No sunday link-fest this week. However two must read books that I have on my short-list; Michael Lewis’ newest book, Boomerang, and a new book about Steve Jobs’ Steve Jobs (release date: Oct 24th, 2011).
Instead is some insights from two great hedge fund managers.
Last week, I attended a panel where both Bruce Richards, CEO of Marathon Asset Management (a $10b+ hedge fund), and Marc Lasry, CEO of Avenue Capital (a $12B+ hedge fund) spoke on various topics. I did not take notes but decided to post some of their thoughts about the situation in Europe. The Wall Street Journal contacted me because they wanted to cover the event (I even offered to take notes for them), they did not show up so I will do the job for the media, since they offered very insightful information.
Coho Capital 2Q20 Commentary: Podcasts, The New Talk Radio
Coho Capital commentary for the second quarter ended June 30, 2020. Q2 2020 hedge fund letters, conferences and more Dear Partners, Coho Capital returned 46.6% during the first half of the year compared to a loss of 3.1% in the S&P 500. Many of our holdings, such as Netflix, Amazon, and Spotify, were perceived beneficiaries Read More
Sometimes I will quote them specifically, but mostly I just remember either Lasry or Richards saying it. They were mostly unscripted and in unison about their thoughts.
All misquotes or mistakes are my own.
Both Bruce Richards and Marc Lasry were very worried about the situation in Europe. They said that the banks in Europe need a huge recapitalization on the scale of $500billion-$1 trillion.
The problem is that the banks themselves cannot raise it. Their share prices have fallen too much to raise any significant amount of money from equity sales. They are unable to tap the debt markets. At most they could probably raise $50billion from sovereign wealth funds. The only source of capital therefore is from the Governments.
They both think a Greece default will be disastrous. However it is all political and there is huge popular opposition to any bailouts in countries like Germany. Lasry joked that the “Germans don’t want to have to pay for the Greeks not to work.”
It might take a Lehman type of event like a default of Greece to get the Europeans to realize the severity of the problem and act. They compared the situation to the failed vote on TARP only to be followed by the near meltdown of the financial system, at which point it finally passed.
Germany will eventually bailout Europe because Germany makes up for 27% of the Europe’s GDP. If Greece fails then Portugal will, then Spain and Italy, which make up for over 30% of Europe’s GDP. The only question is whether it will get very messy first.
In the short term everything will be choppy.
They mentioned that it seems like every five years we have a once in a lifetime event. Similar to what Nassim Taleb describes as a Black Swan event. Investors need to be cognizant of this new reality.
When asked about what publications they recommended, they both highly recommended the Wall Street Journal. Lasry says that he reads the journal from front to cover every day. Bruce Richards said that an employee told him something interesting, Richards asked where did you hear that. His analyst answered “Today’s Wall Street Journal.” Richards also tries to read the entire Journal. They also recommended reading financial magazines, but did not specify names.
They both recommended Seth Klarman’s, Margin of Safety, stating that it was the best book on special situations
They talked a little about the hedge fund industry. There are 8,000 hedge funds today and the failure rate for new hedge funds is enormous. Hundreds of hedge funds will close down over the next few years. Hedge funds probably have a same failure rate as new businesses.
They had some advice about finding work at a hedge fund. They recommended finding a stable hedge fund which you like. It does not look good on your resume to be switching hedge funds every two years because you are unhappy or it closes down. They also recommended taking the CFA (warning it is much harder than you think, and has gotten much harder over the past ten years).
On a personal note, I have tons of friends who are CFA charterholders, and many recommended using the Kaplan Schweser books to study.
I will add more to this post if I remember
Hedge fund you like not switching around.