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
Thanks a lot seabird!
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.
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.
Is there room for value investing in trading floors/hedge funds? (Originally Posted: 10/16/2010)
So first of all, excuse my ignorance because I'm really new to all of this, but I was wondering what some good trading desks would be for someone like me:
I have recently began trading and, even though I'm a total noob, my strategy thus far as been to buy blue chip companies that have fallen out of favor at bargain prices. Some call this value investing, but I also look at other factors, such as dividend growth, whether or not the business can grow/innovation, etc. so I'm not totally convinced that what I'm doing is pure value investing Therefore, I was wondering if there are desks for someone like this on a trading floor? At the risk of sounding like a complete ignoramus, it seems like most trading these days involves super exotic products or extremely mathematical models, so I'm wondering if there are if there are still desks out there for more "simple" strategies like mine, and what ones would fit me best? Another area I'm interested in is simple options trading (again, no quant stuff, just simple business/growth strategy analysis and analyzing non-quantitative trends), so you can include desks that do stuff like that as well.
I also want to work at a hedge fund some day, so I was wondering what types of funds will hire people from these desks, and if there are less mathematical hedge funds out there? Finally, what are some good books I should look at if I want to trade on some of the desks you would recommend to me? Again, I'm not really into quant stuff, but anything that discusses business strategy and how it relates to trading, or any good books about investing in equities/options that I should look into? Although I've had some success with my own trading thus far, this is with NO prior knowledge and educated guesses, which won't sustain me in the long run.
Sorry for the long post, but if you can help, that would be awesome!
Thanks!
bump
They're called mutual funds. They exist.
what are some of these bargain blue chips you talk about
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.
These things are cyclical dude. Yeah, I might not get as ridiculously low prices today as I would back then, but you can still buy some pretty cheap stocks right now. GS and most financials still have P/Es
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.
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.
^I approve this message.
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.
..Yeah I haven't taken any of those. Is that going to be a problem for non-exotic, equities/options prop trading?
funny how you randomly threw in stochastic calculus in there
I said perhaps as that is the highest I've heard anybody recommend for non-quant positions and the highest I've seen anybody use where I am for a non-quant position. With that said, I doubt you'd need that whatsoever.
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.
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