farewell letter from hedge fund manager

Andrew Lahde's Farewell Letter
Andrew Lahde, the (briefly) storied hedge fund manager who returned 870 percent to investors last year by betting against the credit markets, has retired. His farewell letter below communicates no fondness for his trading brethren, the markets that enriched him, and the government that enabled the craziness from which he profited. The missive ends with a plea for George Soros to convene a convention of Wise Men and Women, for an Open-Source Government, and, finally, for the legalization of hemp as a low-tech, low-cost alternative source of raw material for products that are petroleum-dependent.


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Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would been entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say good-bye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, What I have learned about the hedge fund business is that I hate it. I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG,Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list of those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile,their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don't worry about my employees, they were always employed by Mr. Springer's company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life where I had to compete for spaces in universities and graduate schools, jobs and assets under management with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions.These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government.Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher.My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man's interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft's near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won't see it included in BP's, Feel good. We are working on sustainable solutions, television commercials, nor is it mentioned in ADM's similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So,why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other addictive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let's stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

wow, I wonder what he'll be doing in his free time!

whatever he wants:rasta:

Holy shit.

I think I love this man.

I don't have issue with anything he said in the entire letter. Not one thing.

Wow.

except for his definition of marijuana and hemp, it's a very nice farewell letter...it reminds me of president dwight eisenhower's farewell speech...it's a lot easier to tell the truth when you're bailing out of a corrupt system:

YouTube - Eisenhower warns us of the military industrial complex.

It would have been nice though if he would have accepted a little more responsibility for the mess he has brought to this country. Hedge fund managers and the futures market is 2 of the things that have made the biggest mess of our economy.
He likes weed thats great but he helped destroy the economy.

maybe he quit because of a guilty conscience

i would

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Originally Posted by maladroit

maybe he quit because of a guilty conscience

i would

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Giving the money away to worthy causes would be a nice gesture, but I doubt he feels that guilty.

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Originally Posted by maladroit

maybe he quit because of a guilty conscience

i would

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Rich people don't feel guilt. That's why they're rich. The combination of a person being not only rich but a good person is damn near impossible. Yeah I said it, rich people are bad people largely. Why? Greed. No one needs more than 5 million dollars in their life. Ever. Simple as that. Gimme 5 million and I'm set for life, as well as several people near me. But no, 125 million just isn't enough for some of these bastards.

He pointed out the reality of it all. Its a rigged game, and despite all of that he still won. What this man did was use people's greed against them. How can anyone try to deface this guy when all he did was play by the rules set forth? It is very easy to be sitting on the sidelines, or in front of the TV calling foul.

Why should he give the money back to the parents and people of ivy league schools who were so greedy as to super leverage in an attempt to gain even more? They made a bet, he called it and the rest is history.

Humanity failed, by pointing fingers at one another you tend to forget that. Nobody is above the crisis and its causes, nobody.

GoldenBoy, for once I absolutely agree with you.

rich people feel guilt, but like most poor people who feel guilt, they usually don't do anything about it, except maybe bite their nails or get drunk

hedge fund managers play by the rules, but the rules are unfair, and their speculation negatively impacts far more people than the parents and people of ivy league schools...they hurt people who don't have a single penny in the market, as was the case with the speculation on oil futures...the speculation on mortgage backed securities is currently hurting people who never had any equities or even a mortgage

in good times and bad, speculators are parasites who get rich without producing anything of value...it's the system we're stuck with, but we should regulate it to minimize the impact on people who aren't speculators

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Originally Posted by maladroit

in good times and bad, speculators are parasites who get rich without producing anything of value...it's the system we're stuck with, but we should regulate it to minimize the impact on people who aren't speculators

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You do realize you have just called anyone who puts money into the market without a sure fire clue on the future of their investment a parasite.

i believe there is an ethical difference between investing and risky short term speculation...we don't need regulations for investors...we need regulation for speculators

Very true. That stock market doesn't need to be so complicated. The should just do what they are supposed to do,sell stocks. And then all thats needed is a simple law that stocks have to be held for a minimum 6 months.

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Originally Posted by killerweed420

Very true. That stock market doesn't need to be so complicated. The should just do what they are supposed to do,sell stocks. And then all thats needed is a simple law that stocks have to be held for a minimum 6 months.

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A measure such as that would inhibit firms abilities to obtain capital in times of need. In doing so, stocks would falter to much lower levels than what we have seen.

