#233: Just Do It – Mike

Its Friday; here is a philosophical thought for the week.

You can never know all the answers before making a decision. Most of the time, you don’t even know the questions to ask. When you enter into a marriage, you don’t know how you are going to run the house exactly or bring up your kids until you encounter the challenges and tasks at hand.

My advice with whatever choices you are facing is: Once you have done your homework – Just Do It. Be ready to internalise (a very important part of the process) whatever you learn along the way and then make the choices that you need to get to your objectives.

S2N Spotlight

I came across a zinger of a Bloomberg article the other day. When it comes to the major multi-strat hedge fund players, they have something called passthrough fees. I am embarrassed to say I had never heard of the term; that is probably because I don’t have the money to invest with the biggest names in the world. The likes of Balyasny, Citadel, Millennium, to name a few.

Essentially, what this means is that these managers forgo the typical 2% management fee and charge the fund investors the costs of running the show.

In 2023, the main hedge fund at billionaire Dmitry Balyasny’s eponymous firm notched a gross return of 15.2%.

Investors walked away with a gain of just 2.8%. The rest they paid in fees—more than $768 million—mainly for compensation but also a wide variety of other costs down to mobile-phone service.

“There is no limit on the amount of passthrough expenses that may be charged,” Steven Cohen’s Point72 wrote in a 2020 filing, the first year it used that language. The fees are generally expected to increase as fund performance improves. But they “are expected to be substantial regardless of the performance.”

Multistrats kept 59 cents of every dollar they made for investors in 2023, according to a BNP Paribas report. That was up from 46 cents two years earlier.

My takeaway is that we are living in a financial world where you can access sophisticated strategies via ETFs and the like for tiny fractional costs. It is hard to see how these large multi-strat firms can continue to perform and retain investors with the kind of cost drag these funds experience.

The markets are being democratised but they need experienced advisors at the helm. Its my pleasure.

S2N Observations

The PPI (producer price inflation) numbers were released yesterday. Prices continue to rise.

In case you missed it, egg prices are flying to new all-time highs. Bird-flu worries.

I shared this analog with the 1970’s inflation a few months ago. It is timely as inflation numbers were updated over the last 48 hours.

If the past repeats itself, then we are likely to see another major runup in inflation. That is my bet.

Interestingly and not all that surprising, gold adjusted for inflation has finally made an all-time high. You are meant to be looking at the green line.

Gold is definitely enjoying excellent momentum quietly doing its business, unlike its loudmouth cousin Bitcoin.

The German DAX is making all-time highs with lots of momentum. Take a look at how far ahead of its 200-day moving average it has gotten. Momentum buyers will be climbing in, not me.

S2N Screener Alerts

19 days in a row, META stock has been rising for another record. This happens to be the longest up streak for any of the magnificent 7 stocks listed on the US markets.

I bet you weren’t expecting Russia to be the strong performer that it was yesterday. I believe we are closer to the war ending than we have been for a long time. For more than 10 years I had an office in Kyiv and visited regularly. I am sure not all will be happy with what is being proposed, but that is not for me to comment on.

The Russian Stock Exchange is having a very strong 2025. Yesterday was a strong 3-sigma up day with a return >9%.

The Rouble also got a nice bid. I have been reading Tolstoy’s War and Peace for more than a year between many other books. It sits on my pedestal, hogging so much space at 1440 pages. It is far stronger and cheaper than Stilnox. I am a sucker for classics. I suddenly feel the urge to read it tonight.