Recently, The Wall Street Journal’s Juliet Chung reported the story of Gabe Plotkin and Melvin Capital Management’s massive losses incurred in 2021. Here’s one paragraph that drew Your Survival Guy’s attention:
Melvin charges investors an annual management fee of 2%, and takes a cut of up to 30% of all profits, among the highest incentive fees in the industry. That can be extremely lucrative in profitable years, but the economics tend to be punishing on the way down. Like most hedge funds, Melvin must first make back all of its losses before it can resume taking incentive fees from investors who suffered losses.
Action Line: Your Survival Guy will not invest in anything that charges 2-and-30. That’s a recipe where you invest, and they win. Avoid such risky endeavors and stick with me.
