Mar

3

From a 1996 profile of Harvard's Buddy Fletcher in New Yorker:

His particular skill lies in devising vertiginously complex "hedges" to insure minimal loss if stocks decline while maintaining maximum profit potential if the stocks rise. His audited annual returns for the last five years have averaged over 350%, and on some days during that period his tiny firm has accounted for more than 5% of the trading volume at the New York Stock Exchange. A safe estimate would put his personal wealth at somewhere around $50 million.

There are many alarming items there — the Madoffian hedging so that really you can't go wrong while you're making 350%, the 5% of the NYSE trading volume (EdSpec observed that there are several hundred tiny firms that each control 5% of NYSE trading volume).

Charles Pennington writes: 

I thumbed through the section in Buddy Fletcher in the Jack Schwager book Stock Market Wizards (excerpts can be found under Google Books), and he has what at first seem to be some reasonable ideas for making money:

–arbitrage between the different tax needs of U.S. and overseas clients, especially the treatment of dividends

–some kind of option arbitrage that exploits the mismatch between option prices that involve a risk-free interest rate and clients who have to pay a relatively high commercial interest rate to borrow

Now those seem like reasonable germs-of-ideas, but surely they'd have very limited capacity, and surely they'd become widely known pretty quickly. They don't seem consistent with the 1996 New Yorker article description:

"His audited annual returns for the last five years have averaged over 350%, and on some days during that period his tiny firm has accounted for more than 5% of the trading volume at the New York Stock Exchange."

Humbert Humbert replies:

An astute colleague explains that the fancy options ideas described by Fletcher in Schwager's "Stock Market Wizards" sound like nothing more than ways to take advantage of the cheap access to capital that he had from his firm. If the bank let him borrow to trade and pay below-market interest rates, then he could make money just by buying a money market fund. The fancy (and almost riskless) "box " options spreads that he describes probably served the purpose of a money market fund.


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5 Comments so far

  1. Sam on March 4, 2012 10:00 pm

    Cue Elton John…

    http://www.youtube.com/watch?v=9tmKSg5g8S0

  2. Sam on March 4, 2012 11:44 pm

    http://www.bostonmagazine.com/articles/is_harvard_graduate_buddy_fletcher_financial_genius_or_fake/

    As for Harvard: “If it were determined that the Alphonse Fletcher professorship had been endowed by a fraudster,” says a university source, “and not just any fraudster, but the first major African-American donor to the college — it would be awkward.” That said, Harvard would almost surely not return any of Fletcher’s money, nor rename its professorship. Removing the name, after all, would be an enormous controversy. Says the Harvard official: “The question is, How dishonorable do you have to be to have your name taken off something?”

  3. Luke 12.1.3 on March 5, 2012 2:10 pm

    Almost as bad as penny ante Western Union scams. What else falls out when we shake the tree?

  4. Sam on March 15, 2012 9:53 am

    http://www.nola.com/business/index.ssf/2012/02/state_pension_systems_petition.html

    Initially, Fletcher said the requests would be fulfilled after 60 days. But before that time had passed, Fletcher told fund officials that they would instead be issued promissory notes for the money… Last month, trustees of the firefighters’ system set aside $8.5 million last month as a precautionary measure to cover cover potential losses stemming from the Fletcher investment.

  5. Shamsta Hamsta on July 9, 2012 6:19 pm

    Not to mention the fact that he and his equally litigious wife, Ellen “Kung” Pao, now facing bankruptcy, we’re trustees of Obama’s inauguration. I wonder how he squares his tax dodging strategies with his support for the soak the rich Messiah– not to be ray-ciss or nuffin?

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