Stock Picking

April 11, 2016 § Leave a comment

I’m changing tack.

I have decided to contribute to the wider good and share some of my knowledge with you. I want to go beyond telling you what it is to work at a hedge fund. I want to tell you what it is specifically I do. Any why.

The second part is (of course) answered quite easily: money.

The first part is entirely focused on the acquisition of the second.

But give us specifics, Tim, you say. You’ve been away so long, we don’t want any more of your platitudes. We want to make money like you. Now.

Right. Enough talking. One of the prime hedge fund strategies which you, the lay investor, first needs to get to know is value investing. Value investing is the type practised by the likes of Warren Buffet. Seth Klarman. Michael Burry used to do it (and inadvertently stumbled on the greatest trade of all time in the process). It’s different to the type George Soros does. Or Jim Simons. Or the Citadel guy. You know who I mean. Crook. They trade on news. Data. “Tips”. No this isn’t like that. This is the nitty gritty.

Value investing is getting down to the fundamentals of the company stock. Getting into the deep darkness inside. It’s accountancy work. It’s number crunching. It’s serious figures. What’s worth more than it’s price reflects? Have the assets been overpowered by sentiment? What will the balance sheet look like in 5 years time not just in the next ten minutes? Is its cashflow stable? Does it have good management? Product. Who will buy? Intrinsic not extrinsic. It’s notes not music.

My first pick is therefore a value stock, Valeant Pharma. Valeant’s stock price has gone from $118 two years ago to $257 at its peak last year to $33 now. That my friends is price volatility. The company’s stuggled to meet debt levels. It’s been stung by sentiment. Fear. A shareholder revolt over its CEO. SEC investigation. Restated earnings. Delayed annual report. Overpriced product. Anything that could’ve gone wrong has. So Tim, why the confidence?

Why do I think the stock will do well? Two words: Bill Ackman.

Mr Ackman, CEO of Pershing Square, has at last count 19.4m Valeant shares. That’s a net bet of $1-2bn (purchase price). Bill, as he’s sometimes known, is one of the wormiest, cleverest, trickiest men in the world of hedge funds.Seriously he’s a cad.

My friend Bingo Buckman had lunch with a man who knows Ackman well. He said that Ackman’s putting his shirt on this. He’s all in. And Ackman, my friends, rarely gets things wrong. He will turn investor confidence himself. Ackman is one of the most revered people in this office. He has that thing which you need above all other things to be a successful hedge fund manager: an ego. (not a successful investor mind you. That just requires patience).

Ackman’s built his shop up from $50m to $13bn. He’s achieved some of the best returns on the street. He’s got more between the ears than most have between their legs. And he’s launching a rocket under Valeant.

What’s this got to do with value investing, Tim? Well let me tell you, my friends–my value investing isn’t the company. I’ve looked at the fundamentals of the man.

Ackman: that’s my pick of the day. Valeant: that’s his.





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