Sheldon smart.
Good points from DoW. That’s said, there are times of the year that I’m entrusted with more discretionary cash than that, and I’m way more hacksaw than Whitney. Mind you that’s just money market, but still.
I’ll take it.
Didn’t she start an advisory research shop ? Did that fail already?
I don’t see anything wrong with it in this capacity. She isn’t directly managing that amount, it’s split between 8 outsourced managers. She may not even have any direct investment input.
The total allocation only amounts to 5% of their portfolio. This is basically inconsequential except for publicity purposes. There are probably thousands of retail FAs/PMs that manage more than this.
As far as her performance, she underperformed, but she didn’t show a blatant disregard for risk management. There are plenty of active funds who have committed greater sins.
Sometimes a name like that helps in the capital raising part of things, which is an important enough task (esp in the beginning) to vault one to the top of the management team list. If she can raise capital and facilitate other connections relevant to the business but is kept far from he trigger pulling part of things, this may be one of the best advantages she can bring and really add value.
I also liked DoW’s comments, but am not sure what add-ons specifically apply here. I do agree that if you can dress up the investment complexity, the sense that insiders are doing magical incantations to make money (as opposed to mere insider trading or just excessive risk taking + survivor bias) can do a lot to sway interest (e.g. Bernie Madoff).
As for second chances, it’s interesting that in an industry that will refuse to hire people if they order espresso instead of water will give second chances to people who lose enormous sums of money. If you lose enough money, you become a household name in the industry, and that seems to be enough to let people give you a second chance, perhaps because people love the idea that there’s undervalued talent that just needs a chance to show that they have “learned their lesson.”
I suppose if the lesson was for technical or analytical shortcoming rather than genuinely fraudulent behavior, there is some logic to this. Given that we often learn better from experience and mistakes than from study, there are certain kinds of things you can only learn by losing a ton of your client’s money, so hopefully this is the sort of thing that partially immunizes you against future mistakes, a bit like surviving smallpox immunized you from contracting it in the future.
Usually, understanding one’s emotional makeup and managing your behavior is the sort of thing one might learn to manage better after a crisis, but if losing money just makes you more confused about how the world works or steels you to double down when it’s not appropriate, there’s no guarantee that the above learning will happen.
This is a reinsurer, don’t think there is much capital raising going on.
Why all the hate? This is an industry where next year’s performance is hardly at all correlated to last year’s success or failure. Ken Uston might lose twenty hands in a row, but I suggest you still put your money on him rather than the guy next to him that has been drinking and winning all night…So she underperformed. If she could consistently do that, you would hire her and do the opposite. But she won’t be able to. Her performance will fall in line eventually.
You can consistently underperform by generating 0 alpha and overtrading, yet if you did the opposite of their active choices, you’d still underperform.
You could beat that person by buying and holding the benchmark, but then you wouldn’t be doing the opposite, you’d just be ignoring them.
She made one (very) good call. She’s failed - in spectacular fashion - at every other call and job she’s had since 2007. Anyone remember that huge muni crisis? Me either.
I must admit that I am a little surprised that munis didn’t have the crisis she predicted. I don’t remember what my rationale was, but I remember feeling prety certain that munis were not a good idea back in 2009 (I think it was that property taxes were a major source of municipal revenue, and that these would get hammered in the housing bust – I guess the fed governemnt and states backed up their municipalities so that this didn’t happen, other than Detroit).
LOL yea she said there would be mass muni failures all across the US
^Even the Oracle said that he was going to stop insuring municipals.
In the world I see, zero alpha is outperformance. If execution costs are the only, or primary, cause of underperformance, I agree. The opposite will have the same outcome. But in the common underweight/overweight asset allocations, if someone can consistently underperform, that is actionable and has value. It is in fact alpha.
I loved that muni call. I bought shortly after her statement and made a quick ten percent. Scary really. That a bank analyst could move the entire muni market so significantly.