Neither a Soros nor a Buffet..
Market is a mid point between extremes practiced by Soros and Buffet, one enters at the top of the market in Tech cycle to make money the other ignores the tech revolution as un- understandable phenomenon and insists on Coke as a savior of his strategy or cash as such. Both these extremes in these markets are untenable.
What market experts are not realizing and insisting on generalized concepts as reason of their under-performance, the fact is that the changed situation today is due lack of flexibility on their part and rigidity of thoughts. The two guys do not understand the new leverage of masses that can cut MSFT to halve within a week without institutional sell, most of the institutions still hold MSFT and will continue to do so but the value was cut to halve. It was hedge funds who were ignoring that hue run of Comp from 4200 onwards and employing funds in leveraged bets, in falling markets when they needed cash they had to unwind most of these excessive positions leading to further selling, some of these non-performers would never see those lofty valuations again but next gorillas stocks in the making cannot be kept at undersold levels, I see here soon a phenomenon where future CSCO?s will be distinguished from broad internet dot.coms the later will soon die a natural quiet death.
I said last night in a passionate presentation that Soros should not talk about lack of volatility but rather excess of it on the other side of the bet, this time he was on the receiving end unlike 1992 black sterling saga. The new hedge funds are millions of interconnected small internet day-trading community that has introduced new kind of "vix". Redefined the parameters of risk and volatility, something that these fund managers are not equipped to digest, someone with 100,000$ does not mind seeing his 50,000 lost in single fall of 500 points but Soros who has 28 billion in leverage bets had to sell at the most inappropriate time on that500 point fall day, they could not have raised the margins for 28 billion $ bet, the same day market came right back up the small guy with his 100,000 $ did nothing but the big guy had to foot the bill, he had lost most of this positions at the worst point and night mare for trader. This is new economy with its lightening style of gorging the sharpest of investors with severest of cuts. Lesson never think that you are bigger than the markets and never bet on the one side of the market on self believe, leave some profits for insurance out side limits of the markets like 1250 puts on SPM bought for ridiculous prices but on 500 point day they do come in play and help your long exposure.
What used to be exclusive domain of Soros like funds until 1998 ASEAN crisis, where they started their long decline to investment obscurity when Hong Kong Monetary Authority gave hedge funds a bloody face by buying and intervening big time on that fateful Friday in 1998 when Hong Kong $ and markets had to taken out so that Chinese Yuan may collapse triggering greater financial collapse.
The thousands of options expired worthless, many of these hedge funds sponsored articles by WSJ and IHT condemning HKMA for destroying the very spirit of capitalism by intervening in stock markets. That intervention saved these countries from abuse of these 'vultures' who use to make leverage bets by inducing flight of the capital from countries which had employed this capital in long term to medium term investment projects, any development country would utilize that hot money to improve the conditions and infrastructure of its nations, these guys like Soros would first bring the hot money in, covert it to local currency, making local currency dearer on parity, they would use the local counter part to purchase local equities, at the same time they would borrow local currency against their equities and hedge their exposure by transferring the proceeds back in to hard currency. The country under dictates of IMF had to have open foreign exchange controls, on their balance sheet they had hundreds of billions of hot money $ converted in to local currency invested in a hyped up market. It was termed as double play, short the currency and short the markets, the country would capitulate in no time.
Now when the two side of the equations were set in their favor and the local inept leadership had used the hot funds in pursuits of longer buildings or who has a bigger d? or inherent desire of out do each other in who has lesser chewing gums on the streets, the hedge funds would wreak havoc at the most appropriate time when the knew that national reserves are down to minimum, the wheel of destruction was set loose. First destroy the exchange rate by selling equities and transferring proceeds out. Within days the coffers of central banks would be depleted and the currencies would be like orphaned children looking for shelter from IMF, the largest and mother of all play in this was the Hong Kong play, if Hong Kong would have fallen the entire hedge community one sided bet would have been successful, the seed of destruction of these vulture funds was led my Finance Secretary Tsong, on this day as Soros and Drukenmiller timidly admit that due to Euro and lack of volatility their business had to be rolled up unceremoniously, I will disagree Mr. Sorros should see at Comp, in terms of volatility look at VIX we never had so much of volatility as now and long Euro bet was the wrong bet like his long QCOM and long GSTRF at 28$, or other internet bets, it was not the lack of volatility that killed Soros and company it was excess of volatility on the other side of the bet that killed them leading to loss of 6 billion $ in a month.
