Hedge Funds: Forced Selling Provides Opportunities

by: Market Folly October 24, 2008 | about stocks: AAPL / CLF / FCX / GOOG / POT    

Market Folly

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

Through this mess, numerous opportunities will arise. As the saying goes, "buy when there is blood in the streets." Well, the streets are flooded and Warren Buffett has already begun buying, getting ridiculously good deals for himself that retail investors could only dream of. But, the point of all this is that there are indeed opportunities. The main caveat with these opportunities is time frame. More likely than not, investors will need a very long-term investment outlook in order to see stocks appreciate given the volatile market we are in and will continue to be in.s

Veteran hedge fund manager Jeff Matthews of Ram Partners had recently said that numerous hedge funds had overly concentrated portfolios which ultimately led to their problems. Also, he notes that numerous shops were mainly long, or mainly short, instead of being truly hedged as a hedge fund is supposed to be by definition. You can see Jeff's commentary on a recent Tech Ticker video here.

It's easy to see where numerous hedge funds had stacked their bets. Energy and natural resources plays have just been absolutely hammered week after week. Some of these equities are already priced for global recession and the apocalypse. Yes, a slow down is imminent. But, a global recession, I'm not so sure. In any event, the caveat once again comes down to time frame. We have no idea of knowing how long it will take the market to deleverage, how long it will take the hedge funds to liquidate, and how many more investor redemptions there might be.

But, we do know that names hedge funds typically favored have since been put on fire-sale due to forced selling. Some of these names include Potash Corp (POT), Cleveland Cliffs (CLF), Freeport McMoran (FCX), and many other energy names. Hedge funds also favored tech giants Apple (AAPL) and Google (GOOG). Many hedge funds we track here on Market Folly have held large positions in those very names. You can view Boone Pickens' BP Capital portfolio here, Atticus Capital's portfolio here, Harbinger Capital's portfolio here, and Lone Pine Capital's portfolio here.

Related Articles

This article has 9 comments:

  •  
    Oct 24 09:43 AM
    they should all fold.the wealthy chasing more wealth.who needs it?
    Reply | Link to Comment
  •  
    Oct 24 10:42 AM
    Look at the moves in SHLD. Rats jumping ship.
    Reply | Link to Comment
  •  
    Oct 24 10:46 AM
    Good stuff. Not new news at this point, but it does seemed confirmed by market action. This forced cleansing would seem to set up the extraordinarily punished stocks for a bright future coming out of this period.
    Reply | Link to Comment
  •  
    Oct 24 12:07 PM
    This is a great time while they are deleverage themselves, we can get great deal on great companies who's stock is devalued from all the selling. Don't get me wrong i don't think that they will be going back up in the next year but for the long run i think this is a great time to buy.
    Reply | Link to Comment
  •  
    Oct 24 12:26 PM
    look, SJ wan`t aapl lower then $87 (otherwise he would earn just a $ per year), but he want to menage cash to rase for about 50% of share,. I belive he want to make apple a private company again.
    Reply | Link to Comment
  •  
    Oct 24 12:56 PM
    went to make apple ...
    Reply | Link to Comment
  •  
    Oct 24 10:45 PM
    SHLD is pure crap and the downturn in it's stock is well deserved
    Reply | Link to Comment
  •  
    Oct 25 12:14 PM
    Financial institutions and hedge funds are in some sort of "foreclosure"... [forced liquidation].

    Companies like FCX and POT are not going out off business. Regardless of a state of economy people must eat, drink, get medical care and move around (transportation). One may drive an old car for a long time but his/her car still need "new" gas (there is no way to use "old" already used gas).

    Consequently, companies, in the mentioned above sectors, are still will be around doing business regardless...

    Consequently, POT may not be going back to $250 but, with the present PE ~6, it easy can double in price as soon as the present panic is over. Otherwise, it management will start a major shares buyback programs.
    Reply | Link to Comment
  •  
    Oct 25 10:11 PM
    Hedge fund dumping massive amounts of stock to come up with cash for redemptions, loans, margin calls, etc.

    This dumping lowers the value of the remaining stocks they own which forces more selling. And so on. What is the sense to all this? Qui bono?
    Reply | Link to Comment
More Comments on POT ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Market Folly

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Hedge Funds
Bonds
Dollar/Currencies
Earnings