Vol 17 – Born on Despair & Buffet’s Mistakes (Part II)
- Ann Yu
- Mar 16
- 8 min read
March 16th, 2025
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To the market volatilities this week and the now-called "Lagnificent 7", we cite John Templeton, the contrarian investor who pioneered global diversified mutual funds.
"Bull markets are born on despair, grow on skepticism, mature on optimism and die on euphoria."
As market volatility persists, a timely portfolio review or market discussion may help to ease some of the anxiety. Don’t hesitate to reach out to us anytime you feel like chatting!
This week, we're diving into captivating tales of triumphs, trials, and twists in the financial world.
1️⃣ First up, news about Millennium’s "index rebalancing" strategy hit turbulence last month, sparking curiosity. What is this strategy, and what might have gone wrong? The mystery awaits.
2️⃣ Next, we'll revisit Buffett's mistakes. What’s his take on being fashionably late to the tech stock party, and why does he call paying dividends a "mistake"? Let’s uncover the lessons behind these candid reflections.
3️⃣ And finally, State Street and Apollo have unveiled a surprisingly "counterintuitive" ETF - raising eyebrows across the industry. 🤔 Is this a bold move born of necessity, or is there a master strategy brewing behind the scenes? Read on and let me know what you think!
Category | Contents for this Week |
1) Strategy of the Week | |
2) History Buzz | |
3) Fun Facts |
Key things to watch for the upcoming week:
China/HK - Earnings | Mar 18 (Tue) - Xiaomi (1810.HK), XPeng (9868.HK), Tencent Music (1698.HK) Mar 19 (Wed) - Tencent (0700.HK), Ping An (2318.HK), China Unicom (0762.HK), Anta Sports (2020.HK), Kingsoft Cloud (3896.HK) Mar 20 (Thu) - CK Hutchison (0001.HK), Geely (0175.HK) Mar 21 (Fri) - Nio (9866.HK), China Mobile (0941.HK), Meituan (3690.HK) |
China - Eco Data | Mar 17 (Mon) - Industrial Production, Retail Sales Mar 17 (Mon) - 3pm Press Conference by State Council Information Office to brief on matters related to boosting consumption |
US – Earnings | Mar 20 (Thu) - Nike (NKE), Micron (MU) |
US – Eco Data | Mar 17 (Mon) - Retail Sales Mar 19 (Wed) - FOMC Rate Decision |
Other Events | Mar 17-21 (Mon-Fri) - Nvidia GTC AI Conference Mar 19 (Wed) - Bank of Japan Rates Meeting Mar 20 (Thu) - Swiss National Bank Rates Meeting, Bank of England Rates Meeting |
Strategy of the Week – What Happened to Millennium's "Index Rebalancing" Strategy Last Month?
Earlier this week, Bloomberg reported that Millennium's "index rebalancing" strategy hit a rough patch, leading to a staggering $900 million loss. For perspective, this is just a dent in Millennium's $75 billion AUM, but it’s enough to raise eyebrows across Wall Street. One of the teams involved was led by none other than Glen Scheinberg, dubbed the "King" of index rebalancing. A hedge fund insider even quipped, "He doesn't just trade the market. He is the market." So, what went wrong for the king and his court? "Index rebalancing," at its core, involves high-stakes bets on which companies will enter or exit stock indexes. Managers typically go "long" on potential entrants and "short" on potential exits, often using significant leverage. But this momentum-driven strategy faces a fatal flaw: crowding. When too many traders pile into similar positions, alpha - the elusive edge - decays, and even accurate bets can spiral into losses during market turbulence. Historically, this strategy has been a cash cow for Millennium, raking in billions over the years. However, moments like this year’s loss - and the unwinding of crowded trades in 2022 - highlight its vulnerabilities.
Zooming out, it's worth noting that "index rebalancing" is just one piece of Millennium's vast multi-strategy empire. The fund's overall February loss of 1.3% contrasts with the broader hedge fund index's 0.47% dip. While this may seem modest, it’s a rare blemish for a fund renowned for its sharp risk management - Millennium hadn't lost more than 1% in any given month since late 2018, until now. Millennium’s secret sauce lies in its strict discipline: over 300 trading teams operate under a rigid framework. If a team's losses hit 5%, its buying power is halved. At 7.5% loss, they're shown the door. Even titans stumble, but Millennium's resilience may ensure its crown doesn’t slip for long. As always in the high-stakes world of hedge funds, the line between triumph and turmoil is razor-thin.
"We are born alone; we die alone and we navigate the Trump stock market alone" - Dan Loeb, billionaire founder of hedge fund Third Point
For your reference only. Not investment/product recommendations.
History Buzz – Buffett’s Mistakes (Part II)
While Warren Buffett remains revered as the "God of Stocks," many will recall that his company Berkshire Hathaway arrived fashionably late to the tech stock party. His investment philosophy, shaped since the 1950s, revolved around his "circle of competence" - focusing on consumer goods, infrastructure, financials, and insurance - sectors that churn out steady cash flow.
Technology, however, was a different beast. It was complex, fast-evolving, and, as Buffett often joked, outside his "simple bets" comfort zone.
