AN ALTERNATIVE

*PRE* HISTORY
(And Whats Next?)
Phillip Vitale
phillip@filamentllc.com

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PHILOSOPHER INVESTOR
Thales of Miletus, 546 B.C.

Philosopher, chided for

being poor, who predicted
a bumper crop of olives
Contracted for options on
the regions olive presses
With a small investment, he
became quite wealthy
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PHILOSOPHER INVESTOR
Thales of Miletus, 546 B.C.

DISCUSSION
POINTS

THE FIRST ACTIVIST

Isaac Le Maire and the big company, 1609
Coincided with the origin of trading common
stocks (United Dutch East India Company) shares
on the Amsterdam exchange
After forced retirement in 1605, key stockholder Le
Maire sought to form a French competitor
Le Maire plus 8 partners set up the big company
in February 1609 as a dedicated trading entity,
predominantly to short sell, via term sales of stock
that they transacted secretly through associates
In the Spring of 1609, declines in the stock were
steepest, but Le Maires negotiations with Henry IV
to form a competitor also became widely known
Dirty scheme was proclaimed, with accusations of
spreading unfavorable rumors to influence price
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THE FIRST ACTIVIST

Isaac Le Maire and the big company, 1609
Short-sellers publicized valuation analysis, ascribed
declines to natural causes and mismanagement
February 1610, Dutch East India Company directors
prevailed a new ordinance challenged the blank
sale of shares; the stock price rallied again
While big company losses didnt seem severe,
related personal trading losses were substantial
In April and May four associates declared
bankruptcy, and two found convicted for fraud
In May, King Henry IV of France is assassinated
Le Maire ends up feuding with Dutch East India Co.
directors for years and seems to never regain
commercial success, dying in 1624 at age 65
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THE FIRST ACTIVIST

Isaac Le Maires Headstone
Here lies Isaac Le Maire, merchant,
who, during his activities over all parts
of the world, by the grace of God, knew
so much abundance that in thirty years
he lost (save his honour) more than
150,000 florins. Died as a good
Christian on September 20, 1624.

By C.W. Bruinvis - Regionaal Historisch Centrum Alkmaar, Public Domain,

https://commons.wikimedia.org/w/index.php?curid=3038088

THE FIRST ACTIVIST

Isaac Le Maire and the big company, 1609

DISCUSSION
POINTS

ARBITRAGE IN SECURITIES
Meyer H. Weinstein, 1931
fortuitous circumstances
placed me among traders who
were actually engaged in the
business of arbitrage. These
men seemed unaware of the
meager written material on the
subjectthey knew what they
wanted profit and they
responded with startling
spontaneity to the exigencies
which the markets presented.
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ARBITRAGE IN SECURITIES
Meyer H. Weinstein, 1931
Early history: 1600s-1800s
Discussion of the economic function
of arbitrage
Between the years 1927 and 1930
alone over five billion dollars worth of
equivalent securities were placed on
the market.
The year 1929 was perhaps the most
profitable year in arbitrage
historyEven the year 1930, which was
marked by steadily declining prices,
yielded excellent profits.
8

ARBITRAGE IN SECURITIES
Meyer H. Weinstein, 1931

DISCUSSION
POINTS

HEDGEMANSHIP
Conrad W. Thomas, 1970
Full Title
Hedgemanship: How to
Make Money in Bear
Markets, Bull Markets, and
Chicken Markets While
Confounding Professional
Money Managers and
Attracting a Better Class of
Women
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HEDGEMANSHIP
Conrad W. Thomas, 1970

DISCUSSION
POINTS
even financial types can have a
(unorthodox and inappropriate?)
sense of humor
11

Listed Hedge Funds of the 1970s

Performance and timing: A test of hedge funds
-- Journal of Portfolio Management, 1978
Previously lost to history, this is the first known
academic analysis of the hedge fund phenomena
Evaluated the returns of 10 funds of the late 60s, early
70s for security selection and timing ability
Novel performance evaluation methodology
Results and interpretations debatable (short time
period and small sample, but notable in its objectives
and ambition
Acknowledged A.W. Jones and the promulgation of
alternative investment approaches
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Listed Hedge Funds of the 1970s

Performance and timing: A test of hedge funds
-- Journal of Portfolio Management, 1978
Sagitarius Fund, 4/67
Hedge Fund of
America, 4/68
Hartwell & Campbell
Leverage Fund, 4/67
Drexel Hedge Fund,
5/69
Ling Fund, 10/68

Berger-Kent Special
Fund (5/70)
Competitive Fund,
4/70
Davidge Fund, 1/72
Heritage Fund, 5/70
Tudor Hedge Fund,
5/70
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Listed Hedge Funds of the 1970s

Performance and timing: A test of hedge funds
-- Journal of Portfolio Management, 1978
AUTHORS CONCLUSION
none was able to show consistently superior performance,
either in predicting market reversals or selecting undervalued
securities. Since the evidence failed to confirm any hedge
fund managers ability to predict market trends and to take
advantage of these fluctuations, it seems that their best
possible strategy is to make use of their wider range of
investment choices and correspondingly fewer restrictions to
hold efficiently diversified portfolios with minimum portfolio
turnover.
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Listed Hedge Funds of the 1970s

Performance and timing: A test of hedge funds
-- Journal of Portfolio Management, 1978

DISCUSSION
POINTS

15

Stage is Set: Whats Next?

Timeline: evolutionary creative-destructive process works!
Strategies:
Older strategies will continue to change, some step and
incremental improvements
New Strategies created and evolving faster

Key Drivers today are transformational BIG 3

Data and Technology
Advancements in understanding and improving human (and
machine) decision-making
Financial product innovation and creativity

Better asset / liability matching and meeting investors

structural needscreativity + innovation
Era of the LP gives way to ETF and Interval Fund implementations
16