CNBC’s David Faber speaks to John Burbank, Passport Capital founder & CIO, about his investment strategy and the Chinese e-commerce market.
John Burbank’s top e-commerce plays
John Burbank: Biggest risk facing investors
CNBC’s David Faber speaks to John Burbank, Passport Capital founder & CIO, about why he believes poor liquidity in the equity markets remains the most misunderstood and biggest risk factor facing investors.
Transcript
why do you think that’s the case? declining over a number of years and part of it is high frequency trading, part of it is uncertainties, also more passive investing than active investing. it’s not just liquidity, it’s positioning and crowding. and we started to see the effects negatively since the end of february with growth stocks trading off far more than value stocks and small cap stocks underperforming large cap stocks. i think liquidity isn’t an issue when things are going up. when they’re going down you want to get out. it starts becoming one. i think people, when it’s different than it was in the past, people are surprised. so we’ve been tracking this for quite some time, have made us more cautious, and put us in a curious position of being fully invested on the merits of the opportunities and companies that were — we like, but fully hedged because we see liquidity and crowding and misunderstanding of this a requirement in this market. i mean, obviously with the violent rotation we had out of high multiple to growth stocks to perhaps more value names, you might expect there would be a rush for the exits. that’s typical, isn’t it, when we see that. it’s not — is there something specific to this time period that makes it different in terms of your ability to exit some of these positions quickly? last year was the opposite, right. last year heavily shorted stocks outperformed good stocks, market did well, small caps did incredibly well. the trend has been since the crisis bottom has been up. so that it’s going the other direction is a surprise. it’s not because of economic growth exactly as we think it’s going to get better, hasn’t been terrific, earnings growth has been okay, company governance and how they’re doing their business is very, very good, so, you know, it’s possible to have a bear market here, not because of problems with the economy and not because of quality of earnings, but really just because of crowding, positioning in liquidity. i think something like 2011 could play out again, but n for the same reasons. so we haven’t had a real sell-off in two years and that sell-off was cut short by the ecb, you know, promising to do something if required. so i think, you know, two years is a long time in markets like this. and when things turn they turn and people are caught short.
