Bruce Kovner in New York, NY on June 20, 2011
Thank you, Peter and Michael. It is a tremendous honor for me to receive this award today from Institutional Investor. I appreciate your very kind words. All of you who are in the business of managing hedge funds know that this is work that requires an enormous amount of support. I have been lucky over the years to have the support and loyalty and intelligence of many colleagues without which our successes would not have been possible. I particularly want to thank Peter D’Angelo for putting up with me for these last thirty years and for masterfully leading the operational side of our business — thank you, Peter, for making so much possible; and I also want to thank Andrew Law, our Chief Investment Officer, who has done so much in recent years to lead the trading process.
I feel both lucky and thankful to have survived and prospered over thirty years in this difficult business. I can’t say for sure what accounts for longevity and success in this business, although luck and good fortune certainly must have a lot to do with it. Early in my career, at Commodites Corporation, I remember having more than a couple of conversations with the great economist Paul Samuelson, one of the early proponents of the efficient markets hypothesis. Despite his theory, Professor Samuelson was a founding investor in Commodities Corporation, a company based on the premise that smart well-informed traders could indeed outperform “the market”. He didn’t seem to be too embarrassed about the inconsistency. When I pressed him once, he said that he guessed that in any sport there were a few Ted Williams (if we can recall that great Boston Red Sox star) and that seemed to satisfy him. As I knew I was no Ted Williams, the answer didn’t satisfy me. I have spent a good part of the next thirty years trying to figure out the answer.
I can also tell you that being in the business a long time — or making some money at it — doesn’t mean you’ll find the right answer either. I have seen a lot of people who confuse money with brains and more than a few traders who develop an unbounded view of their own infallibility … and usually such hubris precedes some sort of market retribution. I am sure that most of us in this room have seen that biblical injunction of pride coming before the fall strike someone near us in the trading world — if not hit us directly between the eyes.
But … thirty years in the business. Surely there must be some secrets to success to pass on. I used to be a member of something called the Chaos Club. It was founded by a fascinating man by the name of Leo Rosten. Leo was a great intellectual. He was one of the early students of Robert Hutchins at the Committee on Social Thought at the University of Chicago. During World War II, he worked in the OSS, our proto-CIA, as some sort of intelligence geek. When the war was over, he started writing novels and had great success with some decidedly unintellectual comic novels, like the Education of Hyman Kaplan. This brought him money but not intellectual heft, so he started this discussion group to bring together once a month a bunch of people to grill authors and politicians and discuss weighty issues. Leo asked me to join but I am afraid it was not for my intellectual heft. He was convinced that I had secrets — secrets about how to make money in the markets. Every couple of months he would take me to lunch at the Century Club and try to wheedle out of me the secrets he felt sure that I was hiding from him. He could never figure out why I would never reveal to him the formula for making all that money he was sure I was hiding. I confess I enjoyed Leo’s lunches enough to allow him to continue to believe I was keeping some great secrets from him. But I wasn’t.
It turns out, as a gradually more sophisticated economic theory of efficient markets has been laid out, that Paul Samuelson was sort of right and sort of wrong. Because learning takes place among market participants, excess returns tend to be arbitraged away as enough knowledgeable participants enter the market. But, as Gene Fama and others have explained, there are always price leaders — “alpha generators” in today’s jargon. That’s us. That’s what we do. The people in this room are part of the discovery process for price equilibria. But, we all know, there is never a final static equilibrium. The world changes. Today’s price equilibrium is certainly not going to be next year’s. Each day new disturbances change the calculus … and we do our best to navigate among those disturbances and the many other micro and macro forces that determine each asset price.
So those of us in the hedge fund business have the continual pleasure and burden of leading in the price discovery business. The circumstances that determine today’s and tomorrow’s prices in every asset class shift day by day. Central bankers, politicians, business cycles, corporate executives, judges, natural events, wars and famines — these are among the many things we study every day in this business. I am thankful that I have had thirty years of the most interesting game of multi-dimension chess that I can think of. I thank all of you here for taking time out of your life to recognize each of the awardees here tonight. I wish all of you some of the same pleasure, satisfaction and good fortune that I have been privileged to find in my years in this fascinating business.