The First Try - IBM
The tides shifted in 2011. Long after the tech bubble burst, Buffett surprised Wall Street by investing $11 billion in IBM. He reasoned that IBM, which supported countless IT departments globally, was "easier to understand" than other tech giants.
The optimism didn’t last, though.
IBM failed to adapt to new technologies like cloud computing, and revenue began to decline shortly after Buffett's investment.
By 2018, Buffett had completely exited his IBM position, admitting that the bet hadn’t paid off. Chalk it up to lesson learned.
The Second Try - Apple
Undeterred by his IBM misstep, Buffett turned his gaze to Apple in 2016.
He didn't see Apple as a traditional "tech" company - he saw it as a lifestyle brand with an unparalleled emotional connection to its consumers.
This time, he hit the jackpot. By 2018, Apple had become Berkshire Hathaway's largest holding.
At its peak, Apple accounted for more than 50% of Berkshire's holdings - though Buffett began trimming his stake in 2024, citing potential tax rate hike concerns.
As of Q4 2024, Apple still dominates, representing 28% of Berkshire's portfolio. It’s clear this second try more than made up for the first.
The "Didn't" Try - Amazon and Alphabet
Beyond IBM and Apple, Buffett has also reflected on two other missed tech opportunities.
Amazon - Buffett said in an CNBC interview that he was just "too dumb" to see the potential for Amazon, and for the business to become as big as it is today. He and his long-time partner Charlie Munger have even called Amazon's founder Jeff Bezos a "miracle worker."
Alphabet - Despite Berkshire's consumer insurance subsidiary GEICO being a long-time client of Google, paying for clicks and ads, Buffett never took the leap into investing in Google's parent company Alphabet. The irony wasn’t lost on him.
"I feel like a horse's ass for not identifying Google,” Munger said. “I think Warren feels the same way. We screwed up." "Yeah, he's saying, 'We blew it,'" Buffett quipped. "We could see in our own operations how well that Google advertising was working and we just sat there sucking our thumbs, so we are ashamed. We're trying to atone,” Munger said. “Maybe Apple was atonement.” "When he says, ‘sucking our thumbs,’ I'm just glad he didn't use some other example," Buffett added.
The Dividends
As an investor, Warren Buffett has long championed reliable value companies that reward shareholders with steady dividends.
But here's the irony: Buffett's own Berkshire Hathaway, famously flush with cash, has only paid a dividend once in its 60+ year history.
That lone dividend came in 1967, just two years after Buffett took the reins of Berkshire Hathaway, then a struggling textile manufacturer. Shareholders received a modest 10 cents per share.
Decades later, Buffett would call it "a terrible mistake," often joking, "I went to the men's restroom, and the directors voted while I wasn’t there."
So why has Buffett avoided dividends ever since? To him, there are three actions that take precedence:
Reinvesting in the business to fuel growth.
Making new acquisitions to expand Berkshire’s empire.
Buying back Berkshire shares when they’re trading at a meaningful discount.
For Buffett, it’s all about putting cash to work where it creates the most value - a philosophy that has defined his legendary career.
For your reference only. Not investment/product recommendations.
Fun Facts – A Surprisingly "Counterintuitive" ETF
In a headline-grabbing debut, State Street Corp. and Apollo Global Management’s much-anticipated private credit ETF, named SPDR SSGA Apollo IG Public & Private Credit ETF (ticker "PRIV"), launched last month on the New York Stock Exchange. The ETF promises to marry the exclusive world of private credit with the accessibility of public trading, a move Apollo’s CEO Marc Rowan has called the inevitable convergence of private and public markets. However, it hasn’t been a smooth launch. The SEC has raised red flags, citing concerns about liquidity, valuation practices, and even the fund’s name. While ETFs are required to limit illiquid investments to 15%, PRIV proposes to allocate up to 35% of its holdings to private assets, with pledge from Apollo to provide daily pricing data and firm bids, though this hasn’t quelled all regulatory worries.
"How will inherently illiquid assets behave in a fund wrapper that trades "continuously" on a public stock exchange?"
What will be inside PRIV’s private credit bucket? A mix of intriguing assets like corporate loans, car leases, music royalties, and broadcasting rights - all vetted by portfolio managers for value. These holdings aim to deliver a juicy 6.5% yield, outpacing the 5% offered by public credit.
Private credit has grown immensely popular as a haven from public market volatility, with firms now targeting retail investors for fresh capital.
Yet, skeptics remain cautious. The Bank of International Settlements recently warned that the push for retail cash could create vulnerabilities within private credit due to the liquidity mismatches.
Despite PRIV’s groundbreaking intentions, it hasn’t ignited investor frenzy just yet and everyone is still in wait-and-see mode. PRIV posted just 2 days of net inflows totaling just $5 million since its Feb. 27 launch. All in, the ETF has roughly $55 million in assets thanks to initial funding that it started trading with. PRIV may not have taken off with fireworks, but it represents a significant step toward democratizing access to private assets - for better or worse.
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For your reference only. Not investment/product recommendations.
About Jadewell Family Office
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Ann Yu
Co-Founder and CEO
Jadewell Family Office
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