LinkFest

Microsoft is unveiling their “cash-back for search” offering (which is where you get anywhere from 2% – 30% for buying something that popped up from your search). Why stop there? Why not pay x% of clicks when the user searches and clicks on an ad?

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Larry Kochard has a great Market Wizards style book that interviews endowment managers (Foundation and Endowment Investing) – I highly recommend it. Here is an interview with him at the Motley Fool.

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Keynes the money manager

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Just added Financial Crookery, blog.pmarca.com, and Greg Mankiw to the blogroll.

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SPACs move to the Big Board

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Fundy Indexing Smackdown

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Lots and lots of great info over on Ed Easterling’s site Crestmont Research.

List of good charts on their Executive Summary

50% of the time stocks return < -16% or > +16% !

Perspectives on Hedge Fund Investing

13F Hedge Fund Best Ideas and Consensus Approach

Looks like another great quarter for the hedge fund tracking strategies. My previous observation that the funds exhibit similar downside volatility and much higher upside volatility looks like the right take away from this Q. Historical testing showed a FOF approach outperforms by about 6-12% a year, and out-of-sample results in 2007 (roughly 10% outperformance) and 2008 (roughly 5% YTD) is a good indication that the model is working.

I sat down with Mark Yusko from Morgan Creek the other week, and he commented that the top holding for many of these funds on their 13F is likely not their best idea, but rather was their best idea and has simply appreciated the most. I reserve judgement until I see most of the data from lots of funds, which is why alphaCLONE is going to be such a cool software app (I’m starting to get really excited, the behind the curtains look so far is awesome). Sign up to keep abreast of the launch, targeted for this Summer.

On to the 13fs!

Bespoke takes a look at the hedge fund sector bets here. Taking the top three sectors from each manager below, I find the top sectors are Services 39%, Tech 37%, and Financial at 14%.

Hedge Fund Consensus - Top holdings owned by 15 value hedge funds, ranked by # of funds with the same position. Mastercard was the standout performer, and America Movil (AMX) was the only laggard. Everyone still loves Qualcomm.

AAPL (3)
AMX (4)
AXP (3)
COV (3)
EMC (3)
GOOG (3)
MSFT (3)
QCOM (5)
WMT (3)

The list of double repeats is at the end of the post.

Hedge Fund Best Ideas – Top two holdings from each of 10 value hedge funds listed below. Mastercard (MA) and Southwestern Energy (SWN) were the standout performers, and America Movil (AMX)was the worst.

AAPL
AMT
AMX
AXP
CA
CDNS
CSX
GOOG
HPQ
KO
MHP
MSFT
NWS
ORCL
QCOM
RIMM
ROST
TGT
WFC
WLP

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Baupost Group

Klarman doubled down on his top three holdings News Corp (NWS), Wellpoint (WLP), and Exterran (EXH). He sold out of his SLM position. New positions include Theravance (THRX), Sapphire Industrials (FYR). and Borders (BGP).

Top sectors in the portfolio include:

Financials 30%
Services 21%
Energy 22%

Top 10 holdings are:

NWS
WLP
EXH
LINE
UFS
THRX
APL
ELOS
HRZ
FYR

Blue Ridge Capital

Griffin runs a pretty diversified portfolio, and he was added to his top name American Express (AXP). New positions include Google (GOOG), Apple (AAPL), and Wyeth (WYE).

Top sectors in the portfolio include:

Services 30%
Financials 22%
Technology 25%

Top 10 holdings are:

AXP
GOOG
CVA
AAPL
SCHW
MIL
DISCA
TV
WMT
MLM

Warren Buffett

Top 10 holdings are:

KO
WFC
PG
AXP
BNI
KFT
JNJ
WSC
USB
BUD

Eminence Capital

New position in Cypress Semi (CY), sold out of Comcast (CMCSK).

Top sectors in the portfolio include:

Services 28%
Technology 40%
Conglomerates 10%

Top 10 holdings are:

ROST
AXP
ORCL
PHG
FISV
SAI
MSFT
ZBRA
DGX
CSCO

Greenlight Capital

50% of Einhorn’s portfolio is in his top three holdings, and he was adding to all three – Target, Microsoft, and Ameriprise, and selling some Helix. New positions include Patriot Coal (PCX), Echostar (SATA), and Energy Partners (EPL).

