Disappointingly this is a topic that comes up all too often. Only last week we wrote about how you have to want to lose $2 billion.
We have yet another example of lack of personal responsibility or willingness to take and accept losses. In this case with an elaborate cover up.
The SEC are charging Atlanta-based Summit Wealth Management over a Ponzi-like scheme involving private investment funds. Manager Angelo A. Alleca appears to have first defrauded his 200 or so investors in a fund of funds. Rather than investing their money in funds as he’d advertised, he traded the funds himself. He then ran up a string of losses from which he could not recover. So in order to hide the losses, he created new private funds — with new investors — to trade in the hope of winning back his losses and paying back the original funds. He continued to lose and so in effect compounded his losses.
Furthermore Alleca issued false account statements to investors in the original fund and in the follow-on funds in order to cover up the actual losses the clients were having on their investments.
If you manage public funds, you have to have integrity. You simply have to treat their money like you would a newborn child. If you have trouble handling losses then don’t handle other peoples money.
Elaborate scheming like this suggest that on an emotional level you want the drama. The costs of playing out your emotional needs in the market place are expensive if it’s just your own account but when it exposes other people it really is catastrophic.
If you are set up as a business that invests in funds then you invest in funds. If you want to trade OPM then set up as a CTA or Hedge Fund. If you don’t have the reputation yet to warrant investors there may very well be a reason but you certainly don’t lie and cheat to do so. Perhaps like in this case you aren’t a good trader who is able to surrender to losses or take responsibility for you actions in front of your clients.
Yet another example of why it is important to develop a strong Inner Voice.
You might also consider reading Systematizing Losses To Feel Good post on the subject of the feelings around taking losses.