Harry Rady Online – San Diego, CA

As one of the sectors viewed in today’s economic climate as non-essential, the gaming industry is suffering sluggish sales and a shrinking market. WMS Industries, a company that manufactures slot machines, has paradoxically experienced a surge recently in its stock’s value, increasing company earnings, while becoming more efficient, and increasing its market share despite the general decline in the gaming market. There are some market analysts that predict that WMS will soon overtake International Game Technology as the industry’s leader.

Not all analysts agree, however. Harry Rady of Rady Asset Management believes that the stock has already absorbed the effect of WMS over performing.  According to Rady,

“A slip backwards in results could send the stock tumbling.”

The expectation of new slot machine purchases by the casino industry is declining, according to a UNS survey. It was found that only 22% of game managers are planning on ordering new equipment this coming year, compared to close to 50% last year.

In an appearance in the CNBC Video “Making Sense of the Markets” Harry Rady of Rady Asset Management, along with two other guests, give their analysis of recent market trends and advice on how to best product assets in the future economic uncertainty we are facing.

Commenting on the market’s latest showing Harry Rady of Rady Asset Management said,

“Everything is overpriced. A very long, protracted recession is still very much alive.”

This remark was reported in an article in Lubbock On-Line in response to a week of see-saw movement of the major markets including the Dow Jones industrial average. The Dow along with all the other major market indicators, finished the five days ending on May 23rd just barely in the black. The Dow, S&P and Nasdaq rose 0.10, 0.47 and 0.71 percent, respectively.

Despite a good showing on Monday, stocks sunk downward the rest of the week in response to some bad economic news. Re-running a pattern that is now only too familiar, early gains on Friday were neutralized by sustained losses in the last hour of trading.

The choppy trading waters were caused by announcements that unemployment could reach as high as 9.6 percent and that the British government could lose the Standard and Poor’s Triple-A credit rating.

Coming at the end of next week are several economic indicators that will help determine whether the markets will be sustaining their rally of early spring, or rather if they are instead a disappointing indication of more bad times to come. These barometers include reports of home sales, orders for manufactured products and consumer confidence.

Rady Children's Hospital

Rady Children’s Hospital and Health Center located in San Diego, California, acts as a safety net medical center for the region.  Children with little or no medical insurance are not turned away from Rady Children’s Hospital and more than half of the children they serve are in this category.

Rady Children’s Hospital is the teaching hospital for UCSD School of Medicine as well as for the Navy. The hospital also acts as the region’s major clinical research facility. Pediatric subspecialties are available at the hospital including Hematology/Oncology, Cardiology, Cardiovascular Surgery and many others.

Harry Rady, of Rady Asset Management is active in support of philanthropic activities at Children’s Hospital, including being on the Investment Committee of the Children’s Hospital and Health Center.

In an interview which took place on April 13, 2009 with Maria Bartiromo on the CNBC financial news program “Closing Bell”, Harry Rady of Rady Asset Management discusses his firm’s re-entry into investments in the financial sector after an 18 month hiatus. Explaining that he believes there is too much risk at the moment to invest in individual companies; Rady Assets began investing about 6 weeks ago in the “ultra-financials” such as ‘UYG-ETF.’ Believing that there is not enough “clarity on what’s the balance sheets of these companies” to take more of a risk on them. Enjoy the complete interview here.

Harry Rady, Chief Executive officer of Rady Asset Management commented on the stock market downturn despite Bank of America’s reported increase by triple of its earnings for the first quarter of 2009.

“The bank’s earnings so far just seem to be smoke and mirrors and the other companies aren’t reporting quality earnings. It’s just reducing expenses and dipping into reserves,” said Mr. Rady.

Go to the full article for more in-depth discussion: “U.S. Stocks Lower As Banking Concerns Lead to Broad Sell-Off.”

The following article was written by Harry Rady and originally appeared in the 19-25  March, 2009 issue of HFMWeek.com.

Let’s face it, the last six months have been miserable for investors, and even good investment managers haven’t slept well recently. But, investors have learned much over the past year, and many now realize there is often an unnoticed, inherent conflict of interest between investor and money manager.

“What has become all too common is for managers to perform in line with an index or to experience wild swings. This is an incomplete strategy”

When times are good and the market is moving up at a steady pace, investors tend to become complacent and ignore many potential risks. When the market, however, turns down and things get tough, investors get scared and start to ask the questions they should have asked long before making their investment decisions.

To at least ensure greater protection moving forward, investors need to start asking a very key question: “Do you (the investment manager and/or employees) have the majority of your net worth invested in the fund where you want me to put my money?” The answer, of course should be “yes”. Investors want and need to be in the same entity that the manager is using to calculate his/her composite returns.

