One of the most successful hedge funds of all time earned over 1000% in one year betting against the subprime market. Andrew Lahde’s Lahde Capital, is a small California-based hedge fund which made a massive bet against the subprime market late in 2006. This bet has proved to be successful and has returned a whopping 10x for its investors.
“Our entire banking system is a complete disaster. in my opinion, nearly every major bank would be insolvent if they marked their assets to market”
- excerpt from Andrew Lahde’s letter to shareholders
Lahde’s strategy was to go short with leverage against subprime mortgages with a vision of a recession and a collapse in the value of bonds backed by commercial property loans.
Although this is not the only fund to perform exceptional returns based on the collapse of the markets it is one of the most popular. Below is a month-by-month analysis of net returns for the fund from late 2006 to January 2008:
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You will notice that although the fund averages 20% per month not every month was a profitable month
If you still believe there will be more blood on the streets from the subprime disaster, buy SKF, it represents a short position on all the banks. Careful, it is extremely volatile so bet little and keep your stops large.
I would be worried if they didn’t have drawdowns, as that is suspicious. Their drawdowns are also not that significant,and although their standard deviation is high, it is mostly on the positive side. I wonder too how they are hedging their bets.
Don Veto - Thanks for the advice. I think the psychotherapist in my earlier posts would go for it. Its way too volatile for me, it was at $150 last week and $105 today!
Here is an excerpt from his December letter to investors:
“As I signed wire instructions to pay for the trades, I was literally laughing out loud… I just could not believe how little cash the other side of the trade was willing to accept in order to risk getting run over by a train (again).” - Andrew Lahde in the Dec 19 letter