Thursday, July 5, 2007

No Margin of Safety

Everyone knows the concept of the Margin of Safety in Value Investing. This is what happens when you ignore those words:

“United Capital Asset Management has temporarily suspended payments from four of its Horizon funds following losses from its investment in sub prime mortgage bonds. In the past ten days, the firm received an unusually high number of redemption requests, including one from its largest investor, which accounts for one-quarter of the firm's assets under management.”

Full Story

A similar situation occurred in the CMO market back in 1994, when a firm called Askin Capital Management lost hundreds of millions of dollars as the market disappeared for the products that they owned and the so called "proprietary models" to price these things no longer worked. The lesson? If the person who manages your money can't explain the investment to you - then don't go near it.

1 comment:

Anonymous said...

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