Top sectors in the portfolio include:

Services 27%
Financial 17%
Technology 17%

Top 10 holdings are:

TGT
MSFT
AMP
HLX
MDC
URS
COV
HMA
BAGL
MIM

Lone Pine Capital

New positions in XTO Energy (XTO) and Monsanto (MON), sold out of Coach (COH).

Top sectors in the portfolio include:

Services 16%
Technology 43%
Energy 16%

Top 10 holdings are:

GOOG
QCOM
AMX
AAPL
XTO
SD
FAST
SWN
INFY
V

Maverick Capital

Ainslie was adding to his largest holding Research in Motion (RIMM), and added new positions in Starbucks (SBUX) and Wyeth (WYE).

Top sectors in the portfolio include:

Technology 30%
Services 25%
Healthcare 15%

Top 10 holdings are:

RIMM
AAPL
QCOM
AMD
MRVL
BK
TXT
AZO
GME
AVP

Okumus Capital

Okumus’s top holding is a new position – Cadence design System (CDNS). He added to McGraw Hill (MHP) and initiated a position in CA. He sold out of Bed Bath and Beyond (BBBY).

Top sectors in the portfolio include:

Technology 52%
Services 46%%

Top 10 holdings are:

CDNS
MHP
LTD
ODP
ARB
PZZA
MHP
SHOO
CA
QSFT

Private Capital

Top sectors in the portfolio include:

Services 32%
Technology 35%
Financials 22%

Top 10 holdings are:

CA
HPQ
MGM
SYMC
RCL
INTS
RJF
EK
JWA
S

Tiger Global

New positions in Apollo (AINV) and Cree (CREE). Sold out of

Top sectors in the portfolio include:

Services 33%
Technology 28%
Financial 14%

Top 10 holdings are:

CSX
AMT
AMX
MA
GOOG
MELI
BIDU
TDG
SBAC
PCLN

List of double repeats:

BRK
CA
CSCO
CTV
DFS
ETN
INFY
MA
MDC
MHP
ODP
ORCL
PCLN
SAI
SBAC
TGT
TMO
TT
TXT
UTX
WLP

Want to blow something up?

My all time favorite YouTube to take you into the weekend (Spike Jones: Lakai- Fully Flared Intro) – I’ll be enjoying myself in the surprisingly warm city by the Bay at the Oyster and Beer Festival. Have a great weekend!

Buffett the Endowment Manager

I downloaded a few of the sample PDFs at 13D research, and Kiril Sokoloff puts out some pretty interesting pieces.

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What’s the point of indexing hedge fund beta? Isn’t that the part you DON’T want?

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Munger at Harvard

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Back in March of 07 I wrote that I would likely see some follow on managed futures funds, and the pricing would come down. Well, here is one on the way. Let’s hope it is cheaper than the Rydex fund. A few old commodity posts here:

The Next Generation of Commodity Indexes
Taking it Back to the 80′s
Renaissance to Launch New $25B Managed Futures Fund

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No wonder Grinnell College is #7 on the Private Endowment list, thanks Warren Buffett (and Robert Noyce). From the New York Times article “Big Spender“:

Lighthouses Rule

I will be in SF Friday – Tuesday if anyone wants to meet up.

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The 13fs are rolling in and I will be updating the Hedge Fund Best Ideas and Consensus strategies this weekend. Are there any funds readers would like to see backtested? Maverick, Blue Ridge, Appaloosa, King Street, Baupost?

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I can’t read enough about evolutionary biology, and Olivia Judson is the best. From “A Seedy Rivalry“:

A standard indicator of the risk of sperm competition is the ratio between a male’s body size and his testes: the larger the relative size of the testes, the greater the historical risk of sperm competition. (Larger testes mean larger numbers of sperm.) Chimpanzees — a species in which females are fantastically promiscuous — have enormous testes. Gorillas — a species where they’re not — have tiny testes. Humans are in between, albeit closer to gorillas than to chimps — which is consistent with a moderate, but not huge, risk of sperm competition in the past.

