Value Investing in Hedge Funds

Hi guys and gals,

I'm a new monkey in here and I thought I should ask you (since you know a whole lot of stuff) about hedge funds and value investing.

Are there a lot of funds that use this approach?

How long is their average holding period?

Do they usually use the pure Graham approach (a bucket of 100+ cigar butts) or the Buffett & Munger approach (great franchises at good prices)?

How can one spot these funds in order to get a job there or invest alongside with them?

Thanks in advance for your time and answers.
Gregory

 

Lots of funds (mutual and hedge) say they are full of 50 cent dollars, though they clearly dont get the returns Buffett did. Check out this thread to see some pitches and potentially start your journey:

http://www.wallstreetoasis.com/forums/stock-research-investment-analysis

Not many cigar butts out there anymore. This is a good thread on how to get in:

http://www.wallstreetoasis.com/forums/life-at-a-top-asset-manager

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
 
Best Response
seabird:

Lots of funds (mutual and hedge) say they are full of 50 cent dollars, though they clearly dont get the returns Buffett did. Check out this thread to see some pitches and potentially start your journey:

//www.wallstreetoasis.com/forums/stock-resear...

Not many cigar butts out there anymore. This is a good thread on how to get in:

//www.wallstreetoasis.com/forums/life-at-a-to...

Seabird is the man.

Did you every apply to / hear anything from those jobs I gave you a while ago?

[quote=patternfinder]Of course, I would just buy in scales. [/quote] See my WSO Blog | my AMA
 
Simple As...:
seabird:

Lots of funds (mutual and hedge) say they are full of 50 cent dollars, though they clearly dont get the returns Buffett did. Check out this thread to see some pitches and potentially start your journey:
//www.wallstreetoasis.com/forums/stock-resear...
Not many cigar butts out there anymore. This is a good thread on how to get in:
//www.wallstreetoasis.com/forums/life-at-a-to...

Seabird is the man.

Did you every apply to / hear anything from those jobs I gave you a while ago?

Ya dude, havent heard back from them, so presumably no nibbles. Starting at a small pe shop while I look to worm my way in to the public space.

“...all truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” - Schopenhauer
 

The cigarette butts these days seem to be concentrated in smaller companies. Large funds have a hard time investing in the small cap names, which leads them to a more current-Buffet style. Seth Klarman made a good analogy of Buffett's investing evolution and put it this way: 1. Bought cigarette butts and got the last few puffs for free 2. Bought good companies at great prices 3. Buying great companies at so-so prices Klarman claims he's still in step 1.

Average holding period ranges from a few months to a couple of years. It depends on your fund but I'd say around 1 year. And I think a majority of funds like to think of themselves as value-oriented funds.

 

Bump, any serious answers.

As far as bargain blue chips, I bought P&G when it was below 60 (already up to mid 63s), I bought Intel when it was below $18, although its lagged a bit relative to my other positions. I'm also contemplating buying Goldman and Archer Daniels Midland on a pullback and GE if it get continues to get hammered due to its lowered revenue (going for a below $15 buy-in).

 

You Already missed the boat, it arrived in late 2008 and left in early 2010.

"One should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it." - Charlie Munger
 

A lot of hedge funds are value funds - if you look at some of their holding disclosures, you'll see that many are loaded up with blue chip names.

Trading, on the other hand, is not the same as investing. Fundamental value is rarely considered.

 

Yup, as yesman said a ton of them are value funds. A big portion of L/S equity are and then there's the deep value or activist funds. And then of course as Jerome Marrow said you have your mutual funds.

Trading's a completely different animal.

People like Coldplay and voted for the Nazis, you can't trust people Jeremy
 

Alright, then maybe I shouldn't be looking at trading, but what career is involved with investing (i.e. buy and hold) besides certain types of hedge funds? I think I'm most interested in following markets and investing in beaten up stocks and some growth stocks, so should I maybe look into equity research instead or even private banking? Can ER still lead to hedge funds though?

Also, just out of curiosity, I've heard a lot about "global macro" hedge funds, so I was wondering if those require an extremely quantitative background to succeed in? Actually, what are the desks in S&T that are generally less quantitative and more business analysis oriented?

 

With ER, you become an expert on a handful of companies and their industry. You follow the market insofar as it impacts the fundamental and comparable valuations, and your buy-sell recommendation, but you are by no means an investor or a portfolio manager. A lot of ER people end up at hedge funds, so ER can be a great place to begin your career. But you won't be managing money.

