thechauwei or The Highway!

Hi! I am Chauwei, ex-investment banker, hedge fund picker, and slave to my family office. This is a blog about finance and incompetent bankers.

[thechauwei]

Kung Fu Stroke 2: Banks Know What's Best For You (NOT!)

I was waiting for at least three fans to tell me I should continue writing but so far I only have two. One fan was kind enough to ask me TWICE to keep writing so I'm just going to count that as THREE votes! The feedback I got so far has been:  

Question 1: “Am I not afraid that I will offend the banks and that they would stop doing business with me?”

Answer: If any banker identifies himself/herself as being the cause of my comments, then we probably don't have any business dealings, and I don't hide my disdain for incompetent people -- okay I attempt to be nice but I've been told that I look constipated or just had Botox during lunch. It's kind of like Trump talking about the Pope (by the way I am not taking a stance on both -- I'm not siding with my alum and I did watch the live telecast of the Pope going to Philadelphia even though he caused a lot of traffic congestion issues for me the ONE WEEK I was in New York for business meetings) -- I'm not going to suffer from much popularity decrease because the super bank supporters already hate me. Some bankers didn't send me Chinese New Year gifts not even a greeting card so I assume they read my blog. And anyway, I barely garnered three votes to continue writing so the only way for my popularity to go is up!

There are a lot of bankers who agreed with me that there are bad eggs in the basket who should be exposed.

Question 2: “Do I have too much time on my hands?”

Answer: This is therapy to me. Since I took this three-month hiatus from writing my passive-aggressiveness has gone up a notch. Which is not all that bad because my colleagues buy me coffee, the staff take more effort to check their work, and even our office corgi http://facebook.com/TheXiaoZhuZhu (who has way more likes than me on FaceBook) is on better behavior, i.e. does not lick other dogs' poop. Things are not all good because I keep getting asked whether I'm PMS the weeks I'm not having my blood coming out of my wherever (google Donald Trump quote). While other people do yoga or play DOTA, I blog. So that people around me can remain sane.

FINALLY we are getting to my Kung Fu stroke of the day.

I got moved up to Private Banking from some form of priority banking in Bank X -- this is usually a non-event because it's not as if you get anything extra maybe the occasional free taxi ride to the airport. So I needed to wire some monies out and went to a bank branch.

First I asked the teller (in a separate room for priority/private banking clients) what my balance in the multi-currency account was, since what I had was not in local currencies. The teller told me my balance was ZERO which started to get me concerned. I have heard stories about banks losing money for clients in dodgy products but what I had was all in cash.

Then I was told oh I have my money in the Special account which cannot be seen by anyone except the Relationship Manager (RM) which means even the bank teller cannot see how much money I have. Now for the really bad news, since no one in the bank branch can see my Special bank account I cannot do the wire transfer.

This RM I had (I use the past tense because she has since been transferred away, not because of me as I don't have that much time to report her but I guess she was bad enough that other people complaint about her) was particularly inept and non-responsive. The bank branch tried contacting her, I tried contacting her, but there was no response. The bank branch manager then asked me who my back-up RM was -- which I had absolutely no idea.

Long story short, I could not access my own money, with the reason given that I needed to verify my identity through my RM who was the only person who could authorize any movements in the Special account. So even though I was at the bank branch physically, produced more than one official document showing I was really me, I needed a stranger to say over the phone that yes I am THE Chauwei.

I described several scenarios for the branch manager: “What if my RM was hit by a bus? What if she was in the bathroom and couldn't answer the phone but I need to cover margin call? What if I was kidnapped and if I did not transfer the money I was going to die?”

The official answer: I need to be "protected" by the RM because I am a Private Banking client.

This is absurd because I am obviously of above average intelligence to make the money to qualify me as a Private Banking client. And I went to the same school as Donald Trump (not so convincing) AND his glamorous daughter (at least her hair looks better) AND Elon Musk (finally someone I can crow about -- Elon if you are reading this can you give me a Tesla). Plus I reminded the bank that I am in the finance industry. But no no, I have to be prevented from touching my money in case I did not put in some fee-generating products.  