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Quote of the day, “A ship in the harbor is safe – but that is not what ships are for” – John Shedd

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In honor of the passing of the great Swiss chemist Albert Hoffman (who was 102!), below is one of my favorite and most quoteable YouTube videos. But then again I have the humor of a 12 year old.

Not safe for work. Half the people that see it love it, and the other half think it is the stupidest thing they have ever seen.

My paper just passed 10,000 downloads, which places it in the top 30ish downloads of all time (out of about 160,000), and near the top 10-15 finance papers. Seeing as 7 of the top 10 in finance are authored by Fama, French, or Jensen, that’s some pretty good company.

I have received emails from people all over the world who have put the model to work (with their own tweaks). Everything from small retail accounts to multi-hundred million dollar hedge funds. If you are using the model, drop me a line and let me know your experience. 2008 should be a good showing so far.

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Quote of the day, “All the trouble in the world is due to the fact than man cannot sit still in a room” – Blaise Pascal

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Harvard as a tax-free hedge fund?

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Bill Miller is struggling.

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Need some eclectic new music in your rotation? Check out I Liked This.

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No wonder people have a dim view of the investment business. A few of the presentations at the Money Show today in Las Vegas:

“Double Your Money in Six Weeks with a Conservative Option Approach”

“A Low Risk Approach to Doubling Your Money Every Three Years”

“How to Get Rich with X Product”

I would like to ask the presenters, “So when was the last time you doubled your money?”

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I don’t get why every scandal these days gets -gate tacked on at the end of the name. I mean, what does the Patriots recording football practices have to do with a Washington DC hotel during the Nixon administration?

Buy the Rumor, Short the News

I am a big fan of David Einhorn (haven’t yet had the chance to read his book), so I was glad to see the videos Barry posted on his site. Einhorn has a website here for his new book as well.

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From an article at HedgeWeek on the foreign listed funds:

Why this sudden explosion of IPOs? One reason is easing of the rules for listing on the London Stock Exchange’s Main Market, including a provision allowing dual listings. But mostly fund IPOs are becoming an attractive route for managers to increase assets and diversify their revenue streams.

With increased competition and global uncertainty, a listed vehicle is a good way to capture investor interest. As one hedge fund manager puts it: ‘It is basically a move toward permanent capital.’

The fact that many funds are following the IPO route is an indication that investor interest is out there, which goes to show that even in the current investment climate, well-founded IPOs will attract solid support.

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Mike Zarren 2, LeBron James 0

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An article in the Times by Mark Hulbert, Report Earnings and Watch the Stock Fall, profiles the following paper:

Limited Attention and the Earnings Announcement Returns of Past Stock Market Winners by Aboody, Lehavy, and Trueman

Abstract:
We document that stocks with the strongest prior 12-month returns experience a significant average market-adjusted return of 1.58 percent during the five trading days before their earnings announcements and a significant average market-adjusted return of -1.86 percent in the five trading days afterward. These returns remain significant even after accounting for transactions costs. We empirically test two possible explanations for these anomalous returns. The first is that unexpectedly positive news hits the market over the few days prior to these firms’ earnings announcements, and that unexpectedly negative news comes out just afterwards. The second possibility is that stocks with sharp run-ups tend to attract individual investors’ attention, and investment dollars, particularly before their earnings announcements. We do not find evidence for an information-based explanation; however, our analysis suggests the possibility that the trading decisions of individual investors are at least partly responsible for the return pattern we observe.

-70%? Now that’s what I call a drawdown

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Picks from the Value Investing Congress West

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I wonder how a tactical system using the timing model would perform on just high vol asset classes? Maybe the following?

Nasdaq (QQQQ)
Microcaps (PZI)
Foreign Emerging (EEM)
Foreign Small Cap (GWX)
Junk bonds (HYG)
Emerging Bonds (ESD)
REITS (VNQ)
Foreign REITS (RWX)
Commodities (DBC)
Commodities (GSG)

Any other high risk ETFs that could be used?

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Forbes bungling of their aggregator opportunity is getting worse. From an email I received yesterday:

Please assist us in building the relationship with OptionsXpress and others. We are asking you to place an OptionsXpress widget (no revenue – it’s a small widget, I promise) on your site (above the fold). By placing this widget on your site, you will provide OptionsXpress with additional exposure, branding and awareness. This additional exposure will add to our solid click through rate performance and to increased sales / conversions for OptionsXpress. Increased conversions will lead to renewals at higher revenue commitments.

