Dollars and Jens
Friday, March 26, 2004
Can Flash Gordon defeat the mighty Zithromax?
In class this last Tuesday, we had a guest-speaker, an emerging-markets bonds manager who has been consistently beating his benchmark. His strategy is quite different than I had expected. I thought he'd come in and talk about assessing political situations, but the first thing he said is that he doesn't make credit/country bets -- if 5% of the index is in Brazil, 5% of his exposure will be in Brazil. So, he must make interest rate bets within countries, right? No, he avoids that, too. Most of what he does amounts to arbitrage -- he'll find a Brazilian bond which is underpriced relative to an other Brazilian issue, and he'll long-short, taking care to avoid many of the inherent problems (the biggest being, as Keynes put it, that the market can stay irrational longer than you can stay solvent; c.f. Long-Term Capital Management). He actually manages to have less exposure to many countries' credit risks than the index, while having as much or more exposure to their interest rates. When Venezuela defaults, he'll win. On the off chance that Venezuela doesn't default, he'll win then, too.
The week before, we had a guest from a venture capital fund which invests in drug companies. The subject of product naming came up in a digression, so I asked him a question that's been nagging at me since at least last summer: why do drugs always have names that sound like comic-book villians? He said I'd have to ask someone in marketing. Which I had kind of expected.