Most managers who have had solid performance – and believe in their future risk-adjusted return prospects – will have most of their own money in the fund that the investor is considering. This shows a commitment to the investment strategy and also makes sure the manager feels the “pinch” along with investors when times are tough. It also demonstrates a greater focus on risk management, as opposed to always swinging for the fences.

Another potential benefit of this “alignment of interests” strategy is the incentive for the manager to focus on the tax consequences of trading and turnover ratios. For investors, it is after-0tax returns that really matter.

Another key metric for investors, which will give them a clear understanding of whether the manager has the shareholders best interests in mind is the upside/downside “capture” ratio. This ratio lets investors know how much real risk the manager is taking to generate returns. The higher the upside capture – the greater their returns; the lower the downside capture -  the lower the losses and risk.

Ideally, investors want to look for a combination of low downside capture along with high upside capture. The ratio gives the investor a powerful historical understanding of a fund’s risk/reward profile. Investors should look at at these metrics in the context of prior periods to see how they performed in different market environments.

What has become all to common is for managers to perform in line with an index or to experience wild swings. When markets are good, they outperform; when the markets turn negative they substantially under-perform.  This is an incomplete strategy. The focus should be on asymmetric risk/reward ratios in every type of investment. The best opportunities exist when securities are ignored or investors are too pessimistic about their potential. Some of the most viable investment opportunities exist when funds are able to purchase securities ignored by most investors.

The idea of following the herd and chasing returns always catches up with managers and their investors. If anything, we’re seeing that it pays to be a contrarian. A contrarian approach leads to attractive upside/downside capture ratios, which again, is an effective way to demonstrate risk adjusted returns.

Finally, it is also important for a manager to have a long term track record. This lets an investor know that the have experienced different market cycles and are not just getting lucky at a particular time in the cycle. In addition, the investment strategy must be transparent, easy to understand and repeatable. Most investors should not invest in highly levered, esoteric strategies unless they are truly disposable assets.

A core portfolio needs to offer the potential for consistent returns and must have the flexibility to be both long and short during volatile periods, giving managers the flexibility to protect the portfolio, while still capturing the upside.

Protecting the portfolio, of course, is key. Unfortunately, many investors have been learning that lesson the hard way. Moving forward, it’s abundantly clear that the unnoticed conflict between the money manager and the investor can no longer exist. And by the way, ask the manager if he’s getting a good night’s sleep.

Harry Rady is CEO and portfolio manager of Rady Asset Management, a long/short equity fund based in San Diego, CA.

Citigroup said it operated at a profit during the first two months of the year. That energized financial stocks and in turn, the entire market. Surprised investors drove the major indexes up more than 5.5 per cent to their biggest one-day rally of the year. The Dow Jones industrials shot up nearly 380 points.

In response to Wall Street’s welcome upturn at the beginning of March,  Harry Rady of Rady Assets Management, San Diego, California was quoted as saying:

A little bit of good news went a long way because there was so much pessimism,” said Harry Rady, chief executive of Rady Asset Management. “Could there be follow through tomorrow? Maybe. In the next few weeks or months I’ve got to imagine we’ll give this back. The economy is in an absolute free fall,” he said. “I’d be very surprised if this was a bottom.

On March 10th the S&P 500 index rose 43.07, or 6.4 per cent, to 719.60, while the Nasdaq composite rose 89.64, or 7.1 per cent, to 1,358.28.

Most analysts are cautiously optimistic and are waiting to see which way Wall Street is heading in the upcoming near future though there is a worry that hundreds of billions of dollars in government bailouts wouldn’t be enough to save the big banks.

This upturn was described as a brief rally in an overall bear market, meaning that we can expect more market downturns before the market begins its eventual recovery. A bear market is defined as a drop of at least 20% from a market high, which stocks passed last year in their relentless plunge downward.  Now the market is at less than half its value that it had at the highest points it reached in October of 1997.
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In what many see as a continuing indication that the economy will be heading down a bit more before it makes its eventual recovery, U.S. stocks dropped precipitously last Friday, ending the second consecutive week of losses. Pressured from record breaking drops in retail sales and falling sales of mobile phones, the stock market has economist and investors in a blue mood indeed.

Responding to calls for the government to bailout ailing businesses, Harry Rady, CEO of Rady Asset Management,  ventured his opinion on taxpayer funded bailout schemes for the overextended auto manufacturing industry.

“Even if they are given some capital, it’s a band aid. The Japanese and the Germans have much better business models and products. The free market should determine who makes the best cars, and the consumers should determine who survives.”

To read more about this issue please follow the link to:
MarketWatch.com: U.S. stocks slammed again as retail sales drop