Victor Niederhoffer: Lessons of Making and Losing a Fortune (Masters in Business Podcast)

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Legendary trader and speculator was recently interviewed by Barry Ritholtz on the Bloomberg Masters in Business Podcast.

You can find the full podcast interview here:
Victor Niederhoffer: Lessons of Making and Losing a Fortune (Masters in Business Podcast)

 

For more on Victor Niederhoffer, refer to this 2007 profile in the New Yorker:
The Blow-Up Arist (New Yorker Profile)

There are also some bits and pieces of a nineties documentary on Youtube. Niederhoffer was interviewed after he the Asian financial crisis blow-up.
Video: Victor Niederhoffer after he lost everything in the 1997 Asian Crisis

Dalio’s Quest to Outlive Himself (Bloomberg profile)

In-depth profile of Ray Dalio by Bloomberg Magazine.

Jobless, Dalio started Bridgewater in 1975 out of the second bedroom of his Manhattan apartment. Ever since he’s had a nose for steering his business toward ever more lucrative work. At first he advised companies on risk management. Then he managed bond and currency portfolios for them. 

With the upcoming release of his Principles book, Dalio is seeking to cement his legacy.

“The last act in the biography of the hero is that of the death or departure,” Campbell wrote in The Hero With a Thousand Faces. For his part, Bridgewater’s founder is looking toward the end of his journey. “Life exists in three phases for me,” Dalio says. “There’s the first phase in which you’re learning and dependent on others; there’s the second phase in which you’re working, and others are dependent on you; and then there’s this third phase where no one is dependent on you, and you’re free.”

Full article here: Dalio’s Quest to Outlive Himself

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Jeffrey Gundlach: The Man Behind the Millions (Buffalo News profile)

The Buffalo News published a long profile of DoubleLine founder Jeffrey Gundlach. The article delves into Gundlach's youth and his passion for art.

His philosphy:

“I don’t spread things thin,” Gundlach told the News in September, after his Albright-Knox donation was announced. “I focus deeply. I do that with my work, with my company. I want to make a difference to the things that I apply myself to and not just, as T.S. Eliot said, mete out my life in teaspoons.”

His rapid ascent once he entered the financial world:

Within six months, Gundlach, at 26, was managing Chrysler’s pension fund. Over a 24-year career at TCW, he built the firm’s bond business into a national powerhouse.

And his passion for modern art:

Gundlach is a long-suffering Bills fan, but his interest in football is dwarfed by his passion for art. And although he grew up visiting the Albright-Knox, Gundlach didn’t gain an appreciation for modern and contemporary art until a 2002 trip to the Tate Gallery in London, where he came across a man sketching a Mondrian painting.

“It’s like I’m hit by a thunderbolt,” Gundlach said in September of the painting that changed his life. “All of a sudden, at that moment, all I cared about was more modern art.”

Almost immediately, Gundlach began collecting 20th century pieces. Every room of his house – from the living room where a Calder mobile spins in front of a $28 million Warhol portrait of Marilyn Monroe to a hallway where a Diebenkorn landscape dialogues with a transcendent Mondrian – feels like a conversation across art history.

 

Full article here:
Jeffrey Gundlach: The Man Behind the Millions (Buffalo News profile)

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Adventures in Finance Podcast: Kyle Bass

Do not miss out on this excellent Adventures in Finance podcast episode with hedge fund manager Kyle Bass.

Kyle talks about defining moments in his early life and his early career on Wall Street. He describes his first short selling success: German shipping stock Bremer Vulkan which went bankrupt. This success was followed by a painful loss and margin call shorting Radisys.

Of course the conversation also touches on the Chinese credit bubble and cryptocurrencies.

Full episode here: Adventures in Finance Podcast: Kyle Bass

 

Bridgewater’s Ray Dalio Spreads His Gospel of ‘Radical Transparency’

New York Times Dealbook article on Bridgewater Associates's Ray Dalio and his famous "Principles".