This time as a result of global interconnected community of sharp traders when he was buying Comp, we were selling it, this super consciousness of internet community created a different kind of hedge fund with no boundaries and access to unlimited funding, instead of grand theories the members of this global community would desert a stock first and ask questions later, it is this kind of new vulture attitude that accelerated the fall. The lesson from all this as these hedge funds roll up the sleeves we may see that it may be time to come back to basics, the companies with sound business models and cash flows will succeed and those hype based models and innovative accounting models may see a final fall from the grace, look for investment gorillas and get rid of crap from your portfolios. Keep you cash levels high and never sell a put or a call, keep your option strategy simple buy only long calls or long puts on the directional trading, economic complex models devastated the three Noble laureates in Russian GKN crisis where they betted on long Russia short TB?s, the prices headed north to 135, wherever you see extremes in markets, it is always something other than normal market factors working behind, if you look at my 8th Oct post in 1998 on basis of 135 price I longed the NDX it was around 1100 level, likewise this last few weeks of Comp volatility can be seen in light of what was unwinding of Soros and other hedge funds positions. Looking at a report and reading it is one thing, going and discovering its historical roots is one that this thread tries to accomplish with its limited means.
<<Renowned for making well-timed currency bets, Soros funds ploughed into technology stocks late last year in a temporarily successful bid to recoup earlier losses, ending 1999 up 35 percent.
But as tech stocks took a beating this month, so did the Soros funds. A wrong-way bet on Europe's single currency compounded the losses, with Quantum losing a fifth of its value in the first two weeks of April.
The Nasdaq composite index is down around 25 percent from its all-time peak of 5,048.62 hit on March 10. The euro has lost nearly 10 percent against the dollar this year.
``I never thought the Nasdaq would drop 35 percent in 15 days,'' Druckenmiller said.
``This business is a bit like a drug. When you are doing well, it's hard to quit.'' >>
<<Berkshire's Buffett, Munger See No Chance for Soros-Style Fall
By Tom Cahill
Omaha, Nebraska, April 29 (Bloomberg) -- Berkshire Hathaway
Inc.'s reluctance to invest in technology shares cost it profits
last year, though it may have spared the company's investors some
of the pain George Soros is now suffering, Berkshire managers
said.
Soros yesterday overhauled his $14.2 billion hedge fund group
after the firm's assets fell about $5 billion this month amid a
slide in technology stocks. The declines prompted the retirement
of Quantum Fund manager Stanley Druckenmiller and Nicholas Roditi,
manager of the $1.2 billion Quota Fund.
Warren Buffett, chairman of Berkshire, and Charles Munger,
vice chairman, have repeatedly told investors that Berkshire won't
invest in technology companies because the company can't predict
the future of the business, even if technology shares are soaring
in value.
``In the end, Soros wasn't comfortable watching others make
money in technology stocks,'' Munger said in response to an
investor question in the six-hour question-and-answer session that
followed the company's five-minute annual meeting. ``If we don't
understand something, we're perfectly willing to let it rage on
with lots of people making lots of money -- while we don't.''
Buffett said that 30 years ago his fund was structured more
along the lines of Soros, but there is no comparison between
Soros's fund and Berkshire now.
``We don't consider ourselves in remotely the same
business,'' Buffett told investors.
`Only Game in Town'
Still, the reticence of Berkshire to invest in technology
shares was one reason the company last year posted its worst
performance ever relative to the Standard & Poor's 500 Index,
lagging behind the S&P's gain.
The Omaha, Nebraska-based company said 1999 profit fell 45
percent on losses at its insurance business. Its shares fell 20
percent, following a drop in shares of Coca-Cola Inc. and Gillette
Co., two of its biggest equity holdings.
The company's performance underscored the challenges facing
Chairman Buffett's investment philosophy of buying cheap
businesses for the long-term, a doctrine overshadowed by the quick
gains enjoyed by investors in technology stocks.
One investor who said he lost money in Berkshire last year
said he more than made it up by doubling his money in technology
shares. He implored Buffett to consider dedicating just 10 percent
of Berkshire's capital to technology shares, which he called ``the
only game in town.''
``We will never buy anything we don't understand,'' said
Buffett. ``You got business cards on you, hand them out at the
break. We have a man who has done very well, those who want can
invest with him.''
Buffett compared the run up in Internet stocks to other
manias, such as a tripling of prices for farmland in Nebraska in
the 1980s.
``Any time there have been real burst of speculation in the
market, it does correct eventually,'' said Buffett. ``Looking
back, you will see this as an era of enormous wealth transfer, but
investors as a whole will gain nothing. It's the same principal as
a chain letter.''
So far this year, Berkshire's shares have risen 5.70 percent
to 59,300, beating the 1.14 percent decline in the Standard &
Poor's 500 Index. Berkshire shares last year lost 20 percent. >>
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