With China stockmarkets closed until Monday, we should have a couple of good days. Use them to sell stocks you own but feel uncomfortable with for the long-term.
Next week Apple will release a big iPad, a new Apple TV, new iPhone software and maybe a new iPhone with a stronger front-facing camera (to make better selfies). I don’t think any of these new products will boost Apple’s stock. The market would like a game-changer. But game changers are not easy to pull out of hats. Business Insider says “one study” shows Apple sold 1.07 million Apple watches in China. I don’t find my Apple watch indispensable. It’s still not synching completely with my iPhone. I don’t know why. The Apple Watch is edition 1. This is one struggling stock:
Intel has an amazing new chip called Skylake which the PC/laptop industry needed two years ago. I’m still tempted to short INTC.
Down markets are hard. Fortunately I laid out my negative feelings, talked about long-term LEAPs. My readers should have been spared the major misery. Tings have eased a bit, as measured, for example, by the VIX.
We’re also up a little on recent recommendations of AET, VZ and LMT.
Most stock traders lose money. I’m not good at day trading. But some are. This is from today’s New York Times:
Some Hedge Funds Prosper in Market Tumult
The former disciples of Steven A. Cohen seem to have done exceptionally well, thriving in an environment that has jolted others.
A market sell-off that ricocheted across the globe last month reversed the fortunes of many of Wall Street’s star investors. But it is not all doom and gloom in the $3 trillion hedge fund industry.
A number of hedge funds, both big and small, are recording double-digit gains this year and putting up the kind of performances that just might justify the industry’s famously hefty fees.
Among the better-performing funds are those that were started in the past several years by former disciples of Steven A. Cohen, the billionaire investor who founded SAC Capital Advisors.
One is Jason Karp, whose Tourbillon Capital Partners, a $2.9 billion fund, is up 18.44 percent in its main portfolio, said a person briefed on the firm’s performance. Mr. Karp, 38, who worked for Mr. Cohen for nearly four years, created Tourbillon in 2012.
And he is not the only former SAC trader enjoying what has been a long, hot summer for hedge funds.
Aaron Cowen’s Suvretta Capital Management, a $2 billion hedge fund, is up 7 to 9 percent in its main funds, said a person briefed on that firm’s performance. And Melvin Capital, a roughly $1 billion firm that Gabriel Plotkin founded last year, is up nearly 20 percent, said a person briefed on the matter.
Mr. Cowen, 43, is a former chief investment officer at SAC and Mr. Plotkin, 36, once one of Mr. Cohen’s top traders, started his firm with a $200 million investment from Mr. Cohen.
All three former protégés are running classic long-short hedge funds that make both bullish and bearish bets on stocks. But they come from the SAC tradition of moving quickly in and out of stocks – a tactic that may be serving them well at time when the speed and unpredictability of the recent big swings in the markets may be unnerving other managers.
That tactic can also be found at Israel Englander’s Millennium Management, a $27 billion firm with a wide array of trading strategies. Some of its 170 portfolio teams trade stocks in the same kind of short-term trading fashion that SAC helped popularize during its heyday. Millennium is up 9.6 percent for the year, said two people briefed on the firm’s performance.
The most famous stock trader, Mr. Cohen, who is 59, now runs a more than $10 billion family office called Point72 Asset Management that manages mostly his own money. It is not clear how he has done with Point72, which remains an active force on Wall Street. A spokesman for Mr. Cohen declined to comment.
In 2014, its first year of existence, Point72 generated a gross profit of $2.5 billion to $3 billion. The firm prospered even after Mr. Cohen was forced by federal prosecutors to give back money to his outside investors in the wake of an insider trading investigation that led to SAC pleading guilty to securities fraud and paying $1.8 billion in fines and penalties to prosecutors and federal securities regulators.
Firms that make trades off the turmoil have done especially well. For instance, Ionic Capital Management, a $2.5 billion hedge fund that performs best in volatile markets, is up about 16 percent for the year, after notching an 11 percent gain in August, said a person briefed on the numbers.
These kinds of performances stand out in a year when the average hedge fund, as measured by the HFR Index, is down about 1 percent. In comparison, the benchmark Standard & Poor’s 500-stock index is off 5.3 percent for the year.
Other hedge funds of varying investing strategies that are recording gains this year include Visium Asset Management’s flagship fund, which is up 11.2 percent, Kerrisdale Capital, up 6.2 percent, and Renaissance Technologies’ Renaissance Institutional Equities Funds or RIEF, which is up 3.32 percent, said several people briefed on the performance of those firms.