Bridgewater is now by far the world's largest hedge fund:

Over four decades, Mr. Dalio, 68, has built Bridgewater, which has $160 billion in assets, into the largest hedge fund firm in the world — bigger than the next two largest hedge funds combined. He manages money for some of the largest companies, big public pensions, sovereign wealth funds and even some central banks. He has become a financier-statesman, of sorts, consulting with political leaders in China, the Middle East and elsewhere.

The Principles will soon be published:

On Sept. 19, Simon & Schuster will publish “Principles: Life & Work,” a 567-page book written with editing help from a former GQ magazine writer that combines Mr. Dalio’s rules with a memoir. He is also working on a smartphone app — once called the Book of the Future — to help other business leaders apply the Principles.

 

Full article here:
Bridgewater’s Ray Dalio Spreads His Gospel of ‘Radical Transparency’

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Neil Woodford: A Summer in Perspective

Interview with Neil Woodford of CF Woodford Equity Fund on the fund's three year anniversary.

The conversation touches on individual stocks in the portfolio (including challenging positions like Provident), the stock market, China, the UK, and other topics.

 

Full blog post: Neil Woodford: A Summer in Perspective

The fund experienced a challenging summer 2017:

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stratechery on Ad Agencies and the Google-Facebook Duopoly

WPP, the world's largest advertising conglomerate, reported poor results and the stock got hammered.

Stratechery's Ben Thompson published an insightful post on how the advertising ecosystem is changing, what it means for companies like WPP and how it could require antitrust action in the future.

On the change of the media value chain:

The parallel should be obvious: the clearest manifestation of how the media value chain has been fundamentally reconfigured is the fact that advertising has fled newspapers in particular; in other words, the media story is an advertising story, which is to say that given the upheaval in the media industry, the most surprising part of WPP’s struggles is that it took this long to manifest (thanks, primarily, to television’s resilience).

The new media value chain with the Google-Facebook digital duopoly.

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On the dominance of the tech titans:

There is another context, though: the increasing appreciation outside of technology of just how dominant companies like Google, Facebook, Amazon, and even Netflix have become, and more and more discussion about whether antitrust is the answer. The problem is that much of this discussion is rooted in the old value chain, where power came from controlling distribution.

You can find the full post here: stratechery: Everything Is Changing; So Should Antitrust

 

 

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

 

 

The Unparalleled Explosion in Cryptocurrencies

Great charts from Visual Capitalist on the boom in the cryptocurrency space. Total cryptocurrency coin market capitalization is nearing $200 billion. 2017 has seen more than 300 Initial Coin Offerings of at least $1 million. The space has been red hot (some would call it a massive bubble).

 

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Investor Who Lost Millions Finally Gives Up on His China Bet

Mark Hart of Corriente Advisors was long-time and vocal bear on China and its currency. It seems that he recently gave up on his short position.

And now he’s lost his conviction: Hart, who called for a more than 50 percent yuan devaluation last year, has turned bullish on China and its currency.

Bloomberg wrote a long profile of his short Yuan bet last year: Mark Hart: The Seven-Year Short

Hart's Yuan short was long and painful trade:

Even at its weakest point, the yuan never dropped enough to move the needle on Hart’s wager, which started in 2009. His dedicated China funds, which had fixed lifespans, bought options that were designed to deliver one of two outcomes: a massive payoff in the event of a currency crash, or a near total wipeout if a major devaluation failed to occur.

The trade went against him almost from the beginning. After holding steady for the first six months of 2010, the yuan strengthened for the next three and a half years. It eventually reversed course, but the sharp devaluation that Hart had anticipated never materialized. His second China fund shut in December. All told, he lost between $240 million and $250 million.

Hart has changed his views and moved on. He thinks the crackdown on capital outflows and overseas M&A deals was effective. 

 

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Kathryn Staley: The Art of Short Selling

In 1996, Kathryn Staley published her book on short selling: The Art of Short Selling. We have added a collection of her work to the site. Kathryn used has taught financial statement analysis for the Association for Investment Management Research (AIMR), was an analyst and portfolio manager at Gilder, Gagnon, Howe & Company, and lectured on short selling and accounting matters topics.

