Hedge fund tycoon’s helper Rajat Gupta was officially busted for insider trading. According to NPR:
Jurors in the insider trading trial of Rajat Gupta did not waste any time coming to the conclusion that he had violated the law. He was found guilty on four of six charges and faces up to 20 years in prison.
Gupta was busted for passing insider information to hedge fund tycoonÂ Raj Rajaratnam. Next to Rajaratnam, Gupta was one of the highest profile business leaders caught up in this insider trading scandal:
In addition to being on the board at Goldman, Gupta is the former head of the consulting firm McKinsey & Company. U.S. officials said he had long-standing personal and business ties with Rajaratnam, head of the Galleon Group hedge fund company.
One of the big questions in my mind is why is insider trading illegal for just about everyone but legal for U.S. Senators?
It looks like the SEC is casting a wider net in insider trading. This timeÂ Steve Cohen who runs SAC Capital Advisors has been caught in the dragnet according to business week:
Cohen, 56, was recently deposed by Securities and Exchange Commission investigators in New York about trades made close to news such as mergers and earnings that generated profits for his fund, said one of the people, who asked not to be identified because the investigation isnâ€™t public. Neither Cohen nor Stamford, Connecticut-based SAC Capital, which oversees about $14 billion, has been accused of wrongdoing.
But not to worry, SAC seems to have no problems attracting investment:
Cohenâ€™s main fund, SAC Capital International Ltd., saw net deposits in 2011 before he closed it to new investments in August, people with knowledge of the matter said at the time. The fund raised $2.8 billion from June 2009 through October 2011.
According to MoneyControlÂ hedge fund stars are partying like it’s 2008 in Monaco, which means that they see tough times ahead and lavish parties are a thing of the past until the profits start to flow again. They are complaining that asymmetric trades are really tough to find and it’s hard to make money these days. After all a $500,000 bonus just doesn’t buy much these days after inflation and taxes. The article says:
Successful money-making ideas are in short supply and as many as a fifth of last year’s delegates opted to stay at home, eschewing visits to the world-famous Monte Carlo casino for more hours in front of a computer screen, hunting for the trade that brings them back into the black.
“It is not the time when you can just say to someone, ‘come to Monaco for four days’, when there are so many issues to deal with back home,” said Roberto Giuffrida, head of global business development at Permal, one of the world’s largest fund of hedge funds.
Staying at home to find trades, instead of partying in Monaco. It really sounds like times are getting tough. In fact:
“Off-duty” delegates were more careful with their own money, opting for the relatively modest McCarthy’s Irish pub to watch games in the Euro 2012 soccer tournament, although some could not resist a visit to old haunt the Sass bar, a favourite among jet-setters and where U2 frontman Bono once held his birthday party.
After the second year of losses in four for the sector as a whole, managers are earnestly comparing how bad their situation is against their peers, sometimes straying into gallows humour at just how hard it was to survive current markets.
If hedge funders are low on cash, just imagine how it must be for the rest of us, the 99%.
So you want a job at an elite hedge fund? The first step is to write a good resume. Here is the top tip from HedgeCo:
â€œResumes that are focused in â€˜Iâ€™ space are a really big turnoff to managers,â€ Baiynd told StreetID. â€œManagers who are serious about building good teams for their companies do not want an I-based resume.Â â€˜I did this, I did that.â€™.â€
â€œRemember: when we write resumes â€” particularly as younger people â€” we write them as, â€˜Hey, listen, hereâ€™s what I want,â€™â€ Baiynd continued. â€œThat is the last thing a company cares about. They donâ€™t care about what you want. They care about what they want. If you give them what they want, youâ€™re going to get what you want. But itâ€™s got to be focused from that element of superior and subordinate.â€
The main thing is to focus on what you can offer your potential employer and not what you want. What does your potential employer urgently need done that only you can do? Understand this and you’ll have no problem getting a job at a top hedge fund.
Vulcan Capital, Microsoft co-founder Paul Allen’s firm has hired Paul Ghaffari as CIO according to BizJournals.com:
Paul Allen has tapped a new financial whiz to manage his billions. And that whiz comes from the hedge fund industry. Paul Ghaffari, the 51-year former portfolio manager of Palatine Hill Partners and the founder of investment fund Capitoline, has been tapped as Vulcan Capital’s latest chief investment officer.
