According to Jack Bogle, the outspoken godfather of index
funds and passive investing strategies, didn't approve of a recent Wall Street
Journal article defending hedge funds.
In particular, he took issue with the author's reference to Benjamin
Graham, the legendary Columbia
finance professor who literally wrote the book on Security Analysis and
mentored Warren Buffett. Here's an excerpt: from his letter to the editor
Citing Benjamin Graham as the first "hedged fund"
operator is an especially unfortunate example. "The trick," Mr. Rice
writes, was Graham's "clever way to make money . . . whether it [the
market] continued to rise, or started to fall." How did the hedged strategy work out in the
bull market of the Roaring Twenties and thereafter? Thanks to Joe Carlen's
recent book, "The Einstein of Money," we know the answer…. From 1929
through 1932 inclusive, the Graham account turned in a loss of 70%, compared to
a loss of 64% for the S&P 500 Index.
"The strategy unraveled quickly," Mr. Carlen writes.
"There was no longer any reliable advantage to be gained from that kind of
hedging."
Some hedge fund manager. At least he didn't do much worse
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