 

 

Kathryn Staley, author:: The Art of Short Selling:
Book: The Art of Short Selling
2007, video: Speech: Selling Short at CARE Conference 2007
1997, article: Searching for Real Earnings: Practical Suggestions
Blog post: Notes on “Selling Short”, Kathryn Staley
Blog post: Short Sellers – according to Kathryn Staley

Goehring & Rozencwajg: Second Quarter 2017 Letter - Bullish Case for Commodities

The Goehing & Rozencwajg Associates second quarter 2017 letter lays out the bull case for commodities.

Valuations, as compared to US equities, are historically cheap:

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GRA believes Indian commodity demand growth will be strong:

However, a new source of demand is about to emerge that few (if any) analysts mention: India. The same research and modelling that correctly predicted the rise of China early last decade now tells us India today is rapidly approaching its “tipping point” of rapidly accelerating commodity consumption. In fact, our research leads us to believe that India today is precisely where China was back in the early part of last decade. (For a further discussion of the China-India parallel, please read the “Global Oil Market” section of this letter.)

And supply growth will disappoint:

Second, our models tell us that supply disappointments loom in many commodities while the conventional consensus opinion believes that supply will continue to surge. The global oil market presents a great example of the discrepancy between consensus belief and reality. For the second year in a row, new conventional oil discoveries have contracted to almost nothing. 

Not surprisingly, the firm is very bullish on commodities:

Please study the chart at the top of this essay. At current levels, an investor has an opportunity to profit in commodities that comes only once in an investment lifetime. Everything has been set up, and yet few (if any) have made the investment. Spectacular returns await the few who do. 

 

 

 

You can find the full letter here: Goehring & Rozencwajg: Second Quarter 2017 Investor Letter  

And more hedge fund investor letters here: Hedge Fund Second Quarter 2017 Investor Letters

 

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

 

The Death of Many Brands

Consumer brands are increasingly under threat as consumers switch to private label products both online and offline. 

Ensemble Capital just posted their take on what is happening to consumer brands:

These brands created value by lowering “SEARCH COSTS” for consumers. Search costs are the costs incurred by a prospective buyer in trying to determine what to buy. In the case of a consumer packaged good like canned food, toothpaste, or laundry detergent, the search cost for consumers is the cost of trying to determine the quality of the product and weighing this against price differentials prior to purchase. 

Times have changed:

An alternate way to reduce search costs is for the distributor rather than the product manufacturer to play this role. The success of Costco is in large part built on the idea that any product sold in their stores is of high quality and is a good value.

But now the internet allows for the reduction of search costs on a global scale. Products like LaCroix sparkling water, Dollar Shave Club razors, and transportation service delivered via Uber have all exploded onto the scene, draining value from the Coke, Gillette and Yellow Cab brands because in each case, the online distribution of information radically reduced search costs for consumers. 

Their take:

We don’t think the internet or social media or the logistical monster that is Amazon are doing anything to reduce the importance that people place on the role that brands play in developing and expressing self-identity. But we do think that these trends are bringing to an end the 70-year run of excess returns earned by companies who built their businesses on the back of search cost brands.

Clients of Ensemble Capital own shares of Costco (COST), Ferrari (RACE), Nike (NKE) and Tiffany & Co (TIF).

 

Full blog post here: Intrinsic Investing: The Death of Many Brands

 

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

Industry Primer: Are Video Game Companies the New Soft Drink Giants?

Very interesting thoughts on the video game industry (and specifically the large distributors) and similarities to distributors of other "sin" products (spirits, tobacco, and soda).

I believe this was the genius of Buffett’s investment in Coca Cola. Coca Cola’s business model was about creating distribution across the globe, to the point where it was easier to find a bottle of Coca Cola than a bottle of water in far flung places. With this massive distribution network, it was easy to simply acquire new brands or create new products and gain impressive topline and margin growth from pushing various products through your large horizontal channel.

And the gaming sector analogy:

– Relative low price point and inelasticity
– Highly addictive products
– Cyclical defensive
– Ability for some to capture consumer surplus
– Consistent high margins and ROE

In many ways, gaming has many of the same characteristics as the other addictive sin products. 

