|
Tuesday,
April 14, 2009
(Cont'd from
above)...
Jim (cont'd):
Forced selling
can wreck the
stocks of even
the best
companies with
strong
fundamentals and
great prospects…
what kind of
fellow share
holders should
you be
suspicious of…
when you have a
stock that is
owned by a lot
of hedge funds…
that can be very
dangerous in a
down market…
after a big sell
off you can bet
that a lot of
hedge funds have
lost some
serious moolah…
and when that
happens they
tend to get hit
with a great
deal of
redemptions…
clients asking
for their money
back… this is
completely now
related to Bob
Marley’s
redemption song…
when he sings,
how long can
they kill our
profits… he
could easily be
talking about
hedge fund
redemptions
killing your
profits… he may
spell it
differently, but
it sounds the
same, it is
called a
homonym.
One of the
reasons that the
declines in
September and
October of 2008
were so severe
is that hedge
funds faced with
redemptions were
forced to sell,
sell, sell.. or
even liquidate
if they were
down hard
enough… and that
forced selling
pushed the
market and your
stocks even
lower… at my
hedge fund I had
a lock up period
to prevent this
kind of thing
from happening…
my clients could
only ask for
their money
backs at certain
times… but these
days, many hedge
funds not only
don’t have lock
ups, but they
take money from
fund to fund
managers… I
regard these
fund to fund
guys as a
totally
unnecessary tax
on the system…
and one that
causes more than
its fair share
of forced
selling… a fund
to funds is one
that takes money
from rich
people, takes a
little cut, and
then invests it
across multiple
hedge funds… if
you are a hedge
fund who needs
money, and you
don’t want to be
out there
selling for
money… fund to
funds investors
looks very
attractive… but
fund to funds
money is the
slickest, least
sticky money
around… so if
your hedge fund
starts to under
perform the fund
to funds guys
will demand
their money back
faster than
anybody else…
after all, they
have to justify
their cut to
their clients…
and the hedge
funds will have
to sell stock to
raise money to
pay for the
redemptions…
there goes your
stock.
That is why I
shunned fund to
funds money at
my hedge fund…
but lately these
fund to funds
guys have
proliferated…
and that has
made the forced
selling much
worse… I can’t
believe this
industry has
took off like
this.
Now, just one
big hedge fund
that is forced
to liquidate can
at least
temporarily
crush the stock
of a decent size
company… the
company can’t
even defend
itself with a
buy back… but
what you should
really be worry
about is lots of
hedge funds
concentrated in
the same stock
or group of
stocks… money
managers tend to
think alike and
make the same
bets… just look
at the commodity
collapse that
started in July
of 2008, and
accelerated in
September and
October… the
prices of
everything to
oil and natural
gas, to wheat,
fertilizer,
gold, and
copper, they all
got crushed… but
the stocks of
the companies
that produced
this stuff fell
even harder than
the price of the
commodities…
why… because the
hedge funds had
all made the
same big bets on
energy, on ag,
on minerals, on
mining, they
were all
concentrated in
these groups… so
when the stocks
started going
down, and the
losses mounted…
many hedge funds
were forced to
sell these
names… to pay
back clients who
had gotten
scared and
wanted their
money back… that
process of
forced hedge
fund selling,
hedge funds gone
wild I call it…
rolled back
tremendous multi
year gains… 3, 4
years of gains
in a matter of
weeks.
You also had
hedge funds buy
a lot of these
stocks on
margin…
borrowing to buy
stocks… and
after the stocks
had started
coming down the
margin calls
came in and they
were forced to
sell too… which
is why I always
tell you to
never buy
anything on
margin… lots of
hedge funds
crowded into a
stock is a
disaster waiting
to happen in a
bear market… and
when a hedge
fund goes under,
it can take a
very, very long
time for it to
liquidate its
position… you
can see forced
selling for
months and
months before a
big fund that
has gone belly
up has finished…
hedge funds gone
wild can hurt
you… but the
flip side of
this kind of
forced selling,
is that it
drives down
terrific stocks
to unbelievably
low prices… but
before you take
advantage of one
of these
opportunities…
you want to make
sure that the
hedge funds are
done selling…
because there is
no telling you
how low a stock
can go if its
shareholders
have no choice
but to sell.
Bottom line…
▼ ▼
▼ ▼
▼
 The Bottom Line!:
All of this goes to
show that, in tough
markets, it pays to
pay attention to
your fellow
shareholders... In a
tough market, it’s
important to pay
attention to your
fellow
shareholders...
Hedge funds gone
wild can hurt your
portfolio… so pay
attention and watch
out for your
co-shareholders…
they could be your
enemy.
[verbatim recap]
▼ ▼
▼ ▼
▼
Jim went on after
this segment to take
questions from
callers, and
responded with his
comments...
```````````````````````````````````````````````````````````````````````````````````
Q:
In the past few
months I have heard
a lot of mention of
hedge funds, and
there influence on
stocks. Would you
please explain what
they are compared to
mutual funds and
ETFs, beyond that
you need a lot of
money to be invested
in one?
Jim:
Sure, hedge funds
are funds that
typically wealth
people and some
institutional money,
and they say look it
really does not
matter what the
stock market will
do, if it goes up we
will make money for
you, if it goes down
we will make money
for you, not lose
less money, that is
a mutual fund… but
actually make money
for you… and there
is a lot of people
that got in this
business that were
not very good, and
the market went
down… and they did
not make any money
for you, they lost a
lot of money for
you… and they are a
tax on the system
now, so what they
do, it is pools of
capital… they are
supposed to make
money either way…
but they failed in
their mission of
making money, many
of them, when the
market went down.
```````````````````````````````````````````````````````````````````````````````````
Q:
In the past you have
talked about
liquidation selling
of these hedge
funds, my question
is, is there a way
to research volumes
or ownership to find
out when the selling
might be done?
Jim:
When the selling
might be done, not
really… I go to
Stockpickr… part of
TheStreet.com
where I am chairman…
to look at the
holdings and see
what people are
speculating… that is
how I get my
information… my
friend James
Altucher, is the guy
who started that and
he has got the best
read on the
situation… I would
go there, maybe send
him a query.
```````````````````````````````````````````````````````````````````````````````````
Q:
Are there sectors
that hedge funds
traditionally
gravitate towards?
And if so, what are
they?
Jim:
Well, I will tell
you what they go for
is the stuff that
moves the most… so
you don’t tend to
see them in the food
stocks or anything…
you don’t tend to
see them in the drug
stocks… they go
where there is most
wild action, which
is known as beta… so
they can make money
fast, up or down… so
if you steer clear
of the stocks that
have that, and go
with the stocks that
have good dividends…
they tend to be less
owned by hedge
funds… and therefore
more prone to
stability.
```````````````````````````````````````````````````````````````````````````````````
Q:
I would like to know
how do the
investment trusts of
20’s differ from the
hedge funds today?
Jim:
Well, I tell you,
you have to go back
to the investment
trusts, you can read
“The Great Crash of
29”…. well, the
hedge funds these
days are… you know
what… they are kind
of the same.. you
know those were
trusts, the trusts
wrecked the market
then… the hedge
funds wrecked the
market now.
```````````````````````````````````````````````````````````````````````````````````
[verbatim recap]
[end of segment]
Read Jim's next Segment
here
|
