The Risk of Not Taking Risk

Jud Reis is Founding Partner at Sire Management.

Jud's career began over a half century ago, at Morgan Stanley, when it was a small firm with USD 7.5 mm in capital and 13 general partners. While there, he played a leading role in the largest takeover in American history of the time: Dupont’s acquisition of Conoco, now a seminal case study in multiple MBA courses.

At Morgan Stanley, Jud learned that there is a risk in not taking enough risk. Had it not been for two highly ambitious general partners, Dick Fisher and Bob Greenhill, their appetite for risk, and the support of the then President of Morgan Stanley, Bob Baldwin, Morgan Stanley could have disappeared entirely according to Jud, like so many investment banking firms did in the 70's and 80’s.  

Jud was later fortunate enough to become friendly with and invest with Julian Robertson. He also invested with Stan Druckenmiller and other legends. By investing in hedge funds and being forced to endure multi-year lock-ups, Jud learned that talented managers, given enough time, will sort things out and generate outsized returns.

If you feel discouraged about declining returns, consensus trades, excessive diversification, and other gloomy statements of this kind, you’ll find this conversation a healthy boost of contrarian confidence. Outsized returns are still out there. And the talented managers generating them exist too. You simply have to know where and how to look. And you have to be willing to take the right risks.