However, the rapid release and innovation cycles of gaming resemble more those of movie and tv studios.

Unlike tobacco and alcohol, which have had the same recipe for hundreds if not thousands of years, video games must innovate in a timely matter less it becomes stale and monotonous, requiring large amounts of re-investments.

The post then dives into the Chinese market and how mobile is changing the gaming industry.

Full blog post here: Gaming Sector Primer

 

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

 

 

 

 

 

Number of Cryptocurrency Hedge Funds is Exploding

The cryptocurrency market is red hot. Now the hedge fund community is jumping on the bandwagon.

The market for such currencies has exploded with over 800 coins on the market with a combined marketcap of $166 billion. 

There are now fifty five cryptocurrency hedge funds!

Autonomous NEXT, a fintech analytics firm, released a list of 55 cryptocurrency hedge funds on Tuesday, illustrating the mounting interest in the space. 

"Like wild mushrooms, crypto hedge funds have been taking root in the volatile and unregulated soil of the crypto economy," Autonomous NEXT said in a post on their website."So we went digging, and digging and digging," the firm added. 

 

Full article here:

Hedge funds are cashing in on bitcoin mania — there are now 50 dedicated to cryptocurrencies

 

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

Sign of the Times: VIX Day Trader to Start Hedge Fund

Incredible story from the New York Times: VIX trader Seth Golden turned $500,000 into $12 million and claims to have seed investors for a $100 million hedge fund. 

Shorting volatility (all the various ETFs based on VIX futures) has become a popular strategy with both retail traders and institutions. There have been warnings that this trade is getting quite crowded. This article has some quotes that will fuel those calls.

Mr. Golden, who is 40, lives in a suburb of Ocala, Fla. Since he has been shorting VIX, he says his net worth has gone to $12 million from $500,000 in about five years.

Now, he is starting a hedge fund dedicated to wagering against the VIX. Investors, he says, have been pounding on his door to get in early, offering him $100 million for starters.

Full article here: Day Trading in Wall Street’s Complex ‘Fear Gauge’ Proliferates

And you can find Seth here:  Are We Shorting Volatility And How

And on Twitter: Seth Golden

 

Not a recommendation to buy or sell securities. Not a recommendation or solicitation for any fund or partnership. Please read our Disclaimer!

 

 

 

Lessons from a Trading Great: Bruce Kovner

Another profile of a legendary trader by Macro Ops. This time it's Bruce Kovner who used to run hedge fund Caxton Associates.

On risk management:

The first rule of trading — there are probably many first rules — is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.

I would say that risk management is the most important thing to be well understood. Under trade, under trade, under trade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half.

The emotional toll of trading:

The emotional burden of trading is substantial; on any given day, I could lose millions of dollars. If you personalize these losses, you can’t trade.

Successful traders are strong, independent, and contrary in the extreme. They are able to take positions others are unwilling to take. They are disciplined enough to take the right size positions. A greedy trader always blows out.

Some great thoughts on the trading mindset. I always recommend Jack Schwager's Market Wizards books for more on that subject (and the Macro Ops post borrows from that book's interview).

Full blog post here: Lessons from a Trading Great: Bruce Kovner

 

 

Lessons from a Trading Great: Stanley Druckenmiller

Check out this Macro Ops post on legendary trader Stanley Druckenmiller. It quotes from Jack Schwager’s book "The New Market Wizards".

Watch the Fed:

Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.

Bet big when the time is right:

The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig.

The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully.

Full blog post here: Lessons from a Trading Great: Stanley Druckenmiller

 

 

Middle America Is Crazy in Love With Bitcoin

Very interesting CNBC article on the sentiment around Bitcoin and other cryptocurrencies.

There are now more Google searches for Bitcoin than for Beyoncé. It's not just bankers and techno-nerds buying up this "digital gold," hoping to sell them for more later, but flight attendants, ironworkers, and small business owners.

Forget small cap stocks and Forex, the most exciting frontier for retail investors (speculators) is the cryptocurrency space.

Full article here:

Middle America Is Crazy in Love With Bitcoin