Hedge funds with more concentrated positions and longer-term views have tended to fare the worst the past month and at other points this year.
Hedge funds like Omega Partners, the $9 billion hedge fund founded by Leon Cooperman, have had disappointing performances, partly because they have increasingly abandoned short positions for long ones in a roaring bull market in the United States that had clobbered short-sellers. The firm is down 8 percent for the year, said a person briefed on the matter.
David Einhorn’s nearly $11 billion Greenlight Capital is one of the best-known underperformers, down 14 percent for the year.
In recent years, investors have preferred to park their money with hedge funds that offer long-only funds, according to a recent report by Deutsche Bank. In this environment, even short-sellers – investors who take bets against the market – have had to change their strategies.
William A. Ackman’s $20 billion Pershing Square sustained steep losses in August, with some of the firm’s top holdings down between 5 and 15 percent over the month. In a letter to investors, Mr. Ackman highlighted that the current price of holdings like Zoetis and Canadian Pacific did not reflect the real value of the businesses in the longer term. Pershing Square went into August with a yearly gain of 10 percent, but lost 9.2 percent over the month. Pershing Square is down 0.1 percent for the year.
Daniel S. Loeb, who manages about $17 billion and is best known for penning acerbic letters to corporate boards, also had a rough August. His Third Point flagship fund lost 5.1 percent in August, cutting its full year performance to a gain of 0.6 percent.
Jana Partners, founded by the billionaire Barry Rosenstein, lost 4.3 percent in August and is up less than 1 percent for the year, according to a person briefed on the firm’s performance.
All three men are considered activist investors, a class of hedge fund manager that has been too focused on long positions, said Mark Yusko, the chief investment officer of Morgan Creek Capital Management. “That works great in a bull market, but they aren’t really hedged funds. Because they charge incentive fees people talk about them as hedge funds,” he said.
Speaking broadly of the fact that so many hedge funds have become focused on long stocks positions, Mr. Yusko said: “Long only is long only. If people want to pay for stock-picking alpha with incentive fees, great. But people shouldn’t expect them to protect capital in down markets.”
Bloomberg Business had a semi-interesting piece on a Japanese day trader:
Many Panicked, Japanese Day Trader Made $34 Million
While a lot of investors were hitting the panic button Monday, a Japanese day trader who’d made a big bet against the market timed the bottom almost perfectly and narrated a play-by-play of the trade to his 40,000 Twitter followers. He claims to have walked away with $34 million.
As financial markets got crazy this week, many people turned cautious. Some were paralyzed. Not the 36-year-old day trader known by the Internet handle CIS.
“I do my best work when other people are panicking,” he said in an interview Tuesday, about an hour after winding up the biggest trade of a long career betting on stocks. He asked that his real name not be used because he’s worried about robbery or extortion. To support his claims, he shared online brokerage statements showing his trades second by second.
CIS had been shorting futures on the Nikkei 225 Stock Average since mid-August, wagering it would fall. By the market close on Monday, a paper profit of $13 million was staring him in the face. He kept building the position. When he cashed out late that night, a collapse in New York had caused his profit to double.
Instead of celebrating, he kept trading. He started betting the market had bottomed. When he finally took his winnings off the table on Tuesday, he tweeted, “That’s the end of my epic rebound trade.” His profit, he said, had almost tripled.
“It was a perfect trade,” said Naoki Murakami, who follows CIS on Twitter and whose markets blog has made him a minor celebrity in his own right.
Last year, when he was the subject of a profile in Bloomberg Markets magazine, CIS said that in a decade of day trading, mostly from a spare bedroom in a rented apartment, he had amassed a fortune of about $150 million. At the time, he shared tax returns and brokerage statements to back up his claims. One document showed he had traded $14 billion worth of Japanese equities in 2013 — about half of 1 percent of all the share transactions done by individuals on the Tokyo Stock Exchange that year.
CIS became a cult figure among Japan’s tight-knit community of day traders by trash talking on Internet message boards early in his career. He’s notorious for lines like “Not even Goldman Sachs can beat me in a trade.” Last year he opened a Twitter account, on which he talks about video games and, regularly, his trading. It’s impossible to say how many of his followers are also day traders, and how many of those buy and sell in his wake. Those who do, of course, are quite possibly helping him make money.
