Phoenix
@learn_phoenix
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Learn about all things hedge funds. Educational only
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"Consensus is right, I have no variant view"
Oftentimes you would look at a stock and simply come to the conclusion that consensus is right.
That's ok.
But go one level deeper and ask yourself:
At what price does the stock become a long and at what price does the stock become
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Long/Short Market-Neutral Coverage Characteristics
For a company to even be "coverable" regardless of sector:
Market Cap
Prefer mid- to large-cap companies (ideally large-cap). Allows you to build up a sizeable position without triggering disclosure thresholds (5% in the US
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PITCH / EARNINGS PREVIEW IDEAL STRUCTURE (pod-shop edition)
1. Always lead with the conclusion
E.g., we should be short/long into earnings.
2. Clearly articulate your variant view vs consensus.
3. Provide the numbers to back up your view - key numbers such as revenue,
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Short Interest, Crowdedness, Shareholder Base, Sell-Side Ratings, Short Interest Ratio, Put/Call Ratio
These are all market metrics every analyst should keep track of for all their long and short ideas & positions. Part 1.
Short Interest
Short Interest = Total Shares Sold
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Adyen is a good company to study for any aspiring analyst, especially those interested in payments/fintech/financials.
Stripe vs Adyen is a fascinating case study, not only because they are direct competitors but also because Adyen is public while Stripe is not.
It's been an
Quick refresh on Stripe vs Adyen.
Each of the big players has their strongholds:
Adyen is the best in Europe (most direct connections, best at compliance), for customers that want both in-store and commerce (easy integrations to various POS and superb online reporting to unify
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THINKING IN BETS IS KEY IN INVESTING
Try to think about risk/reward in terms of probabilities.
Assign a probability to each potential outcome:
1. Bull case: 40% chance event X happens -> stock likely up 20%
2. Base case: 50% chance event Y happens -> stock likely down 2.5%
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Steve Cohen has stepped away from the trading floor.
"While the billionaire hedge fund founder remains Point72 Asset Management’s co-chief investment officer along with Harry Schwefel, he’s no longer investing clients’ capital. Cohen, 68, is instead focused on driving the firm’s
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The Biggest Hedge Fund Lie - "Peak Pod"
The biggest misconception in the hedge fund industry is that you need to be doing certain things to be successful and make money: having super detailed and eloquent models, closely tracking flows, having a best in-class alternative data
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Implied Volatility to Gauge Market Sentiment
Always track and make sure to include in your pitches.
Implied Volatility (IV) is the expected volatility of a stock over the life of the option, as typically measured by one standard deviation movement away (up or down) from the
Short Interest, Crowdedness, Shareholder Base, Sell-Side Ratings, Short Interest Ratio, Put/Call Ratio
These are all market metrics every analyst should keep track of for all their long and short ideas & positions. Part 1.
Short Interest
Short Interest = Total Shares Sold
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Point72 ahead of Citadel's Wellington Fund YTD so far... Schonfeld continuing its incredible 2024 run.
Full returns as of end of June below, reported by
@BusinessInsider
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Centralized Risk Management at Pod Shops
The global selloff and large volatility we saw recently beg the question:
How do pod-shops actually manage risk in these macro, market-level, high-stakes situations?
Especially when the shorts aren't falling enough to offset the step
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Great summary
Spotify $SPOT reported this morning, and the stock is up ~12%. This has been and continues to be a core holding. Key metrics like premium subs, gross margin, and free cash flow all ahead of expectations.
First of all, Daniel Ek
@eldsjal
runs an impressive conference call. He
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"There is no alpha in alternative data"
This couldn't be further away from the truth.
The extent to which you can extract alpha depends on the amount of resources you have access to.
While some funds play a catchup game, the bigger ones with more capital have their own
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How can single pods of a PM and 3-4 analysts manage $3B+ books?
Formula 1 analogy to explain this.
The true power and success lie not just in the skill of the driver but in the car they drive. The PM is the driver, and the car - with its finely-tuned engine, precision
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This is where market-neutral shines. The beauty of a true market-neutral strategy is you shouldn't really get affected much by these "factor rotations". While it's true that you can't achieve absolute zero exposure to all factors, a world-class risk model/software/resources at
I’m 2 years removed from market neutral but someone sent me Morgan Stanley factors today and this is absolute death.
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Always contextualize when looking at multiples.
Just because something traded at a given multiple historically might not always imply much for the forward multiple.
Especially if you expect any future inflections in the KPIs of the company or the growth rates of those KPIs.
📊Semiconductors and Computer Hardware are the hottest sectors in the global stock market.
The forward P/E for these sectors is 30x and 29x respectively, which is twice as high as the historical averages of the 15-year multipliers.
The cheapest sector is Airlines. Companies in
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AMZN ahead of the Goldman Sachs TMT Conference
AWS's CEO is scheduled to present at the conference tomorrow.
Amazon has had notable stock movements following the GS TMT conference in multiple years, though the 2023 conference did not produce any meaningful action.
