The Credit Strategist
EG: What would you say are some of the archetypal characteristics of the most productive and successful fund managers? 

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Michael Lewitt: The most successful managers are avid readers of all types of materials related and unrelated to markets; are obsessive workers; are highly disciplined; are fascinated by markets; are highly competitive; are less interested in money than in competition and being correct intellectually; are unaffected by crowd thinking; and are generally difficult personalities because they are under high stress and have little patience for nonsense.

 

EG: You have successfully invested on both long and short sides of debt markets, managing hedge funds, collateralised debt obligations, (CDOs) and mutual funds. How can high net worth individuals and institutional clients benefit from your expertise in this area? 
 

ML: Right now I am managing the Third Friday Total Return Fund, L.P. which just celebrated its 10th anniversary without experiencing a losing year, including 2008 when it managing a very small profit while most funds (other than short sellers) suffered huge losses.  Third Friday is a true market neutral fund that sells at-the-money options straddles on the S&P 500 index and hedges them by purchasing out-of-the-money puts and calls.  We use no leverage and invest our collateral in income generating securities.  The strategy is time-tested and market-tested and does not rely on market direction – we are extracting the time value embedded in options premiums from the market.  This is an excellent strategy for investors looking for high single digit returns over long periods of time with minimal risk of loss. On a risk-adjusted basis these returns are extremely attractive and compare favourably with other strategies and funds.

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EG: You successfully forecasted the crisis of 2008 and the credit crises of 2001-2002. In your opinion, what single most productive measure do you think executives should really take to actively prepare for the next global financial crisis that looms on the horizon? 

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ML: They should avoid spending too much time with people of the same social status and political thinking as themselves. They should spend time in parts of the world where people are completely different from them where they can gain insight into how economies work and try to avoid the cocoon that affluence and elitist media builds around successful people. They are not going to learn anything spending time in New York or London but they will learn a great deal in small towns where people are suffering from opioid addiction and unemployment and runaway healthcare costs.

 

EG: As a 25 year veteran working within the securities industry, what would you say are generally the most productive activities that may increase returns?

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ML: The most productive thing a manager can do is read a lot, think for himself and ignore the financial media and consensus thinking. There is no bigger waste of time than listening to the pundits on television talk about the market.  You need to seek out independent and original thinkers who are also managing money successfully who are beholden only to themselves and their clients who are willing to speak truth to power. Returns come from being willing to see the truth about the markets and the economy and by avoiding the traps that markets set for those who think that investing is about feeling good when it is really about feeling uncomfortable 100% of the time.