During the interview Tuesday at a Tokyo coffee shop, where he had agreed to talk before continuing on to a poker game with buddies, he explained his recent trades step by step. Dressed in a plain gray T-shirt with a flannel shirt tied around his waist, he was monitoring a brokerage account on his iPad and had a $1,600 burgundy under one arm, a 2003 Domaine de la Romanee-Conti. (It wasn’t a celebratory bottle, he said; he drinks a lot of good wine.)
“Of course I’m happy about today, but you win some and you lose a lot, too,” he said, explaining the Greek financial crisis had cost him about $6 million.
CIS said he has no idea whether or not China is going to drag down the global economy. He doesn’t even care. When he trades, he tracks volumes and price moves to follow the momentum. For him the basic rule is: “Buy stocks that are being bought, and sell stocks that are being sold.”
The latest trade began on Aug. 12, when CIS noticed a shift in equity markets he hadn’t seen for a while. Shares in the major indexes were struggling to recover from sell-offs. He started shorting Nikkei futures: 200 contracts the first day and another 1,300 over the following week and a half.
The stakes were enormous. With 1,500 contracts at a notional value of about $160,000 each, his bet against the Nikkei was about $240 million. For every 100 yen move in the index, he stood to make or lose $1.25 million.
The market was mostly flat over the next few days; CIS bided his time playing video games. On Friday Aug. 21, the Nikkei dipped. Then on Monday, the index plunged the most in two years, and the futures fell more than 1,000 points to 18,410. By the close at 3 p.m. in Tokyo, his profit stood at about $13 million.
This is the point where most traders would take their money off the table and call it a year. Not CIS.
“I’m adding to my position,” he wrote on Twitter. “Then I’m going to go for a walk and prayer.”
He sold 100 more futures contracts. Two hours later, he sold another 100. His bet against the Nikkei had risen to about $275 million. He would lose $1.4 million for every 100-yen increase in the index.
His logic for hanging on to the trade until the U.S. open, at 10:30 p.m. Tokyo time, was this: Panic would grip American investors returning from a weekend after they saw the scope of Asian selling, including Shanghai’s 8.5 percent plunge. That would trigger selling, which, in a feedback loop, would pull Nikkei 225 futures down violently amid the thin volume of late-night trading.
“I figured there would be a lot of fear around the U.S. open and that’s what I was aiming for,” he said.
On cue, the Dow Jones Industrial Average fell more than 6 percent in early trading. Nikkei futures tumbled again, dipping 1,250 yen below the 3 p.m. closing level. CIS, home in his pajamas, finally cashed out his short position. His profit had hit $27 million.
There was still more money to be made from the panic though. Some investors that night were willing to pay a hefty premium for options that protected against the Nikkei crashing below 10,500. That would be a collapse of almost 40 percent. In CIS’s view, these investors were looking to buy insurance against a near impossibility.
He was happy to take the other side of that trade. The contracts were worth another $250,000 to him. He made the first deal within 10 seconds of what would prove to be the market’s bottom at 10:34 p.m.
“Too delicious,” he tweeted.
About an hour later, as he became more confident in a rebound, he started buying Nikkei futures. Now the play was the opposite of the short bet he’d started the day with. By 1 o’clock Tuesday morning, he’d accumulated 970 contracts, a $145 million wager that the market would start to climb.
He made one more trade before bed: a few more option contracts sold to straggling panickers. Those were worth $6,250. By now, at 1:40 a.m., he was a rich man stooping to pick up pennies.
He dashed off a last tweet at 2 a.m. “What a day. Still holding on to all my buys,” he wrote. “Time to sleep.”
CIS returned to Twitter five hours later. Nikkei futures opened at about 18,000 and slowly recovered. Early that afternoon, he closed out his long position.
At the coffee shop later that day, CIS was pretty nonchalant for man who had made tens of millions of dollars in less than 24 hours. For him, it was just one trade out of thousands he would make this year.
“When a trade goes right I feel like bragging a little, but I don’t get on Twitter to talk about it if I lose,” he said with a laugh.
Images from Walgreens in Palm Desert, CA last night: Her name is Tuuli (Finnish).
Best dressed lady ever in Walgreens.
Harry Newton who’s scheduled to play tennis in 75 minutes. It’ll be only 80. But it will be 99 this afternoon. Everyone in California is taking “Save Water” seriously. They have clever marketing:
“If it’s yellow, let it mellow. If it’s brown, flush it down.”
Each flush is three gallons.