Learn to apply the strategies of top hedge fund managers to your personal investment portfolio The most successful hedge fund managers and superstar investors outperform the markets impressively, while most fund managers—and individual investors as well—usually underperform the market averages. Based on the figures released by the Edgar System each quarter, this book analyzes the performance of hedge fund managers controlling at least $100 million in Assets Under Management to help other investors close the gap between themselves and the industry's top fund managers. With model portfolios that produced solid returns, examination of the tactics of the best fund managers, and a set of effective strategies for sound absolute returns, Profiting from Hedge Funds is the perfect guide for investors who want to improve their game by learning from the best.
- Includes fascinating insights into the investment styles of the most successful hedge fund managers
- Features model portfolios based on the holdings and activity of high-performing money managers
- Offers key lessons for success that work across all portfolios
Table of Contents:
Acknowledgments xiii Preface xv
Part One: Tracking 12 of the Greatest Money Managers 1
Chapter 1 Introduction 3
13Fs: A Window into Hedge Fund Activity 6
Filtering 13Fs for Relevant Activity 8
Raw 13F Filings from EDGAR 11
Notes 15
Chapter 2 Bill Ackman 17
Philosophy and Style 18
Marquee Trades 19
Portfolio Analysis 20
Notes 23
Chapter 3 Bruce Berkowitz 25
Philosophy and Style 26
Marquee Trades 27
Portfolio Analysis 28
Notes 31
Chapter 4 Warren Buffett 33
Philosophy and Style 34
Marquee Trades 35
Portfolio Analysis 37
Notes 39
Chapter 5 Ian Cumming and Joseph S. Steinberg 41
Philosophy and Style 42
Marquee Trades 43
Portfolio Analysis 44
Notes 46
Chapter 6 David Einhorn 47
Philosophy and Style 48
Marquee Trades 49
Portfolio Analysis 50
Notes 53
Chapter 7 Carl Icahn 55
Philosophy and Style 56
Marquee Trades 57
Portfolio Analysis 58
Notes 60
Chapter 8 Seth Klarman 63
Philosophy and Style 64
Marquee Trades 65
Portfolio Analysis 66
Notes 68
Chapter 9 John Paulson 69
Philosophy and Style 70
Marquee Trades 71
Portfolio Analysis 72
Notes 74
Chapter 10 Wilbur Ross 77
Philosophy and Style 78
Marquee Trades 78
Portfolio Analysis 79
Notes 82
Chapter 11 George Soros 85
Philosophy and Style 86
Marquee Trades 87
Portfolio Analysis 88
Notes 91
Chapter 12 David Swensen 93
Philosophy and Style 94
Marquee Trades 95
Portfolio Analysis 96
Notes 98
Chapter 13 Prem Watsa 101
Philosophy and Style 102
Marquee Trades 103
Portfolio Analysis 105
Notes 107
Part Two: Mechanical Approaches to Following the Masters 109
Chapter 14 Introduction 111
Manager Selection 113
Asset Allocation and Sentiment Capture 119
Risk Avoidance 121
Constructing Model Portfolios Mechanically: A Primer 122
Equal Allocation Largest Positions 123
Equal Allocation Largest New Positions 124
Weighted Allocation Largest Positions 124
Weighted Allocation Largest New Positions 126
10-5-2 Allocation Largest Positions 128
10-5-2 Allocation Largest New Positions 131
Notes 133
Chapter 15 Equal Allocation Models 135
Portfolio Management and Performance Analysis 136
Bill Ackman: Largest Three 136
Warren Buffett: Largest Three 138
David Einhorn: Largest Three 141
Combined Portfolio: Largest Positions 143
Combined Portfolio: Largest New Positions 145
Summary 146
Chapter 16 Weighted Allocation Models 149
Portfolio Management and Performance Analysis 150
Bill Ackman: Largest Three 151
Warren Buff ett: Largest Three 153
David Einhorn: Largest Three 155
Combined Portfolio: Largest Positions 157
Combined Portfolio: Largest New Positions 159
Summary 161
Chapter 17 Ten-Five-Two (10–5–2) Allocation Models 163
Portfolio Management and Performance Analysis 164
Bill Ackman 165
Warren Buffett 168
David Einhorn 172
Summary 174
Chapter 18 Alternate Models 177
Portfolio Management and Performance Analysis 178
Bill Ackman: Exact Match Approximation Model 179
David Swensen: Asset Allocation Model 183
Sector Rotation Model 185
Simple Moving Average (SMA) Based Model 188
Summary 191
Note 192
Part Three: Learning from the Masters 193
Chapter 19 Introduction 195
Beating the Managers at Their Own Game 198
Trading Alongside the Managers 203
Summary 206
Notes 207
Chapter 20 Fundamental Analysis 209
Margin of Safety 212
Basic Checklist 215
Business Understanding 216
Business Sector and the Company’s Standing 216
Management Integrity and Competency 217
Valuation 217
Emotional Stance 218
Quantitative Measures 219
Profitability Indicators 219
Management Effectiveness 220
Liquidity Indicators 222
Valuation Indicators 224
Fair Value Estimates 227
Risk-Free Equivalent Fair Value 227
Fair Values Based on Earnings Growth 228
Fair Values Based on Benjamin Graham’s Teachings 230
Fair Values Using Present Discounted Value 234
Summary 240
Notes 241
Chapter 21 Types of Positions and Sizing 243
Diversification and Hedging 244
Keeping Your Powder Dry 251
Building and Sizing Positions 253
Low Probability Positions 261
Summary 262
Notes 263
Chapter 22 Conclusion 265
Ad Hoc Cloning Strategies 268
Mechanical Cloning Strategies 269
Implementing Manager Strategies 272
About the Author 273
Index 275
About the Author :
John Konnayil Vincent received his BTech in computer science from the University of Kerala, India, and his Master's degree in information systems from the University of Hawai'i at M-anoa. John worked with various software development groups in the San Francisco Bay Area for almost two decades. Highlights of that career include several inventions in the database technology field that were awarded patents, as well as performance awards. More recently, he made a career shift into wealth management. His writings related to stock market activity have appeared on Seeking Alpha and other websites.
