Madoff Now Makes Everyone with an Outstanding Record Look Suspicious
I am a fairly open person with my finances. Hey, I even publish my personal research on the Web. I think that puts me in the minority, but there are certain things that just have to be considered trade secrets. I can' t give away the whole enchilada. In looking through WSJ.com I came across the following story - Fairfield Extended Madoff's Reach: Fairfield Greenwich is emerging as a central player in helping Bernard Madoff extend his reach and raise billions of dollars world-wide.
I can see why sophisticated investors would not have invested with Madoff if or when he failed to articulate how he made his money. I believe I am rather transparent, though. The issue is that I would no more transparent if I were running money for others. The thought came to my mind earlier today as I started preparing for my taxes. The last two or three weeks have brought a nasty drawdown to my account, one that (in retrospect) I should have traded out of. I knew it was coming but I didn't want to generate any more taxable short term gains (lord knows I have enough tax liability as it is).
So, here I am at the trough of a very, very big drawdown (the same that I warned about it in my words of wisdom to individual investors) and my brokerage account says that I have a 465% time weighted internal rate of return since January 1, 2008 (I was in the high 600% range, to give you an idea of the profits that were recently disgorged). I have averaged roughly 50% cash for the year (in a bid to dampen volatility, although it significantly dampens my return to the song of about 50%) and I have used leverage for a total of about 2 weeks throughout the year.
Any outside investors who would press me on those returns would be directed to the rich documentation that I provided via performance marking, time stamped posts detailing the research returns, and the verbose description of my investment style. Any requests for additional data would probably be denied. I could always simple produce my actual trades and account statement, but I feel that would be pushing it. I would have been willing to have an auditor audit my results and vouch for them. This way I could have some privacy, and still express a modicum of veracity expressed through a third party. The combination of all of these would have made me more transparent than any mutual, hedge or investment fund that I know of, yet still I can see potential investors pressing for more.
Keep in mint that the much touted Warren Buffet showed very similar characteristics to that allegedly displayed by Mr. Madoff, see Warren Buffett: People Thought "I Was Doing Some Sort of Ponzi ...".