Today we’ve got a special treat – part 2 of our interview with Jay from MarketFolly. Jay tracks the specific holdings of top hedge fund and money managers on his site, helping readers glean important bits of investment insight from the best money managers in the world.
His coverage is second-to-none, a true must-read. We broke this interview up into two parts. You can read Part 1 of the interview here – and the second part of the discussion is below…enjoy! (And be sure to check out MarketFolly.com for more of Jay’s great coverage and insights)
CBM: What do you learn from the investor holdings you cover?
I think the main thing to take away from hedge fund tracking is ideas. Often times you will see them invest in companies you’ve never heard of or are less familiar with so it gives you something to look into. It’s also good to see what sectors they are leaning towards and what themes they might be playing (at least for some of the macro thesis oriented funds). And, it gets really intriguing when you start to see multiple funds adding the same position. We’ve noticed this a lot when we track the ‘Tiger Cub’ hedge funds
CBM: How has following the investment greats improved your personal investing strategy?
MF: Again, I’ll turn to the premise of providing ‘ideas.’ More than anything, it just makes you ponder: “what do they see in XYZ company?”, “Why are they flocking to that sector?” Following the likes of Julian Robertson, David Einhorn, Stephen Mandel, Seth Klarman (& more) has helped me perceive the market landscape in a more constructive manner.
It’s hard to describe, but you start to think and see opportunities in a way you didn’t previously. Personally, the best is when you see hedge funds accumulate shares of a company you’re skeptical of. It makes you question your own thesis again and pushes you to do that much more research on a name to make sure you’re right. Following their picks blindly can be successful (as evidenced with our Market Folly custom portfolio
), but at the same time, you learn so much more and become a much better investor if you start to look at the “why?” behind all of their movements.
CBM: Let’s take a look in the crystal ball now – any prediction for the markets over the next 6 months? 18 months? 5-10 years?
MF: While I’m certainly not an economist and usually don’t like to speculate, I’d simply say that the markets will most likely remain irrational. Remember, the economy could be in the tank for some time and yet the market could ramp higher. Why? Because markets are a forward looking mechanism. So, I like to separate predictions for the economy and predictions for the market. Because, as we’ve seen throughout this crisis, you can be right about the economy yet still not make any money off it (or even lose money in the market).
In the end, I think we’re making economic progress but we’re certainly not out of the woods… it’s all part of the process. Unemployment, housing, consumer deleveraging, and commercial real estate are the main things I’m looking at now. The housing crisis is a main part of our problems and we need to see stabilization there. Additionally, the American consumer will be responsible for helping to bring the economy back. However, for them to do that, they need to shore up their personal balance sheets first. And, who knows how long that could take. Lastly, as many have pointed out already, commercial real estate is in dire straits and could cause another set of problems for financial institutions. That said, how the market digests all that is unknown. Remember, the market can stay irrational longer than you can remain solvent.
CBM: Do you have a favorite investment that you’d like to share today?
While I don’t usually touch on individual investment recommendations, I’d harp on the idea that buying for the long-term can make sense on big market pullbacks. Maybe not right this second due to the big ramp up we’ve seen. But, if you’re buying assets in your retirement accounts and you have a long-term investment timeframe, there are and will be opportunities there. The main constituent of that play though is timeframe. Additionally, I’d mention that I’m an advocate of running a hedged book, at the very least for downside protection.
Also, seeing how this site is Commodity Bull Market, I’d be remiss if I didn’t mention allocating at least a portion of a portfolio to commodities, gold, oil, etc. Again, maybe not right this second since everything has run-up. Adding those at the very least for diversification purposes could be prudent.
If I had to name a ‘favorite investment’ though, I’d say our hedge fund replication Market Folly custom portfolio is one of my favorites. After all, it is seeing 25.8% annualized returns since 2000. It simply aggregates some of the top hedge fund holdings into a cohesive portfolio. I’m obviously a bit biased there though since I created that portfolio. While past performance is no guarantee of future results, the numbers do speak for themselves.
CBM: Great stuff Jay, thanks a bunch for sharing your insights with our readers.
MF: My pleasure, thanks for interviewing me!
Again, be sure to visit MarketFolly.com for the latest low down from hedge fund land.