Canadian hedge fund accused of illegally valuing securities

“We make our returns or business grow by having an edge that is not transparent,” Mr. Spork told The Globe and Mail at that time.


Well, Mr Spork's hedge fund investors now know what he meant by lack of transparency: by making up the numbers.

His funds were the envy of the imploding hedge fund sector, managing to deliver a 159-per-cent return so far in a year marred by the worst bear market in decades. Now Otto Spork, a former dentist, is facing allegations that the fund's returns were juiced by unsubstantiated valuations in several underlying investments in Icelandic glaciers.

The Ontario Securities Commission has ordered Mr. Spork and related parties at Sextant Capital Management Inc. to temporarily stop selling his fund in Canada, alleging it is “investing illegally” in firms with rights to the glaciers.


I suppose anyone investing in Icleandic glaciers of all things knew of the risks they were taking. Although, it's not clear one would assume that the hedge fund investors knew what their fund was planning to, and ultimately, invested in.

Comments

  1. AnonymousDecember 11, 2008 at 1:12 AM

    I still lurk around once in a while, though lately I've been tied up @ work & home, so haven't had much of a chance to comment.

    I did read the piece about YMM in the WSJ yesterday though. It was yet another mea culpa, this time quite a bit more sincere and repentent than even the last one, but nevertheless shows he is at least intellectually honest.

    What I found still a bit disturbing is how he is diagnosing his problem: he believes that he has been systematically wrong in assessing the extent of the liquidity crisis, hence his bone-headed investment in AIG, Fraudie, WM, BS, Countrywide, etc.

    IMO, investing is all about being wrong. Thre is nothing "wrong" about being wrong. It is what you do about it to correct your mistake. YMM happens to believe that when you are "wrong" (as in the stock price keeps going down after you buy it), you should keep averaging down -- THAT's YMM's key problem. NOT that he got the liquidity crisis wrong. If the liquidity crisis didn't happen, something else would have done YMM in with YMM's complete lack of risk control.

    ReplyDelete
  2. Sivaram VDecember 11, 2008 at 10:18 AM

    I'm going to create a post about that article but I have to disagree with your comment:

    "IMO, investing is all about being wrong. Thre is nothing "wrong" about being wrong. It is what you do about it to correct your mistake. YMM happens to believe that when you are "wrong" (as in the stock price keeps going down after you buy it), you should keep averaging down -- THAT's YMM's key problem. "


    I think you are being very simplistic. You make it sound as if he averages down into anything that goes down. Clearly he has justification for believing something is undervalued and he only averages down into that. I mean, let's look at his tech stocks. He kept averaging down into Amazon but obviously he never averaged down into countless other leading technology companies who were declining rapidly at that time.

    I think you have a trader mentality, which is fine because some hedge funds are successful with it, and I suspect you perceive averaging down as a poor strategy; whereas most contrarians and many value investors use it as one of their primary tactics.


    On a somewhat related note, you also need to keep his individual actions in context of his overall portfolio strategy. Bill Miller swings for the fences. As he himself has said, he would be ok with several holdings going to zero if some others go up 10x. (In contrast, someone like Buffett does not want to take a single loss.) I think it makes sense to average down into losing positions if you are looking at getting a home run (assuming you are still confident with your analysis of the company.)

    ReplyDelete

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt...
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>