Knowing When Enough is Enough - Take Your Ball and Go Home

Andrew Lahde, manager of a small California hedge fund, Lahde Capital, burst into the spotlight last year after his one-year-old fund returned 866% betting on the subprime collapse. Last month, he took his ball and went home. Tired of the stress, he closed the fund.

I have cut out some of the end of his letter, to see it in its entirety see here.

Enjoy:

Dear Investor:

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

With that I say good-bye and good luck.

All the best,
Andrew Lahde

I Need Your Opinion

So for those of you that don't know, a friend and I have been looking into starting a business for about seven months now. We have looked at about 7-10 franchised businesses and selected one in a huge market that is getting ready to explode. The industry isn't sexy like high tech, but it will provide serious long term growth for our business for many years.

No, I am not mentioning what company/industry it is until we move forward.


Anyway, we have completed our due dilligence and are looking to raise money from friends, family and close business associates. We have come up with two different ways to pay back the investor.


I will present the two ways and then please comment on which one you would go with if you were an investor. Also assume that the P&L projections can be reasonably achieved. For ease of comparison I will use the same investment figures.


1. Fixed Infinite Cashflow
In year 0 you loan me $100,000. I promise to repay you 30% of your contributed capital ($30,000) annually for as long as I own the business.

In this scenario it will take you a little over 5 years to recoup your
initial investment, but after that it is just cash in the bank from there on
out.

2. Double Your Money in 4-5 Years

This scenario is exactly what it sounds like. You give me $100,000 and I hand you back $200K in 4 or 5 years.

Obviously in this scenario, you get your initial capital as well as your return much sooner, but you miss out on the recurring cashflows.

Side By Side Comparison

So here it is with the associated IRRs. Based purely on IRR, the "rational investor" would choose scenario 2, but I am trying to determine if scenario 1 is compelling as well since in absolute terms I would pay you back almost $400K in the first scenario.

What do you think?

I'm Back - And In a New Home!

Hi there and welcome back! I have been on a hiatus from this blog for almost two years now. Alot has happened in that time. For those of you that don't know, I now live and work in NY.

I migrated this blog off of Typepad's service where I was paying for it during that time I wasn't using it. I considered scrapping the whole "blogging experiement" and deleting the typepad blog, but I got to looking though the archives and realized that there was a history of my past thinking out there. So amazed I was at being able to look back at how I was thinking over two years ago I decided I couldn't just delete the blog!

In the past I wrote alot about business and entrepreneurship and I don't think that will change too much. I will however, focus on those topic as they relate to my day to day life. Also I will try to post about personal dealings. Check out my readings, tweets, and pics on the right sidebar - everything is there and neatly organized for you!

As a result, you now have what you see before you with all the Web 2.0 goodness (Twitter, Facebook, Shelfari, etc). The best part of it all is my new home on Blogger is FREE!

I don't know if I will post a ton and I know it will take a while to find my voice again so bear with me. There is alot of stuff going on in the world and in my life so come back often to see what is going on. You can get updates via RSS, email, via imported notes in Facebook. So hook it up!