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Swinging for the Fences

Recs

10

May 31, 2012 – Comments (1)

Board: Macro Economics

Author: yodaorange

If I had to pull a number out of the air, I think most METARites would be happy earning the historical stock market return of ~10% per year. Some might reminisce about the good old days of the 1990’s and plan for 20% per year. The low returns of the 2000’s might have caused some to lower their goals to say a consistent 7%.

Some hedge fund managers are cut from a different cloth. Somehow through genetics and/or training they are only happy with much higher returns, say greater than 20% per year. Possibly the London based JP Morgan trader, Bruno Iskil, that put on the multi-billion losing trade had this swing for the fences approach. The approach had been successful for many years until this trade went bad.

The magazine “Absolute Return + Alpha” has a fascinating story of a swing for the fences hedge fund manager named Michael Geismar. Geismar is the 41 year old co-founder and president of the $4.6 billion managed futures firm, Quantitative Investment Management. The story sounds like one of those urban legends that grow each time it is retold. In this case, the author claims that the facts have been verified by multiple eye witnesses.

Our friend Geismar attended a hedge fund conference called SALT earlier this month in Las Vegas. In between sessions, Geismar decided to play a few rounds of blackjack. Geismar is not a card counter, but has followed the work of Edward Thorp who was detailed in the book Bringing Down the House: The Inside Story of Six MIT Students Who Took Vegas for Millions.

Geismar first sat at the blackjack table on Tuesday, May 9th, with $300 in cash. He promptly borrowed $10,000 from the casino. Nothing like 33 to one leverage to help boost your returns.

On Friday, May 11th, Geismar played his last hand at the Bellagio blackjack table. He left after winning $710,000 in three days. And this was after giving $1,000 tips to the dealers and others at the table. The dealers reaped over $10,000 in tips during his run.

Suffice to say, Geismar is not welcome back at the Bellagio.

The story reads like one of the “Ocean 7” movies, except they are fiction and this is real.

Turning $300 into $710,000 in three days requires skill IMO and cannot be accounted for as a random walk. I think there really is something different about Geismar and his ilk. Several hedge funds do NOT look for fancy academic backgrounds, but instead hire based on how well the person plays poker. One hedge fund trader, Boaz Weinstein, is largely on the other side of the failed JP Morgan trade. Essentially he broke JP Morgan. Weinstein has also been banned from the Bellagio for beating the house. He was also a chess master at age 16. Maybe instead of reading and studying Macro Economics, we would be better served honing our blackjack/poker skills.

Geismar and Weinstein manage money a little differently than I do for the widows and orphans funds. . .

Thanks,

Yodaorange



Link to the short article about Geismar:
http://www.absolutereturn-alpha.com/Article/3035947/Michael-...


Link to medium length article about Weinstein:

http://www.nytimes.com/2012/05/27/business/how-boaz-weinstei...

1 Comments – Post Your Own

#1) On May 31, 2012 at 5:56 PM, Option1307 (29.99) wrote:

Really great article, thanks for sharing! +1.

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