El-Erian Is Right
March 28th, 2008 by Buck Woodford
With 2008’s first quarter ending soon, I certainly would rather have made a ton of money for clients rather than having basically broken even.
When in doubt, our philosophy has been to reduce the risk we’re willing to take, both on any one trade and the overall exposure levels across the portfolio, rather than try to be a hero.
It’s certainly sexier to take a big bullish stand in dire times like this. Those in the “opinion” business can afford to call the bottom again & again.. by a month later people usually forgot how wrong the analyst was as he “re-iterates” his opinion. Eventually those folks may get it right, after many tries.
But when cold, hard losses are involved, your constituents are not (or should not be) so forgiving. That’s why serial bottom-calling is no way to run an investment management firm with vested interests in taking their clients’ assets to new high values as often as possible.
It doesn’t mean we aren’t actively seeking new opportunity — but we are certainly following advice from Mohammed El-Erian, who noted when leaving as Harvard’s endowment fund chief to return to bond giant PIMCO in August 2007:
“Those that did best the last few years were those who bought liquid assets and levered up. The next few years will belong to those who prudently manage risk.”
Prescient timing, my good man.