I bet the pressure of running money for one of the wealthiest men in America is high, but I suspect Ghaffari is up to the challenge.
In a single word, no. The Fed can’t cause hyperinflation for the simple reason is that it can print more money but it can’t give that money away. It can only lend that money. If people don’t want to borrow, it is powerless. Now congress could give money away and so it could cause hyperinflation if it so desired.
But the reason why we are unlikely to have hyperinflation is that hyperinflation hurts the rich and politically connected that run our nation.
Hyperinflation would harm the banks who make loans at fixed interest rates and who then would get paid back in worthless dollars.
Hyperinflation would harm holders of corporate, federal and municipal debt. And who holds most of this debt? The wealthy.
Hyperinflation would also destroy the Fed. After all what use would they be if our currency was worthless?
Hyperinflation would reduce the debt burdens of the middle class, thus helping them at the expense of the banks and wealth that loaned them the money. Would the rich and powerful stand for this? I think not.
So the Fed can’t cause hyperinflation, but Congress could. But neither of them would want to do this and help the middle class borrower while hurting the rich.
Julian Robertson is the mack daddy of the hedge fund industry and a legend in his own time. After multiple decades his fund got caught on the wrong side of the technology bubble and shutdown, but he was ultimately proven right. Over at MarketFolly they have posted a great interview with this legendary hedge fund manager with the southern drawl. Some of the highlights:
Robertson says, “the hedge fund business is tougher today than it was 15 years ago… there’s more hedge funds in the business.Â And hedge funds are the toughest competition for other hedge funds.”
On where he sees value, the Tiger Management man says you can probably find some in Europe right now, even though there are obvious problems (though he didn’t mention any specific names).
When Robertson speaks the hedge fund industry would be wise to listen. On a side note, who do you think would win in an arm wrestling contest between Soros and Robertson?
If you thought zombies weren’t real, you’d be mistake. Hedge fund zombies do exist according to Forbes. Hedge fund zombies are gated funds that are for all intents dead but they exist in a zombified state where they keep collecting fees from their investors who are not allowed to withdraw their money:
What Wall Street bankers pushing hedge funds wonâ€™t tell institutional or retail clients about is the tens of billions of dollars locked up in hedge funds known as zombies. Clients with money in such funds face the horrific dilemma of paying management fees to hedge fund managers, even though they canâ€™t get their hands on their money.
The insidious thing about these zombie hedge funds is:
â€œToday, these funds produce little if any financial return for their fiduciaries while their administrators continue to coast along, sitting on fund assets without making any effort to liquidate and return their holdingsâ€”yet still collecting their management fees.â€
Sounds like a horrible deal. You want to cash out but you can’t and to top it off you have to keep on paying fees. The moral of the story is to watch lockup periods and gating clauses in any investment contract.
Hedge fund manager sues his ex-wife for a piece of her extravagant $1 million shoe collection. According to Gothamist:
Ladies, ladies, we know New Yorkers loveÂ their Loubotin’s, but even this seems a little excessive: hedge-fund CEO Daniel Shak is suingÂ ex-wife and World Series of Poker Player Beth Shak for reportedly hiding her $1 million shoe collection from him during their divorce proceedings and settlement three years ago.
I don’t know which sticks out more to me. A shoe collection that is worth $1 million. Or suing your ex-wife over shoes. What you you think?
Hedge fund bazillionaire Louis Bacon is donating 90,000 acres to conservation. His donation is record breaking in size as it is the largest donation to the U.S. Fish and Wildlife Service ever. According to Forbes:
New York hedge fund billionaire Louis Bacon announced his intentions Friday to donate 90,000 acres of land in Colorado toward the creation of the SangreÂ de Cristo Conservation Area. The donation is the â€œlargest single conservation easementâ€ given to theÂ U.S. Fish and Wildlife Service, according to U.S. Interior Secretary Ken Salazar, and will help to preserve a southern portion of the state that includes mountain grasslands, alpine forests and some of the stateâ€™s highest peaks.
See, not all hedge fund managers are greedy bastards. Some, like Bacon, do care about others and are giving back. In fact, it is hoped that this generous donation by Bacon will spur other wealthy people to make similar donations:
According toÂ the Denver Post, Interior Secretary Salazar is hoping the donation will motivate other large land owners in the areaâ€“among them billionaireÂ Ted Turnerâ€“to begin similar partnerships with the government. Under the current agreement, the land is still owned by private individuals like Bacon, but will be overseen by U.S. Fish and Wildlife. Activities such as hunting and ranching are still allowed as long as they are maintained within healthy, conservatory limits.
