Professional Documents
Culture Documents
“The correlations are breaking down, and that may mean the
trend … is overextended.”
“You can say active managers have become less active over
time.”
Martijn Cremers
Leon Cooperman
Benjamin Disraeli
Elbert Hubbard
Steve Pavlina
“Often the difference between a successful man and a
failure is not one’s better abilities or ideas but the courage
that one has to bet on his ideas, to take a calculated risk —
and act.”
Maxwell Maltz
William Menninger
INTRODUCTION Table 1. In retrospect, I wish I had him since the 1980s, I can say that
invested all my money with Richard. this is not the case. However, he is
I recently attended a meeting of Overlook implements a highly extraordinarily disciplined, focused,
the advisory board of the Overlook disciplined investment process, the so- and honest. (The psychiatrist William
Partners Fund in Hong Kong. Richard called Overlook Model, whose success Menninger wrote: “Six essential
Lawrence Jr. founded Overlook is exemplified by Overlook’s 9.31 qualities that are the key to success:
Investments Limited (“Overlook”) percentage points of outperformance per sincerity, personal integrity, humility,
in 1991 and for a while leased a tiny year against its benchmark over 25-plus courtesy, wisdom, charity.”) These
cubicle in my Hong Kong office. years (see Figure 1). qualities distinguish Richard from
In 1992, Overlook established the Being a long-only fund, Overlook most other fund managers.
Overlook Partners Fund, L.P. (“the also had some big draw-downs. Its According to Overlook, its focused
fund”), a Cayman Islands exempted performance suffered badly during the approach to investing has been a
limited partnership, to invest in public Asian Financial Crisis of 1997/1998 major contributor to its success and is
equity markets throughout Asia, and the Global Financial Crisis of based upon the following principles:
excluding Japan. In 2016, Overlook 2007/2008, but after each event the • one fund and one co-investment
established Overlook 3G Investments, fund always bounced back strongly fund (no side accounts or special
L.P., a single-purpose investment (see Figure 2). deals);
partnership, to invest in shares of Given that Overlook has • one asset class;
China Yangtze Power Company Ltd. outperformed its benchmark by 9.31% • one investment philosophy;
Today, Overlook manages more per year over 25-plus years, one might • focused portfolio with 20–22
than US$4 billion in net assets. The be tempted to think that Richard holdings;
partnership’s successful 24-year history Lawrence is a genius. Having known • a small team incentivized by
is based on consistent execution of the
Overlook Model.
When Richard moved into my
Table 1 Compound Annual Returns of Overlook Partners Fund since
office in 1991, I had known him
Inception
for a number of years during which
he had worked as an analyst with
an investment company in Hong
Kong. If I recall well, he established
Overlook with US$10 million under
management, which he had raised
from former associates and some
friends. I believe I also invested
US$50,000 or US$100,000 with
him at the time, an investment I
liquidated before the Asian Financial
Crisis. About 10 years ago, I invested
US$300,000 in the Overlook Partners
Fund. These funds have since grown
to over US$1.3 million. Overlook’s
superior time-weighted and capital- Source: Overlook Partners Fund
weighted performance is visible from
As quality of life for most around the globe continues to deteriorate, for a select few it continues to get much better, thank
you very much. Many initially look for the cause of these problems to where they are told to look by those who ultimately
benefit and rig the systems for themselves. It is a strange facet of human nature first thoroughly observed by Adam Smith in
his first classic, The Theory of Moral Sentiments, that the masses admire the wealthy and famous for that fact alone, whether
or not they are truly admirable individuals. This is especially true in today’s media-bombarded world. But as times get
worse, the masses become a bit more skeptical. This explains the emergence of new sources of news, real or “fake,” as well
as an angrier electorate and the election of Donald Trump.
Candidate Trump was able to see past these corrupted feedback systems from his empire of towers and give the
electorate a view that resonated with their own. It is an indication of how bad things are that most of politics was almost
able to successfully ignore this decline under the cover of lousy feedback systems in the press. In return for Trump’s honest
assessment, the electorate’s feedback was electing him to the presidency. The question now is: what feedback will he rely
upon to lead his presidency, the country, and even the world, as he progresses? And what will he give back in return? The
answers to that are not so clear as they change so rapidly — itself a form of very bad feedback, as the system never has time
to respond.
Probably the most important feedback system in any society is its main form of reward: money. Readers of this
publication well understand how “easy money,” fiat inflation, or high levels of debt destroy this feedback loop. Strangely,
while Trump pointed out the symptoms of easy money, he never indicated their root cause (Hillary couldn’t even find the
symptoms, let alone the causes), except to say he wanted to audit the Fed and get a new Fed head, and now even these steps
are in doubt. Given Trump’s reliance on cheap money for his real estate empire, and to cover his mistakes, it shouldn’t be
surprising that he would admit this is part of the rigged system.
Some believe that the effects of these money metrics are limited just to the “economy,” but, unfortunately, corrupted
economic system excesses overflow everywhere with cancerous effects to follow. Looking through history at inflationary
times in Revolutionary France and Weimar Germany, or even in the United States, we see that not only the political system
but also the fabric of society comes apart. In Revolutionary France, after fiat inflation had worked its insanity through
the system, the Committee for Public Safety gave rise to the Reign of Terror, which was entirely consistent and not at all
cognitive dissonance. Germany from the 1920s to the 1940s was no different. Today, as universities want to wipe out free
speech to protect snowflake students from hearing any contradictory views, they advocate violence to do it. Once again,
we see that the insanity of both the French Revolution and Hitler have returned, but few mention that all had extremely
bizarre financial regimes underlying the mess.
In the US, just before the French Revolution and its crippling inflation, George Washington, who had lived through
the debilitating inflation of the US Revolutionary War, warned a friend of its spreading pernicious effect: “Paper money
has had the effect in your State that it ever will have, to ruin commerce — oppress the honest, and open a door to every
species of fraud and injustice” (George Washington, Letter to Jabez Bowen, January 9, 1787).
John Maynard Keynes observed it as well, in The Economic Consequences of the Peace (1919):
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to
debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it
in a manner which not one man in a million is able to diagnose.
Regarding Weimar Germany, historian Paul Johnson, in Modern Times (1985), led us to other complicit broken feedback
loops and control systems — the press and the status quo who benefited from it.
It [Weimar inflation] was one of the biggest and crudest transfers of wealth in history. The responsibilities were clear;
the beneficiaries of the fraud were easily identifiable. Yet it is a depressing indication of public obtuseness in economic
matters that the German public, and above all the losers, far from “developing a proletarian consciousness” — as Marx
had predicted they would in such a case — blamed the Versailles Treaty and “Jewish speculators”.
What Johnson was referring to was the status quo — the military, industrial and financial ruling classes, as well as the
political classes on the outside — with a press that helped to deflect the true cause of the inflation onto a set of scapegoats,
all in order to preserve that status quo. These corrupted feedback loops created the environment that started the world
onto the path for the Second World War. Today in America it is no different when the press is controlled by a small
group and a personal agenda to continue perpetrating the same thing that got them rich while impoverishing much of the
country.
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