Friday, March 25, 2005

Bill Gross on Hedge Funds: Turning Lemons into Lemonade

Horatio Alger stories which allude to finding the proverbial toy at the bottom of the manure pile or turning lemons into lemonade are a reflection of the American dream – rags to riches, something from nothing, a pot of gold at the end of your own personal rainbow. Still while dreams and wishes upon a star do come true for some of us in this Jiminy Cricket world, there can be a cost to fantasies ungrounded in reality and everyday common sense. In the world of money we have our oft-cited historical examples: tulips, portfolio insurance, NASDAQ 5000. Pop went these bubbles and the savings for that matter of investors lured in at or near the top. It’s a story of the ages, an endless ticking of the human metronome setting a cadence swinging from fear to greed then back again. What isn’t always obvious, however, and what makes the game go on and on is that the lure morphs into a different shape, sometimes during the same generation of investors. A good fisherman knows that if the fish aren’t biting you change the bait and a good salesman knows that if you can’t sell lemons, push the lemonade.



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