I just want to be clear that this is entirely voluntary and there is no requirement you need to do this– there is no commitment from us to OptionsXpress regarding the widget…however our experience shows us this may indeed boost future revenue levels from this advertiser

So, not only do you take most of the revenue from the blog, then you run ads for the Forbes site for 3 months, then you ask the blogger to run free widgets? What?

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Spam Again

I wonder if my email address being listed on the blog results in so many emails getting tossed into the spam folder?

Once again, if you have emailed me recently and have not received a response, please fire it back over.

When Markets Collide

I don’t really like responding to comments in the comment section because I feel like no one reads them. I am going to start including reader questions with answers at the end of some posts. At the end of this post is one related to my last rant on the hedge fund space.

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I just signed up, and at $1/day, a subscription to Bespoke Premium is a steal.

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I was at the NAAIM conference earlier this week, and I heard a great analogy this week about drawdowns and time frames. Greg Morris said that investing in stocks for the long run is nice – if you’re a Sequoia Tree or a Giant Tortoise (or an endowment).

Recovering from a -30% loss (at 10% returns) requires about 4 years to get back to even, a -40% loss 6 years, and a -80% loss an insurmountable 20 years. . .

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Quote of the day, “All progress is based upon a universal, innate desire on the part of every organism to live beyond its income.” – Samuel Butler

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PIMCO manager/Harvard endowment/PIMCO manager El-Erian has some new Summer reading for you – When Markets Collide: Investment Strategies for the Age of Global Economic Change

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Popular Mechanics puts the Aptera in the lead spot to win the X-prize. With oil hitting new highs, I really should have put down the deposit for one of these instead of that SUV.

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My response to comments are below:


Hedge funds are over rated.

I don’t want it to seem that I am a cheerleader for hedge funds across the board because there are plenty of crappy ones. However, I don’t see why they should be limited to rich people. I like the option to invest in hedge funds. As I mentioned in another post, “hedge fund” is just a legal structure (and typically a fee structure).

So why don’t you start a service that provides knowledge of and access to these foreign alternatives to the small American investor. Isn’t that doable? Just a service that covers the 50 or so listed FOFs in London, along with education as to how to integrate them with a multi-asset conventional portfolio ( a la Yale endowment, etc, which you write so much about) would be huge.

You would not only be a hero, but considering that the hedge fund industry is over $2 trillion, and the little guy here still has no viable access, you might stand to make a pile as well.

I would absolutely love to. For an example, about 10 of the 40 odd FOFs listed abroad had investments in the Paulson funds (which were up 200-500+% in 07). However, a US investor really can’t invest in them due to PFIC rules and their tax implications (namely you get hammered at current income taxes and have to mark to market the positions). I am convinced that Powershares is either unaware of these implications for their PFP fund, or are not admitting to it. They haven’t surfaced because the fund has gone straight down, but when it goes up I imagine the holders will get a very nasty surprise with their tax distributions. I hope I am wrong.

As far as I can tell, the individual funds should be OK for tax deferred accounts (IRA, etc).

To try and get around the taxable problem I have been chatting with the index providers about developing an index on the foreign listed funds – I’ve owned the domain listedhedgefunds.com for some time but have just been waiting for someone else to do it. I think with some clever financial engineering and maybe some swaps you could get around the tax problems. Stay tuned.

As an aside I was reading an article in Futures magazine last night written by Daniel Collins. It detailed the difficulty in developing alternative funds for the retail market. He used the Frontier Funds as an example, whose prospectus is 535 pages long. So onerous are the listing requirements that the CIO estimates the breakeven cost on most of their products at 2.25%. The cost structure ends up being around 4% and 20%, which is higher than Winton’s 1% and 20%, but the minimum goes from $1M to $1,000. (The article also mentioned Peregrine Financial’s CTA seeding program.)

[PS - I liked the comment posted for an educational requirement to invest in alternatives (or really any listed product) instead of the accredited rule. Why not have a dimple DMV driving test style test use could take online to invest in them? I know a lot of uninformed rich people as well as many brilliant and versed non-accredited individuals.]

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