The Only Strategy That Is Repeatable

When I worked on Wall Street, it was the golden age of hedge funds. They were on the bleeding edge of finance in the mid-2000s, swashbuckling market pirates who did all kinds of exotic stuff to earn alpha for their investors.

There were about 4,000 of them at the time. There are much fewer today, and fees have come down considerably, as there has been a lot of competition and a lot of consolidation. But the thinking at the time was that the operator of a hedge fund was practically omniscient, with a massive advantage over slow money mutual funds.

That turned out not to be true.

I had the opportunity to meet dozens of hedge fund managers in the early 2000s. Some of them were impressive, but many of them had a primitive understanding of markets and risk management. Capitalism being what it is, the good ones are still around, and the bad ones disappeared.

But I have a firm belief that there are very few strategies in the markets that are repeatable. Over time, most of that edge will get arbitraged away. I will return to this in a moment.