Will Turner and others do the same? I guess we will have to wait and see.
What are some of the weirdest things owned by hedge funds?
According to investopedia, these are some of the strangest assets owned by hedge funds:
Michael Jackson’s former home and fantasy playground is owned by a hedge fund called Colony Capital LLC. Â No one knows what they plan to do with it but the gossip is that they plan to turn it into you guessed it, an amusement park.
I bet you didn’t know that you could own the weather. Well you can’t own the weather but you can trade derivatives contracts based on it. These derivatives are useful if you are growing oranges and want to protect yourself against the risk of frost or if you are buying electricity and want to guard against an unusually hot summer. But believe it or not, weather derivatives are an $11 billion market.
Aptly named Pirate Capital owned a piece of a company called Cornell which runs prisons. Talk about interesting incentives, owner’s of privately owned prisons usually make more money when occupancy goes up. But to get occupancy to go up they need higher crime rates, not exactly what you might want to see in your community.
David Einhorn is an American hedge fund manager who birthed Greenlight Capital way back in 1996 and he must be a very proud father. From humble beginnings of just $900K in AUM, Greenlight has grown into a $8B linebacker of a hedge fund.
Einhorn’s Net Worth
According toÂ Forbes, the answer to the question that everyone wants to know (how much money does David Einhorn have?) is $1.1 billion. So Einhorn has made it into their list of billionaires.
Einhorn made virtually all of this money by running one of the world’s most successful hedge funds, Greenlight capital. Though he did win $660,000 playing poker in 2006 he gave that money away to charity, so it didn’t add to his net worth.
Einhorn is married, has 3 kids and lives in Westchester County, New York. He graduated from Cornell and is 43 years old.
He is best known for the superb returns of his hedge fund, Greenlight Capital, but he also is chairman Greenlight Capital RE which is a reinsurance company.
Einhorn tried to buy a stake in the NY Mets but talks stopped in 2011.
Einhorn is also a published author, who wrote Fooling Some of the People All of the Time, which was “a long, short story” about his experiences shorting Allied Capital. He took a lot of heat for this short, but in the end after many years and many dollars spent on legal fees he was proven right.
Greenlight Capital is a hedge fund birthed by noted hedge fund manager David Einhorn back in 1996 with a grand total of $900,000. Roughly half of that $900k came from his parents (talk about pressure to perform).
Through a series of outstanding long and short investments primarily in equities and corporate bonds Einhorn has steered Greenlight to average annual returns of more than 25% after fees to his investors.
Einhorn uses minimal leverage and has a fairly low turnover. It is known for taking a thoroughly reasoned and researched stance on each of its investments and generally holds on until its thesis is proven right.
Some of Greenlight’s most notable wins include shorting Lehman and also Allied Capital. Einhorn was pilloried for shorting both and for laying out a carefully research argument as to why these companies made great targets for shorting. But in the end he was proven right.
Greenlight Capital’s Recent Trades
Greenlight adds to a stake in Seagate: “Though the shares advanced from $16.40 to $26.96 during the quarter, the share price remains at a very low multiple of both near-term and longer term earnings. Based on our somewhat more conservative revenue outlook in 2012, we expect earnings to reach $10-$15 per share this calendar year, before settling at an average of about $5 per share in future years when the industry shortage will have ended.”
MHR Fund Management has disclosed a 13.6% ownership stake in Navistar with 9,335,837 shares.Â This stake consists of common stock as well as numerous share forward transactions (right to buy) with various counterparties.
The filing was made due to activity on June 7th.Â MHR started acquiring shares of NAV in the open market in late May and the bulk of their purchases came between $26-27 per share.Â Their right to buy forward transactions have a price per share of $25.5399.
In Navistar, Rachesky has good company. He joins fellow hedge fund manager, Carl Icahn, in taking a stake in the battered shares of Navistar, who’s price has fallen from a 52 week high of $58.50 to a 52 week low of $20.21.
With two activists and the likes of other great investors like Arnold Schneider and Mario Gabelli, what are the odds that Navistar is undervalued?
