I know this is not going to be your favorite subject, but I've got to ask you about it. Some of the public funds you managed ceased trading in April 1988. Is that because they reached the automatic 50 percent loss cutoff point? Actually, they were down just under 49 percent when we stopped trading. Rather than trigger the automatic
termination point, we liquidated all positions and resolicited the investors to allow a lower cutoff point.
Would you do anything differently in the future because of this particular experience? I would cut back a little faster than I did, but the trades would still be the same. Someone said to me, "You
claim the markets were bad. Well, since you could have done the exact opposite and made a lot of money, weren't
they really good?" I told him that the last thing I would have wanted to do was to be on the opposite side of those
trades. In the long ran, that is a way to lose an infinite amount of money.
The short side of the interest rate markets in October 1987 resulted in one of your worst losses. What went wrong there? A large part of that loss was due to the fact that the market gapped way past our point for covering our short
position. For example, on October 20, we would normally have been out of our short Eurodollar position about 40 to
50 points higher, but the market opened 240 points higher that day. We blew 190 points in a skid that was absolutely
unavoidable.
If the market is that much out of line, do you still get out of your position right away? Sure. If you have any doubt about getting out as fast as possible in a situation like that, then you are really in
big trouble.
Do you think the sharp losses you suffered were due to any change in the markets? That's hard to say. The only factor I can objectively identify is the tendency toward more false breakouts.
Do you feel the recent prevalence of false breakouts is related to the tremendous increase in
