By Jonathan Hoenig's definition, being greedy means never having to say you're sorry. Indeed, the founder and portfolio manager of Capitalistpig Hedge Fund has nothing to be apologetic about: His fund scored a 30.11% return last year and has been profitable nine of its 14 years.
Greed is good, insists the Gordon Gekko-inspired, Ayn Rand-loving Hoenig, 38, whose version of pigging out is hungrily pursuing what one wants out of life — in his own case, profits and big capital gains. He claims that his was the first hedge fund to advertise after the ban on soliciting investors was lifted two years ago.
A panelist on Fox News Channel's "Cashin' In," Hoenig is spunky, blunt and skilled at debunking the popular belief that hedge funds are harmful to the markets. At his computer, he assiduously homes in on price action and just as diligently tunes out market noise. His biggest equity holding right now? Egypt.
The Chicago-based portfolio strategist manages $22 million in assets under Capitalistpig LLC. His fund is open only to accredited investors with a liquid net worth of more than $1 million. The minimum investment is $150,000.
So wedded is this vocal cheerleader of individual rights and free-market capitalism that he gives every new client a copy of Rand's "Atlas Shrugged." Hoenig holds Rand's objectivism philosophy near and dear.
He started out with a college radio show preaching the gospel of investing to fellow students. Then, three credits shy of a degree, he quit Northwestern University to realize his dream job: trading an account on the Chicago Mercantile Exchange. He worked there and at the Chicago Board of Trade for two years, carrying over the pig theme in a book, "Greed Is Good: The Capitalist Pig Guide to Investing" (Harper Business 1999). By age 23, he had launched his fund.
ThinkAdvisor chatted recently with the Glencoe, Ill.-born financier — an early supporter of the Tea Party — about his investing strategies, his radical ideas for the American economy and why those bashed and trashed hedge funds deserve a place in a diversified portfolio.
Your fund has chalked up a return of 379.27% since its inception 14 years ago. What's behind your investment strategy?
"Cut the losers, let the winners run" is our mantra. The point isn't to be right — but to make money. So the strategy focuses much more on investment technique rather than prognostication.
What is Capitalistpig invested in right now?
Egypt is my largest equity holding. We're in a number of long and short strategies designed to profit regardless of the economy or overall direction of equities. That includes long positions in base metals, African stocks and select international shipping equities. We hold short positions in retailers, bonds, preferred stocks, REITs, as well as put options on a number of broad indices that function as "correction insurance."
Let's talk about being greedy. What does the "Wall Street" movie catchphrase, "Greed is good" mean to you?
I'm absolutely a proponent of greedily pursuing your self-interest, whether it's making money or anything else. People should be greedy for what they want out of life and take every step to achieve it.
Is the bad rap about hedge funds unfair?
Hedge funds are besmirched as unregulated, gun-slinging time bombs waiting to blow up the economy at any moment. In today's culture, they're like a persecuted minority. G.M. went down? It's hedge funds. Oil prices going up? Hedge funds. Stocks volatile? Hedge funds. They're blamed for everything. People in my business constantly hear that speculation is evil and immoral.
Hedge funds are said to be largely responsible for the financial meltdown. Are fifty-million Frenchmen wrong about that?
Without question, hedge funds and financiers were blamed for the financial crisis. But in reality, it was very much the opposite. The mythology has been that hedge funds and speculators caused the 2008 collapse and market turmoil, when in actuality, hedge funds have been a tremendously beneficial element of the capital markets and for the millions of investors who have participated in them.
What caused the crisis?
It was the regulated elements of the financial system – all controlled, either explicitly or implicitly, by government – that blew up and took the rest of the economy down with them. Hedge funds are one of the few parts of the financial sector that didn't ask for a bailout, didn't get a bailout and were the ones who went in and bought so many of the quote-unquote distressed assets that people wanted to unload. Hedge funds not only survived the crisis but helped to rebuild afterward.
What matters most to your investors?
I always joke that they don't care how I make them money. They're not committed to any one asset class. They want a consistent return over time and, ideally, something that can zig when the rest of their portfolio is zagging.
How risky is that?
We believe in taking risks, but in a smart way. That's what money management is. We try to seek out alternative strategies. For example, most financial advisors, I believe, would be very leery to recommend putting their clients into Egypt — that's the kind of thing that can get them fired. But it's our biggest trade right now.
Are financial advisors adding value?
Unfortunately, the regulatory environment is making life quite difficult for them: it's like they're guilty until proven innocent. They have to be very careful about what they can say and how they can practice. But I see many who don't do a great job because they put their clients' portfolios on auto-drive and don't follow up, all the while telling them to hang in for the long term.
How does that compare with your approach?
While many money managers are in a plane waiting on the tarmac at O'Hare or out to lunch with clients, what I'm doing all day long is sitting on my ass in front of a computer watching people's money. I'm making trades, allocating assets, being aware.
And the others aren't doing that?
A lot of money managers are [primarily] asset gatherers, and that's where they focus their time. But many clients expect their financial advisor to review their portfolio on an even semi-regular basis. Too many money managers don't spend enough time monitoring and managing money. I wish more advisors were proactive.
In what way?
For instance, going back to 2000, what percentage of clients had gold in their portfolios? Very little, I would venture. Now, 14 years later, most advisors have finally come around to the idea that "Gee, maybe you should have some commodities as a diversification." I'm not recommending it; I'm just saying that it took gold moving from $250 an ounce to $1,700 an ounce.
Anything positive to say about advisors?