Does Encana (ECA) have blockbuster growth potential? Everyone knows that North American natural gas prices are scrapping along at multi-decade lows, while world natural gas prices are many multiples higher. Will North American natural gas export terminals slated for opening in 2015 cause North American natural gas prices to spike to world price levels and result in ECA reaping windfall profits?
Why is Encana interesting?
Encana’s Land Holdings Are a Hidden Asset
Encana owns more than 3 million hectares of land and subsurface rights on that land. This land was originally granted to the Canadian Pacific Railway in the late 1800s and Encana doesn’t have to pay royalties on this land.
Encana’s massive land holdings are an immense potentially undervalued asset that no other producer can replicate. Encana essentially acquired the land more than a hundred years ago and at prices that are many multiples lower than today’s prices and land holdings of this size are simply no longer available today.
But what makes their land even more valuable is that they don’t have to pay royalties to the Crown on this land since it was granted so long ago. So they have a cost advantage that other producers who have to pay royalties simply cannot match.
This hidden asset gives Encana a lower cost structure and also allows it to make highly accretive joint venture exploration deals with firms like Kogas and Crescent Point Energy. Essentially they can offload a portion of the exploration risk in these joint ventures and still reap the rewards through royalties, because of their unique asset.
You already know that many of the best investors and hedge fund managers like Warren Buffett, Carl Icahn, Joel Greenblatt and Martin Whitman are forced by the SEC to report the stocks that they bought every three months on 13-F filings.
You can then use these 13-F filings to track which stocks these investors and fund managers have bought and then add them to your own portfolio.
But did you know that on sometimes you can buy these stocks at better prices than these investors?
And here’s how you would do it:
Wait until the 13-F filings of your favorite investors come out.
Note the stocks that they have purchased.
Note the lowest price that the stock has traded for during the period covered by the 13-F.
Watch the stock like a hawk and if it falls below the price that one of these amazing investors paid for it, you now have an opportunity to buy it at a discount to what one of these master investors paid.
But you probably don’t have time to dig into 13-Fs and watch these stocks daily.
So here at hedgefundhub.com we have done all of the work for you. Here is a list of stocks that are trading for less than what one of these master investors paid for them.
Stocks At A Discount
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If you thought natural gas was cheap compared to oil, coal is roughly a quarter of the cost of natural gas according to a chart at Gregor.us which shows:
Today’s prices for a million BTU, by source: Brent Crude Oil; West Texas Intermediate Crude Oil; United Kingdom LNG; North American Natural Gas; Central Appalachian Coal; Powder River Basin Coal.
Please visit the site to see the chart. But essentially 1 million btu of natural gas costs $2.39 while coal costs $0.52. So coal is extremely cheap relative to natural gas, which is already cheap in comparison to oil which costs $14.56 for 1 million btu. I wonder if any hedge fund managers are pondering ways to profit from this discrepancy.
Michael Martin interviews legendary author Jack Schwager about his newest book Hedge Fund Market Wizards. Here are some of the most salient insights from this interview.
Jim Rogers once said that 90% of options expire worthless. But many of the traders in Schwager’s book buy options. So how do we reconcile this?
Schwager says that it’s true most options expire worthless, but you don’t have to buy options all the time. The traders in the book buy options at the right time, when they are more likely to expire in the money. When utilized this way, options limit risk and maximize reward and hence are great trading instruments.
Another highly beneficial feature of options is that they automatically enforce stop loss discipline. If the trade goes against you, your loss is strictly limited to the premium that you paid.
Be Flexible Like Gumby
A key feature of great traders is flexibility. They don’t get locked into being long or short. The example Schwager gave is Stanley Druckenmiller.
The Friday before the massive stock market crash of 1987, Druckenmiller was short the market, but then since he had made a fair amount of money he switched to long. Over the weekend he realized he was wrong, and decided to switch back to being short.
But the market opens down big on Monday. Despite the losses, he switches short and makes back a lot of what he lost in that single, horrible day.
Stops are for Losers
One of the traders in his book mentioned that stops are for losers.
But Schwager says that this trader’s statement is more nuanced than that.
Stops placed at obvious levels are for losers, because professionals know where they are and will try to run them.
Cutting losses is very important.
Everyone knows about the crash of 2000. In hindsight, you might think that shorting the NASDAQ Composite was the obvious trade. But you are wrong.
After dropping the NAZ gave a massive whipsaw correction and rallied almost 40% blowing out a lot of stops.