This year,
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Great analyst -> great PM?
Being a great analyst doesn't always mean you will make a great Portfolio Manager.
You can be great at modeling, due diligence, idea generation, research.
But not that great at managing a portfolio, hiring/training/managing a team, scaling
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Idea Generation - The Catalyst
Some investors have a very structured approach to idea generation - they have a set of criteria or a checklist that must be met for something to qualify as a good idea. Others have a more general “anything can be a good idea” approach.
In any
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@CrosscheckC
This is great. Another tool in the box to generate ideas: thesis -> find ticker.
Can also look at a universe of tickers or sectors. E.g. if money has flown out of a given sector to another one, can try to dig deeper into why and get a view on when the capital will swing back.
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Fundamental equities long/short hedge funds were up 6.28% in the first quarter, while systematic long/short funds posted gains of 11%, according to a Goldman Sachs' prime brokerage report that tracks hedge funds globally.
@Reuters
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L/S Equity is a Dying Business - 4 reasons why from a very successful PM (P72, Citadel, Millennium):
1. Fundamental investing has evolved to be a small piece of the pie. Passive investing and quants are now driving a big part of the market. It’s become quite complicated to try
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The key thing to note here is the market-neutral multimanagers have historically done better on risk-adjusted basis than other funds, but recently the very top MMs have started generating better TOTAL returns on an ABSOLUTE basis too. So, over time these top MMs who care a lot
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Annie Duke's Thinking in Bets is a must read for all investors:
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The variant view you have about a stock should ultimately be grounded in numbers and flow through your valuation and risk/reward.
PITCH / EARNINGS PREVIEW IDEAL STRUCTURE (pod-shop edition)
1. Always lead with the conclusion
E.g., we should be short/long into earnings.
2. Clearly articulate your variant view vs consensus.
3. Provide the numbers to back up your view - key numbers such as revenue,
1
1
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Be mindful of any apples-to-oranges comparisons
A fresh list of hedge funds H1 returns. But it's not comprehensive (there're >10k funds). We are listing what we could confirm. Yes, your fund may have done better. Benchmarking to S&P 500 for six months period is not the best comparison. You can still do if you like
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An interesting piece on Nike by a former executive who worked there for almost 22 years. Link to the full article in the comments of the original post
Nike recently lost 25 billion in market cap in a single day after bad earnings
Here's a 21 year veteran of Nike making a case for why the company has been on a decline:
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@TechFundies
Revolut is a great company - thanks for sharing. It would be interesting to see if they can successfully penetrate the US market in the future. I know they have "small" presence there but eventually want to get a US banking license.
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Successful hedge funds today are technology companies:
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Hedge Funds Performance through February
Schonfeld surprisingly leading the pack given all the events around the rejected Millennium's takeover offer.
Early in the year but interesting to see how this plays out.
@BusinessInsider
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@munster_gene
Or more like they're worried about services revenue growth given the recent App Store problems and the EU fine...
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@__paleologo
Hypothetically in some crazy world imagine you were given all performance metrics & other info for each of those funds historically - strategies, PnL (factor & idio), AUM, Sharpe ratio, employee count, objective fns, you name it - and were forced to rank all of these funds.
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Ken Griffin on the correlation of holdings among multimanagers
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Pod-Shop Market Neutral Risk Management
If you want an intuitive explanation of how portfolio construction and risk management work at top pod shops, read the write-up linked in the comments.
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PS This is not a view we share, but it's good to consider the alternative one and appreciate that from the perspective of those who started a couple of decades ago, the industry has certainly become notoriously harder, more competitive and less profitable.
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Steve Cohen on CNBC: "The market is discounting the potential impact of AI"
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@JackFarley96
Investors sometimes make up narratives that just aren't true (but perhaps they want them to be true).
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Helpful to gauge part 4. (sentiment)
Short Interest, Crowdedness, Shareholder Base, Sell-Side Ratings, Short Interest Ratio, Put/Call Ratio
These are all market metrics every analyst should keep track of for all their long and short ideas & positions. Part 1.
Short Interest
Short Interest = Total Shares Sold
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This is true on average compared to other hedge funds. Not sure how it stacks up against some of the indices, but at least you never get down years, which is important for LP portfolios.
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Risk/reward; upside/downside; how to think probabilistically
THINKING IN BETS IS KEY IN INVESTING
Try to think about risk/reward in terms of probabilities.
Assign a probability to each potential outcome:
1. Bull case: 40% chance event X happens -> stock likely up 20%
2. Base case: 50% chance event Y happens -> stock likely down 2.5%
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2
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Tech investors worried about not owning some of the companies at ATHs like NVDA and META.
What about the purely consumer/healthcare investors who don't even trade these names? Imagine that.
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The investing game has changed: intra-quarter volatility, alternative data, third-party providers. Embrace it.
The recent tweet below perfectly illustrates the frustration some investors are experiencing as the investing game has significantly changed.
Alternative data has made
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