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Originally Posted by maladroit

i believe there is an ethical difference between investing and risky short term speculation...we don't need regulations for investors...we need regulation for speculators

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Investing is risky. There is nothing different. Speculators are investors, it is how the business operates. By investing in anything, you are either speculating that it will go up or down. Speculation drives all markets, otherwise it does not work.

speculation is different than investing...for example:
people who invest in companies are buying equity in the existing products, profitability, productivity, and reputation of a corporation whose boards of directors they have a legal right to question...people who speculate on oil futures contracts are betting on a non-existant future price of a commodity they will never see, nor have a say in how they are managed

the time frame is different too, as noted above...risky speculation is short term - in and out like a bandit...there's a lot of corruption there in part because the regulators/investigators lag time exceeds the short term speculation time

Before I read the actual letter all I could think of was someone getting a letter like this in the mail:

Dear Mr.Mrs. ________,

This is Mr.Skippy from hedgefund mutual regarding your account.



WOOOOOOPS.

We screwed up.

Heres a coupon for Hot Topic.

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Originally Posted by maladroit

speculation is different than investing...for example:
people who invest in companies are buying equity in the existing products, profitability, productivity, and reputation of a corporation whose boards of directors they have a legal right to question...

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Again you miss the point. If i were to invest in ExxonMobil just 3 months ago, i might be doing so under the assumption that the stock price would go up. What has happened to the stock price as of late? Anyone who did so in that time frame above has lost (except for short sales) as of now.

I know of many people who are troubled by this very investment because they could not vision revenues dropping as they are. The thing that has saved XOM (look at the stock price) is the fact that many idiotic futures contracts are still obligated, even as they are called upon at this moment. There were many firms who purchased contracts much higher than the current market price of crude, but are still obligated to make that very purchase. THEY LOST!!!! The RTS (Russian market) is a great illustration of this concept...

This is an excellent example of how markets correct themselves. The ones who made overzealous moves got caught.

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people who speculate on oil futures contracts are betting on a non-existant future price of a commodity they will never see, nor have a say in how they are managed

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Again you missed the mark. For the most part, firms purchase futures contracts to stabilize their input costs at future times, mostly because they would be forced to enact abrupt changes in pricing if they failed to do so. Failure to do so would expose risk to shareholders, which is in itself a risky move. Your lack of understanding is showing once again...

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the time frame is different too, as noted above...risky speculation is short term - in and out like a bandit...there's a lot of corruption there in part because the regulators/investigators lag time exceeds the short term speculation time

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Hold on a second. You do know that most "speculation" is driven by firms that are reliant on a given commodity?

What does a firm do? Either speculate that the price of a given commodity such as crude will stabilize? Or do they speculate that it will jump in times of uncertainty. Either way it is speculation with concern to shareholders wealth. If i were you, i would study inverse relation to pegged currency. That way, you will gain a better understanding of commodities that are sold in specific denominations. Oil has declined because the dollar has jumped, just as oil jumped when the dollar declined.

Lastly, you fail because you view such trading activities as a zero sum game.

Golden Boy, unless you want to throw your money to the wind, an investor is supposed to be assuming the stock price will go up (which is determined by the demand for the stock, not necessarily by what the company is doing). Short selling is the only way to make money on buying high and selling low.

"For the most part, firms purchase futures contracts to stabilize their input costs at future times"

- that type of futures deal is part of legitimate corporate activity, and is a good use of the futures market...unfortunately, most of the oil futures contracts purchased during the recent 200% increase in the price of oil was by corporate paper entities that never see or use a drop of the oil they're speculating on...THAT is the pure speculation that needs to be regulated to stop those parasites from screwing the rest of us (including the firms that buy futures to stabilize their oil costs)

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Originally Posted by JakeMartinez

(which is determined by the demand for the stock, not necessarily by what the company is doing).

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That above is why all investment is truly speculation. Even if a company is a sure fire bet to make a steady profit, the possibility that it will not meet profit estimates is always present.

Unless there is actual clairvoyance, speculation is the driving force in the market place. And ill take your statement as that of agreeing with me...

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Originally Posted by maladroit

"For the most part, firms purchase futures contracts to stabilize their input costs at future times"

- that type of futures deal is part of legitimate corporate activity, and is a good use of the futures market...unfortunately, most of the oil futures contracts purchased during the recent 200% increase in the price of oil was by corporate paper entities that never see or use a drop of the oil they're speculating on...THAT is the pure speculation that needs to be regulated to stop those parasites from screwing the rest of us (including the firms that buy futures to stabilize their oil costs)

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The ones who made such purchases are being called as we speak. They now have to buy oil from producers for higher than market price. This is why markets correct themselves. Those speculators are losing their ass, or at least looking ridicules...