You might have been right about the correction, but your stop was blown out and you couldn’t profit.
Another trader who made a a lot of money without getting stopped out, did so by thinking outside of the box.
Instead of shorting the NAZ, he bought treasuries. They did extremely well in the market collapse and didn’t exhibit the kind of volatility that would have stopped him out of the trade prematurely.
The Single Most Important Lesson
To succeed in trading you must use a strategy that fits your personality.
Jim Rogers is a 100% fundamental trader and he made enough to retire and travel the world before he turned 40.
Ed Seykota is a 100% technical trader and many believe he has generated some of the highest returns of all time.
How is this possible?
They both used strategies that fit their personality.
Here is a great collection of quotes (with my sarcastic comments) from some of the world’s greatest investors at Addicted2Success:
Warren BuffettÂ (Net Worth $39 Billion)Â â€“ â€œâ€˜Price is what you pay; value is what you get.â€™ Whether weâ€™re talking about socks or stocks, I like buying quality merchandise when it is marked down.â€ [But a tax payer funded bailout like in 2008 doesn’t hurt.]
George Soros (Net Worth $22 Billion)Â -Â â€Iâ€™m only rich because I know when Iâ€™m wrongâ€¦I basically have survived byÂ recognizingÂ my mistakes.â€ [And Soros is wrong a lot, his win rate is something like 30%. But when he is right, man, he is right. He goes for the jugular as evidenced when he shorted the pound.]
Carl Icahn (Net Worth $13 Billion)Â – â€œYou learn in this business: If you want a friend, get a dogâ€ [I bet $13 billion buys a very impressive dog.]
Ray Dalio (Net Worth $6.5 Billion)Â â€“ â€œMore than anything else, what differentiates people who live up to their potential from those who donâ€™t is a willingness to look at themselves and others objectively.â€ [Okay, but if your potential is 10 out of 100,Â objectivityÂ might not help you so much.]
Carlos Slim (Net Worth $69 Billion)Â -Â â€œAnyone who is not investing now is missing a tremendous opportunity.â€ [Um, yeah. An opportunity to watch your wealth get vaporized or an opportunity to make money?]
David Tepper (Net Worth $5 Billion)Â â€“ â€œThis company looks cheap, that company looks cheap, but the overall economy could completely screw it up. The key is to wait. Sometimes the hardest thing to do is to do nothing.â€ [At least until the Fed has got your back. BTFD. If there’s good economic news you make money. If there’s bad news, the Fed will ease and you will make money. You can’t lose. At least I think that was his thesis.”
Peter Lynch (Net Worth $352 Million)Â â€“ â€œI think you have to learn that thereâ€™s a company behind every stock, and that thereâ€™s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.â€ [No the Fed printing dollars has nothing to do with stock prices going up. If we were suddenly given $10 for every $1 in our pocket stock prices wouldn’t go up. Stock prices only respond to earnings growth. No sir, nothing else.]
John TempletonÂ (Net Worth $20 Billion)– â€œThe time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.â€ [But the real secret is knowing when these times have been reached. If you are a pessimist, things may look bad, but they can always get worse. And if you are an optimist, things may look good, but they can always get better.]
For those who don’t know, Seth Klarman, who runs Baupost Group is one of the best hedge fund managers of our time. He has generated a stunning rate of return for several decades and his hedge fund now manages in excess of $22 billion. He is also famous for writing one of the best and most expensive books on value investing ever, Margin of Safety. This impressive piece of work regularly sells for more than a thousand dollars, because fund managers everywhere are desperate to learn the wisdom contained in its page. Here is a few memorable quotes by Klarman via MarketFolly:
Targeting investment returns leads investors to focus on potential upside rather on downside risk … rather than targeting a desired rate of return, even an eminently reasonable one, investors should target risk.
A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world.
The trick of successful investors is to sell when they want to, not when they have to. Investors who may need to sell should not own marketable securities other than U.S. Treasury Bills.
Read more:Â http://www.marketfolly.com/2012/04/notes-from-seth-klarmans-margin-of.html#ixzz1w6DgWz4F
So what can we take away from this? Focus on managing your risk and let returns take care of themselves. Make sure the price you pay for a security is low enough that even if bad things happen you will still make money when value asserts itself. Have lots of cash on hand so that you can be a buyer when there are people who are forced to sell, never put yourself in a situation when you can end up being a forced seller.