The Hindu Business Line : Investment Nuggets

Meet the man who coined the term ‘hedge fund’. Alfred Winslow Jones (1901-1989) is credited with forming the first modern hedge fund and is widely regarded as the father of the hedge fund industry. He graduated from Harvard University in 1923 and, after working as purser on a tramp steamer that sailed around the world, joined the Foreign Service. Jones was looking for approaches that offered better than ‘fair game.’ After writing an article for Fortune magazine, Jones established an investment partnership that would exploit this new style of investing — market-neutral. Alfred Jones’s investors lost money in only three of his 34 years. His choice of management fee structure was also groundbreaking. Charging investors 20 per cent of the fund’s realised profits is an industry standard to this day. Below are some quotable quotes from the man.

“Hedging is a speculative tool used to conservative ends.”

“The standard, old-fashioned method of predicting the course of the stock market is first to look at facts and figures external to the market itself, and then to examine stock prices to see whether they are too high or low.”

“Freight-car loadings, commodity prices, bank clearings, the outlook for tax legislation, political prospects, danger of war, and countless other factors determine corporate earnings, and dividends, and these combined with money rates, are supposed to (and in the long run do) determine the prices of common stocks. But in the way, awkward things get in the way.”

“Although no one seems to know volume statistics have their forecasting virtue, yet volume is one of the oldest tools and probably the one most commonly used by the instinctive technician and tape reader. As long as prices and volumes are acting together, the trend of the prices will be upward; when they get out of the whack, the trend is likely to be reversed. Optimism confirmed by the drying up of volume on the temporary setbacks in a rising market, and pessimism when rallies in a declining market show diminished activity.”

“Nevertheless there are market analysts whose concern is the internal character of the market, who could see the decline coming. To get these predictive powers they study the statistics of the stock market that the stock market itself grinds out day after day. Refined and manipulated in various ways and interpreted, these data are sold by probably as many as twenty stock market services (in 1949) and are used independently by hundreds, perhaps thousands of individuals. They are increasingly used by brokerage firms, by some because their users believe in them, by others because their use brings in business.”

“Anyone who looks at the whole market will have the advantage of being able to act while the lagging average still have their desirable (for him) effect on public sentiment, making for more optimism even after the turn at the top, so he can still sell, and more pessimism at the bottom so he can buy.”

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