It sounds to me like your best bet is to stay out of BB (and by this, I mean IBD, trading, and ER roles) and opt for investment management, wealth management, and/or Asset Management.

Global macro hedge funds are not defined by how quantitative they are, but rather, by what markets they operate in. In general, they're sovereign rates, FX, and certain commodities. "Macro" refers to the lack of industry/company focus.

 

Well, I don't necessarily need to be actively managing money, I just enjoy following the markets and trying to make money by trading, which S&T/Hedge Funds sound like they are (correct me if I'm wrong). I'm just worried that because I'm just a "business" major and not a quant jock that there's no desks available. I don't necessarily need to be a portfolio manager or doing value investing, and I'm not completely incompetent at math (no e-brag because these are easy math classes, but I got an A in calc and A+ in stat, so I'm not retarded either), but I know that I'm not going to be able to compete with the real math wizes, so I just want to make sure that there is a place for me that is more business-oriented in its strategy as opposed to stochastic processes or whatever the hell you math majors do. That's all. ER also sounds really interesting, but wouldn't Trading be better for hedge funds since it will teach you how to hedge against losses instead of just rating stocks? If ER leads to hedge funds though, I should probably look into that as well. Are there boutique ER/Trading shops like there are boutique IB shops, or is ER/Trading mostly done in big time BBs/banks?

PS: Maybe these forums are making me stupid, but aren't IM/AM/WM the worst places to be in terms of pay, exit opps, job satistication, etc.?

 

Here is a little secret. Most people get into a field to work not thinking about exit ops. IM/AM/WM can all be great careers with the potential for a lot of success. This who exit opportunity bullshit is ruining people on this board.

 

..Yeah I haven't taken any of those. Is that going to be a problem for non-exotic, equities/options prop trading?

Jerome Marrow:
It doesn't exactly take that high of a level of a quantitative background to land a solid trading gig. Linear algebra, an intermediate level of statistics, econometrics, perhaps stochastic calculus, etc. is more than enough for all of the positions that aren't specifically targeted towards quants.
 

None of what you're describing makes you sound like a fit for most trading desks. If deep value and GARP are your thing, you best bets are IBD (big feeder into L/S hedge funds) or traditional Asset Management (an excellent career, regardless of what some people here say). The only desk that seems to fit what you are talking about is HY credit.

Also, take a look at Oaktree's website. These guys are a fundamental shop and but they're not clueless about the macro picture, as Howard Marks' excellent commentary proves.

 

You should consider institutional sales. Sales guys will cover plenty of value funds and are constantly pitching those accounts value ideas (and are not tied to one sector like Equity Research Analysts are). Also the shorts they pitch to these guys tend to be 'fundamental shorts' (vs valuation shorts), i.e. something is wrong with the business and you think the stock will trade down over time. There are plenty of PM's and analysts on the buyside who are former institutional salespeople as well as research analysts. They were able to build great relationships with money managers and get good at identifying good investment and/or trading ideas over time. Basically it all boils down to knowing the right people and being able to help them make money.

 

Quae exercitationem sit cum autem omnis et ipsam. Dolorem quis quos dicta voluptates. Et repudiandae eos sunt quo nesciunt. Aut veniam autem quo porro quae. Exercitationem fugit exercitationem quibusdam laboriosam ad quis aut. Voluptatem cupiditate ullam in ut eligendi. Laborum minus officia sunt.

Delectus minima quis veniam omnis voluptatum repellendus optio. Non qui doloribus vel porro blanditiis in possimus. Aut inventore sed esse quasi reprehenderit. Rerum a fugiat illo aut qui. Commodi consequatur dignissimos quibusdam quam aut odit saepe.

Qui ut eum ab ab. Eaque itaque totam est iure. Natus perspiciatis laboriosam asperiores molestias ratione autem. Aspernatur ut ratione ut in consequatur aut adipisci. Blanditiis omnis rerum non rerum et. Fuga distinctio laudantium tempora ut nemo commodi quasi.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
dosk17's picture
dosk17
98.9
6
CompBanker's picture
CompBanker
98.9
7
kanon's picture
kanon
98.9
8
GameTheory's picture
GameTheory
98.9
9
DrApeman's picture
DrApeman
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”