Barton Biggs Doesn’t Like Trend Following

Barton Biggs doesn’t like trend following much. Some feedback from a reader:

Michael, I asked for and received as a Christmas present Barton Biggs’ book “Hedge Hogging”. Barton makes it very clear in the introduction that the book is to be read for entertainment purposes and not lessons in trading. After reading pages 24 through 30 of the book I can see why. Pages 24 through 30 contain a discussion of his hedge fund’s short position in oil in 2004. The short position was taken, and I quote, because “We believed that much of the open interest represented speculative longs that were in the trade because of trend-following models. In other words, they were momentum investors who bought oil mindlessly (in our opinion), simply because the price was going up.” After that particular piece of fundamental wisdom I will definitely be reading the book for entertainment purposes only. Of course they lost money and, worse, they lost clients because of their oil position. They actually increased their short position as oil went up. If you’re going to trade fundamentals only then fine. The biggest danger to these fundamental guys (and some quant-driven guys) is that the more their position goes against them the more attractive it becomes and so they wind up throwing more money into a losing position (LTCM, anyone?). As a CFA charter holder, I find it especially appalling how few of these guys are able to recognize and resist the siren’s song (where’s the money management?) and wind up crashing onto rocky shores. Regards, Paul