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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Michael Bakunin who wrote (78846)	3/30/2000 6:03:00 PM
From: BGR	Respond to of 132070

mb, I said nothing about active investing per se. Risk and expectations were something I tried to underline, but seems that I have been unsuccessful. I am still 1) 100% invested, 2) overwhelmingly longer on S&P500 than NASDAQ100, 3) moving money from via DCA from S&P500 to NASDAQ100 and 4) putting new money into NASDAQ100. Why do you ask? :-) -BGR.

To: Michael Bakunin who wrote (78846)	4/3/2000 2:19:00 PM
From: BGR	Read Replies (2) \| Respond to of 132070

Michael, Your comments about Julian Robertson had me thinking, and I did a little research to see what his performance looks like. I summarize in the following few paragraphs. Over 20 years, he achieved an average annual return of 25%, vs. 18% for the S&P500 (both rounded). A thought flashed to my mind about the possibility of confusing brains with a bull market, but since I am sure that you are not easily confused by such matters, I let that rest. Then, I did a little more research about JR's style and found that he has been a regular user of leverage. so I decided to add a little leverage to the S&P500 portfolio as well, to bring the beta up (I couldn't find out what the beta of JR's portfolio was). I wanted to play it safe, and never trigger a margin call over these 20 years despite the worst market crash, so for each 60 dollars invested, I decided to put in borrowed capital of 40 (this is reportedly several times less that the amount of leverage JR used to employ). Assuming a margin interest of 10% per year on average, this brings the portfolio performance to about 23% per year, which is slightly more than where the investors in JR's funds ended up after fees and taxes. Of course, jacking up the margin ratio to 1:1 (invested:borrowed) beats JR's funds hands down and still never triggers a margin call. So, why didn't someone as smart as JR do that? I was at a loss for a long time, and it slowly dawned on me. Using leverage on S&P is such a simple strategy that anyone can follow it, w/o paying the management fees. But, what happens to the money managers then? Thus, isn't it smart on their part to convince the investors that active investing is the way to go - it probably will return less, but supports a very important segment of the economy! I now understand why Michael Burke, another money manager, considers JR to be really smart! -BGR.