If it sounds too good to be true...

A (somewhat dated) Bernard L. Madoff Reader

What is striking to most observers is not so
much the annual returns...but the
ability to provide such smooth returns
with so little volatility

And now we know. 

But before you run off to the 2800-word Bernie Madoff-fest below, with so much more to make you say “Uh huh,” please keep in mind that it is more than seven years old; it originally appeared in the May 2001 edition of MAR/Hedge. It was, however, one of the few articles that ever got Madoff on the record on the subject of his investment strategy and business which, as yesterday’s court filings recorded, he played extremely close to his chest. 

“Senior Employee 1” — understood to be one of Madoff’s sons — said that financial statements were kept under lock and key, and that Madoff was “cryptic” about the investment advisory business. 

Uh huh. But none the less fascinating for all that.

Madoff tops charts; skeptics ask how 

by Michael Ocrant

MAR/Hedge (RIP) May 2001

Comments

[CLS]

Not only does Madoff time the markets, but he times them so well that he is able to smooth out his volatility to consistently return 1% to 1.5% at the end of each month irrespective of the market. Not within the month, mind you, he acknowledges volatility there, but at the end of each month. Now if he's so good that he can all but assure a return at the end of each month, why would he not be able to smooth the volatility within the month? What makes the end of the month magical? The end of the month corresponds to an arbitrary reporting period, like any other arbitrary reporting period, and is likewise subject to the same vicissitudes of the market as any other day. Would it not have been a simple and obvious test to pick another reporting date, say the 15th of each month, and check how the returns from that date measured up? I submit doing this simple test would have led to a problematic conclusion regardless of the outcome: there is mid-month volatility yet Madoff consistently reports minimal end-of-month volatility - something's wrong; there is limited mid-month volatility, yet the markets themselves are volatile - something's wrong. What kind of due diligence by supposedly sophisticated investors allowed such an obviously questionable record to pass? It's the kind of due diligence, if you want to call it that, that was nothing more than a rubber stamp on Madoff's fund by the feeder funds to enable them to collect big fees. Over the coming months, I expect employees and former employees of the feeder funds will step forward with stories of being ignored, fired, demoted, etc. for daring to question Madoff's strategy and returns.

[y81]

To me, the striking part of the MAR/Hedge article is the part where people wonder how Madoff can move in and out of a relatively small number of stocks in such large quantities without affecting the market. Now we know.

[Paul]

The sad and shocking aspect is that all these bright professionals, all graduated from the most prestigious universities across the globe where investing with Madoff. And all these other equally bright and talented auditors and (supposedly so) controllers at the SEC just never noticed anything.
I just pray that the reason lies in the fact that Bernie paid off the audit and the SEC.
Otherwise I *must* conclude that the world is run by university grade idiots and morons. Not a pretty thought. Merry X-mas folks.....

[michael webster]

Pioneer of "Modern Wall Street".

The era that began in Boston, the late 1910's with nifty little outfit call Securities Exchange?

[Anon]

Truer words have never been spoken!

“He’s one of the pioneers of modern Wall Street,” said James Angel, an associate business professor at Georgetown University in Washington.