How a bridge champ beats the marketJanuary 7, 2011: 5:00 AM ET
Brad Moss, a star bridge player, uses his gaming skills to make his hedge fund prosper. Here's how he does it.
By Adam Lashinsky, senior editor at large
You might say that Brad Moss aspires to be to bridge what Warren Buffett is to investing. It turns out that Moss, a bridge champion (he's never played Buffett but would like to), is a fine investor as well. This 40-year-old uses the skills he's learned playing cards to earn impressive returns at his small but growing hedge fund.
Wall Street has long been home to card players who turn their mathematical minds to finance. Moss, whose team is the ranking 2010 world champion and who is the American Contract Bridge League player of the year for 2010, draws a direct line from the game theory of bridge to his ability to assess investment risks. It's a skill that enabled him in the late 1990s to rack up personal wealth in the millions of dollars as an options trader in his native New York. Next it helped him assemble a brief but impressive track record managing his own firm, Crosscourt Capital Management.
Moss is a minnow in the investing world -- his two funds total about $30 million in assets -- but a giant in the world of bridge. A 10-time national champion, he has a fearsome reputation among the game's elite. "He's a tough, intense competitor," says Robert Hamman, a legendary bridge champion who runs a business in Dallas that manages promotional contests for corporate clients. Moss also is known as something of a bridge princeling among top-level competitors. His bridge-teacher mother, Gail Greenberg, is a former world champion, and his stockbroker father, Mike, is a former national champion.
The connection with bridge, says Moss, is the ability to decide what data matter, and then to have the judgment to act on it. "In bridge and investing, you are constantly being bombarded with an enormous amount of information," he says. "The key is seeing all the possibilities." There's more. In bridge, an opponent's tempo of play will tell an expert more than an amateur. Similarly, in investing, knowing which market indicators to monitor, and when, is more critical than watching every piece of information.
A natural math nerd, Moss takes a two-pronged approach to investing. On the one hand, he's a classic trader, placing bets on minute pricing dislocations. "I can look at a board and tell you the cheapest option by comparing them to each other mathematically," he tells me during an interview at his home office in a sprawling house in the San Francisco suburb of San Anselmo. On the other hand, he's a traditional value investor who prefers low-P/E stocks. "I'm more Cisco (CSCO) at $19 than Salesforce.com (CRM) at $135," he said in mid-November. He owns Cisco, which he calls a world-class player with a "shockingly" low valuation considering it has $5.50 of net cash per share on its balance sheet.
Moss is the antithesis of a Gordon Gekko. Short, round, and pale, he greets me at his home on this autumn afternoon blue-jeaned and barefoot. He launched Crosscourt in 2008 and eked out a small gain that difficult year. Thanks to a heavy bet on precious metals, he returned 34% to his investors in 2009 and so far is up 23% in 2010, according to a Crosscourt investor report.
His game-theory approach informs the size of his bets more than their nature. "When you have the highest conviction, that is the time to bet," says Moss. His current conviction is to bet against whatever Fed chairman Ben Bernanke is doing. Easy-money policies are eroding the value of the dollar, sapping the energy from the financial services sector, and pumping up the value of commodities. He believes there already is more inflation than government data suggest and that there'll be a lot more soon. He's no keener on Japan. "Its structural issues haven't gone away. Japan is a disaster demographically," he says, and he is betting against long-term Japanese government bonds.
Moss is using his stellar performance to recruit new investors. So far he has tapped friends, especially successful entrepreneurs with whom Moss has played cards at one time or another. Chris Williams, an early Yahoo (YHOO) employee and now a new-media executive at Disney (DIS), played poker with Moss years ago, and the two talked investing. "He was shorting dotcom stocks, convinced there was a bubble," Williams says. "I had drunk the Kool-Aid. He was right." Williams is one of Crosscourt's charter investors.
What drives him? Moss says he could never thrive in a corporate environment, meaning his fund will have to keep generating market-beating returns, so he can keep going to work barefoot. He does have a fallback. He can always return full-time to his other passion: bridge.
Brad Moss's Trends:
Bet against the Fed. An avowed "hater" of the easy-money policies of Ben Bernanke, Moss sees inflation ahead and is bullish on gold, silver, and other metals.
Asia , Asia , Asia. The real money is to be made in Asian markets (excluding Japan), where growth is exploding.
Energy ennui. Moss avoids energy securities because the sector is too "GDP-correlated."
Short financial services. With the Fed misallocating resources, Moss thinks financials won't be able to grow as they did pre-crisis.