Hedge Fund

JAT Capital, a hedge fund company managed by John Thaler suffered a 20% decline due to long-term negative bets on consumer stocks, according to The New York Times. Internal documents from the hedge fund company revealed that a large chunk of its losses came from its bad investments inTempur-Pedic International Inc. (NYSE:TPX); the stock value of the mattress manufacturer fell by 70% since April.

The hedge fund company made negative investments on Alibaba.com Limited (HKG:1688)  and Weight Watchers International, Inc. (NYSE:WTW). One of JAT Capital’s potential investors who has knowledge about the company’s investments said that the losses were part of the Thaler’s top five stock picks, which represents the 43% of its 2.3 billion assets. The investor requested not to disclose his identity because the information he revealed were supposed to be confidential.

Thaler confirmed that the company’s losses were caused by negative bets on consumer stocks, which comprises 81% of its investment in April.

In his letter to investors, Thaler admitted the he cannot ignore his failed investments in the consumer sector and the volatility it added to the funds. According to him, the result was a big disappointment to him and his team. He said that the” losses and volatility forced the company to play defense other sectors of the book.” Furthermore, he explained that his principle is to evaluate everything the company does based on the process rather than the outcome.

Thaler specializes in investing within the media, technology and telecommunications. He decided to reverse his investing strategies in these sectors where he became successful as a portfolio manager. He became popular among investors when JAT Capital climb by 30% despite the global financial meltdown the ongoing debt crises in Europe last year.

Finance Professor Hanky Shawky of the State University of New York in Albany commented regarding the popularity of Thaler and other hedge fund managers who made name in Wall Street. According to him, hedge fund managers were flooded with money by investors who notice them based on articles written about them by several publications, thus creating a “buzz.” He said, “Sometimes they are not really ready to invest that kind of money.”

Thaler’s investment records show that his investment strategy is volatile but seemed okay. For instance in 2008, JAT Capital only lost 6% much lower compared with the 20% losses experienced by other hedge fund companies. During that year, the Standard & Poor’s 500-stock index decline by approximately 37 percent. Thaler ‘s hedge fund enjoyed 20% in 2009 and 10% in 2010 and 17% last year.

JAT Capital was established by Thaler in 2007 with $200 million estimated capital provided by Chris Shumway, founder of Shumway Capital. Last year, the company was included in the top 20 hedge funds based on the Bloomberg Market Survey.

During the Value Investing Conference in New York last year, David Einhorn talked about his  expectations and the vulnerable business model of the Green Mountain Coffee Roasters Inc.Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR).  After Einhorn’s expression of short expectation about the company, its stock value plummeted by 13% after that day. Some people speculates that the company is committing fraud. JAT has a large holding in GMCR, which contributed to a large amount of the losses as well.