New Onion

People have been saying essentially the same thing for years, if not decades, that Bermuda will destroy itself through its own incompetence… but in all those years there’s one thing that hasn’t changed about Bermuda, or any other financial/human market – there’s always a reason why it’s all going to come crashing down. One of my favorite financial commentary blogs is Financial Reality who has a reliable short bias on the macro front. Thus far, he, Tine, and others who are on the short side have been wrong, and thus far the people who have gone short Bermuda have been wrong and have lost a huge opportunity by leaving, selling property, or walking away from businesses. Sure there are going to be times when things aren’t going as they have in the past, but as Barton Biggs says in his winding commentary on the hedge fund industry “Even stopped clocks are right twice a day.”

One of the most interesting trades one can make is to sell short (bet that prices will decline) of stocks with poor corporate governance, and go long (bet that they will go up) on stocks with strong corporate governance (and to a lesser degree diversity). The IRRC publishes factors of governance that can be used to make an index of the best and worst governed companies and it should come as little surprise that the best governed companies beat the socks off the badly governed ones… one piece of research is here, with plenty more at the Harvard Governance site.

I hope that the actions of myself and other concerned citizens will ensure that going short Bermuda continues to be a bad strategy for decades to come. However, I’m not averse to hedging risk – and in that context I’m going to spend more of my time studying and less writing.