So what did I have to do to access my own money? I had to formally write in to "downgrade" myself from the Special account to a multi-currency account so I can be treated like the regular people. Which suits me just fine.

[thechauwei]

Kung Fu Stroke 1: Read The Fine Print (and also the words that are actually quite big)

This situation happens to me a lot:

Location: Swiss Private Bank ("Bank") Purpose: Bank pitching services to me

Bank: What do you do? Me: I evaluate hedge funds. Bank: You are such a sophisticated investor. You should use our hedge fund advisory team. Me: To..? Bank: Evaluate hedge funds Me: But I evaluate hedge funds.

This is like me trying to sell widgets to a widget seller. Fine, his widget had better be really good. Like a widget that has wings.

Bank: Our team has 20 years of experience managing 20 billion in assets. Me: Ok... can you show me the track record? Bank: Every client is different so there is no track record. Me: Then how do I know if the advice is any good? Bank: Our team has 20 years of experience managing 20 billion in assets.

Eventually I get to see some numbers and charts which look rather promising. I see the words "Important Information" in bold so I guess I should read it:

Important Information This material has been prepared by Bank or its subsidiaries on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. Bank has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information. Bank does not represent, warrant or guarantee that this information is suitable for any investment purpose and should not be used as a basis for investment decisions. This material does not purport to contain all of the information that a prospective investor may wish to consider. This material is not to be relied upon as such or used in substitution for the exercise of independent judgement.

So basically I should not believe anything that Bank shows me because they did not do any checks, and the information might be inaccurate, incomplete and unreliable. Hmm remind me why I have to pay for this "advice"? There's more to come:

The charts, tables and graphs contained in this document are not intended to be used to assist the reader in determining which securities to buy or sell or when to buy or sell securities. The pictures are used for decorative purposes. The upward slope does look like the Nike swoosh. Obviously without the initial going down part. Just when I thought there is at least some truth in the annualized numbers which show the performance bar towering above the S&P:

If the funds were not set up before 201X, expected strategy returns were used.

I expect the Chauwei-Backward-Looking Fund to return 100% annualized. Awesome.

[thechauwei]

The Kung Fu manual to Hedge Funds

It has become quite fashionable to sprinkle some hedge funds to diversify your portfolio or better still "hedge" against the market. So you think OK it's not too bad to put an average hedge fund since that will still fulfill the two qualities I just described. No, it doesn't work that way, the average hedge fund underperforms passive investing because of the fees so you might as well not invest in the first place. Or you end up in a popular fund like Madoff and lose your money. The point is, investing in average hedge funds does not get you average returns. You end up somewhere between zero and lousy returns, more likely closer to the former.

There are no lack of advisors or consultants or private banks out there who will help you pick the best hedge funds. Or tell you to just hand money to them so they can do the hard work. (Tip: hedge fund investing is a lot of work. Even if you outsource the work to the experts you still have to know what questions to ask them to make sure they are doing the work) So I am not going to tell you how to pick the best funds out there. That's right, I am NOT going to teach you how to select the funds that will make the most returns, or have the best risk-adjusted returns, or can best protect your portfolio in a downturn, or the next fund which will invest in the next Apple or AliBaba. (Tip: I'm not sure if anyone else knows FOR SURE how to do any of the above. If I knew, I certainly would not tell anyone else. OK maybe the guys arrested for insider trading knows). If you are still reading this, then you must be thinking then why I am wasting my time reading this?! I'm going to share my experiences on how to identify bad hedge funds or more generally lousy investment pitches related to hedge funds.

This is the hedge fund version of my guide to wine -- I can tell when a bottle of wine is really bad (it's not just those sub $10 supermarket wines, I once turned back a bottle at Per Se in NYC), even though I have to admit I can't really tell the difference between a $50 and $500 bottle. But once you can sieve out the worst (or bottom quartile) then your odds of hitting a winner are substantially improved.

Kung Fu Manual: a secret book passed down from Master to Disciple which teaches you ways to cut through the crap in this treacherous world