How to be superwoman

There’s only one correct response to the Madoff affair - to laugh like a drain. Nicola Horlick’s response, however, has been to call for tougher regulation. Lex is right to call this disingenuous.
There’s one thing here that puzzles me, though. In better times, Ms Horlick said of Madoff:

He is very, very good at calling the US equity market. This guy has managed to return 1 per cent to 1.2 per cent per month, year after year after year.

This is weird. The first sentence is contradicted by the second. If a guy were honestly very good at calling the stock market, you’d expect higher but more volatile returns. This is because sometimes he’d correctly anticipate a big rise whilst occasionally he’d get the direction wrong and lose; no market caller is near to 100% right. And it‘s vanishingly unlikely that a trader could change his (ex ante!) gearing to the market accurately enough to achieve such smooth returns.
Which raises the question. How come she got a reputation as superwoman?
Here’s a theory. I’m not saying it explains her success at all. I’m just saying that it’s a way for a woman to become a successful fund manager.
It starts from the fact that the stock market is highly seasonal. In the last 20 years, the All-share has returned an average of 8.5% between November 1 and April 30, but only 0.7% between May 1 and October 31. During this time, losses during the six summer months have been twice as frequent - six of 20 times - as losses over the winter.
So, let’s say a fund manager was overweight in high beta or cyclical stocks - those that do especially well in winter and especially badly in summer. She would then out-perform her peers in winter and under-perform in summer.
But what if she took maternity leave in summer, leaving her fund to be managed by a deputy? It would then look as if the fund out-performed only when she was in charge, and under-performed when she was away, even if she had no skill at all but was merely irrationally permanently optimistic about cyclicals and high beta stocks.
Conversely, if she took maternity leave in winter, she could overweight defensive stocks, which do relatively well in summer and badly in winter.
Voila, superwoman is born.
As I say, I'm not saying Ms Horlick did this. But if I were a woman fund manager, it's what I'd do.

Comments

[Alex]

What, every year?

[Luis Enrique]

pretty exhausting having one baby each year though.

[chris]

You don't need a baby every year. 2 or 3 at the right time will suffice to establish a reputation. And once you have a reputation, groupthink, herding, the heuristic of social proof and the confirmation bias will alllow you to maintain it, even with only moderate performance.

[ajay]

Hence the old US investors' rhyme "sell in May and go away, Come back after Labor Day".

[Adam]

If she can guarantee the timings of her pregnancy to produce a baby in the summer then she is a superwoman.

[griswold]

She had a couple of good years in the bullmarket whilst at Morgan Grenfell/Deutsche Bank(Remember Peter Young). Colleagues did not rate her.Took the press with her to Frankfurt. She was a Hello girl before Hello first published. Wrote her own script. Wrote the book. Self publicist.

Madoff's rock steady returns over a decade or more and his refusal to explain his methodology screamed fraud. Why would you tens of millions (and in the case of the bank billions) without interviewing the principle fund manager. The funds were an convenient way of Madoff getting distance between him and the investor but likes of HSBC/Man/Santander/RBS should have demanded access to Madoff on site. Then perhaps they may have noted that he used a single partner account to do the books of the trading company where all the activities were undertaken.
Bramdean Alternative Investments appears to be selling at a big discount to last NAV taking into account a complete w/off of Madoff holding. I suspect Bramdean is dead woman walking and that in due course the company will be liquidated and proceeds returned to shareholders.

[gdr]

You don't have to be a woman to do this; men get paternity leave.

[Dipper]

1. I'm surprised that more has not been made of the claims of fraud by Madoff that existed as far back as 1999 and why these were ignored.

2. A former colleague used to regularly trot out the fact that Isaac Newton lost money in the south sea bubble. Intelligence is no defence against a bubble or, in this case a fraud. And who am I, sat here with my RBS shares, to argue?

[Dipper]

Isn't this a case of poor regulation being worse than no regulation?

A parallel is Local authorities investing in Icelandic banks: If you were in a local authority and charged with investing the ratepayers funds, consider your response to the following two government guidances:

1. You should spread your investments across many AAA rated deposit takers to avoid concentration risk, and try and get as high a yield as possible.

2. You should spread your investments across many deposit takers to avoid concentration risk, and try and get as high a yield as possible. You are responsible for assessing the risk of the institutions.

I think the chances of investing in Icelandic banks are much higher in 1 than in 2.

[Dipper]

http://en.wikipedia.org/wiki/Ferranti#Acquisition_of_International_Signal_.26_Control

[Frank H Little]

Ok, we've had the cock-up theory, how about conspiracy? Early investors in Bernard Ganeff's vehicle began to realise that it was a Ponzi scheme. In order to protect their income stream, they gave him publicity to draw in more suckers, with the intention of withdrawing their original deposits in small tranches.

Not that I am suggesting that Nicola Horlick was one of these. And she does have an above-average family.

[Alan]

The link to Ms. Horlick's article in timesonline is no longer working. I guess the newspaper removed the article.

[Jade]

That sounds rather too close to "She's a female, so obviously she could only have got good results by cheating."

[Alex]

Yes, Jade; see Chris's epically wankerish "Against women" for further material. It's a case of "In Slow News Day, Blogger Resorts to Cheap Sensationalism".