So what is the secret to hedge funds bringing in so much money?
Its simple, the best hedge funds do exactly what their name implies – they hedge and when you have bumps in the market like this year, hedge funds will outperform all the indices and those dinosaur mutual funds as well.
But its 2014 so no need to lock your money up with a fund of funds or hedge fund simply follow the: BillionairesPortfolio.com.
We piggyback the world’s best hedge fund’s stock picks, and we opportunistically hedge those positions with put options and inverse leveraged etfs, all for just $297 dollars.
My former boss, a former Goldman Sachs Fund Manager and Harvard MBA who managed money for some of the biggest pension funds and endowments in the country, had a special formula for investing in stocks during volatile times.
The formula had the following criteria:
1) A Market Cap greater then $10 Billion
2) Five Year Projected Annualized Earnings Growth greater than 5%
3) A dividend yield greater than the 10 year treasury bond.
The reasoning behind the screen is simple, you want a stock whose earnings are growing because it offers protection against inflation, secondly large brand name companies are less volatile and more recession proof than smaller unknown companies and buying stocks with dividend yields higher than the 10 year treasury bond allows you to get stock like returns with bond like risk.
Will Meade
President of The Billionaires Portfolio
What is the number 1 trading secret of the most successful and wealthiest hedge fund managers? Its Asymmetrical investing. What is asymmetrical investing? Its a low risk trade that also has the potential for huge or unlimited upside. Think John Paulson in 2007.
Paulson bought cheap credit-default swaps on subprime-mortgage assets, his capital risk was relatively small but the potential payout, huge. Paulson’s asymmetric trade made an almost 700% gain in 20007.
Another example, Jeffrey Altman of Owl Creek, in 2008 Altman purchased millions of Fannie Mae and Freddie Mac preferred shares for 2 cents on the dollar, today the preferred shares of Fannie Mae and Freddie Mac sell for almost 40 cents on the dollar, a 2000% return.
At Billionairesportfolio.com all we do is look for asymmetric trades, in fact right now we have two stocks in our portfolio that I think have the potential to return 300% or more by the end of 2014.
Will Meade
President of The Billionaires Portfolio
Back in 2010, Perry Capital a distressed and event driven hedge fund purchased $500 Million of Fannie Mae (FNMA) and Freddie Mac (FMCC) shares at $2 cents on the dollar
Today, both companies Fannie and Freddie are selling at over $5 a share and Perry Capital’s $500 million dollar investment is now worth more than $33 Billion a 6700% return.
That means if you would have invested $1500 into Fannie Mae’s or Freddie Mac’s stock back in 2010 you would now have an more than $100,000 dollars!
These type of home run trades are exactly what we look for in our premium research service The Billionaires Portfolio.
We are the first and only research service that actively manages a portfolio of stocks owned by the world’s best billionaire investors and hedge funds that also have the potential to make multiples of returns, (200% 500%, 1000%, even 6700%.)
I think before anyone writes an article, there should be a preface or introduction with the author’s background explaining why he is qualified to offer advice on the topic.
So before I give my opinion on the most overrated and underrated hedge fund managers, as well as the best hedge fund strategies, I will give you my bio.
I have over 15-years of experience in the hedge fund industry. I started my career working for what they call on the street “the Big Ugly’s.” These are hedge fund managers with the classic pedigree: Harvard MBA- Goldman Sachs (alums).
The fund I worked for managed around $1.5 billion dollars and used all the numerous classic hedge fund strategies: Long-Short Equity, Convertible Arbitrage, Distressed and M&A.
After that I worked for an $11 billion dollar fund of funds, where I basically had the opportunity to see the performance numbers and investment styles of the best hedge fund managers in the world.
Along the way, I have interviewed and had meetings with some of the top hedge fund managers in the world.
Through this experience I have gathered some insight on the best performing hedge fund strategies and managers.
The Best Hedge Fund Strategies:
1) Long-Short Healthcare– This strategy has proven to provide the best alpha (meaning returns are not determined by beta –an underlying benchmark — rather, purely skill-driven). Basically the top manager in the biotech and pharma space have delivered some of the best 10 and 15 year returns, while keeping drawdowns and losses to a minimum. There are two multi-billion dollar healthcare hedge funds that have 10-year plus track record of 40% annualized returns without a losing year. Also I happen to know a good deal of talented analysts in this space from my years spent at The Johns Hopkins University.
2) Activist Investing– is by far the best long only strategy available. Biotech and activist are the only two long-only strategies that have little or no correlation to the overall stock indices. Why? Activist investors create news and they create value. Think Carl Icahn, Bill Ackman, Dan Loeb … they create news and value in stocks regardless of what the overall stock market is doing. Change is the recipe for revaluing a stock. And these guys are change-makers.
3) Distressed– This strategy is simple, and offers by far the best returns of any strategy out there. Basically hedge funds and private equity funds loan money to companies on the verge of (or in) bankruptcy. If they can keep the company alive there are huge, and I mean huge, returns to be made. Some of the biggest returns I have ever seen have come from distressed investments. I am talking about 10,000% plus returns. But you have to have patient, as these types of investments do take time to play out. David Tepper is the best hedge fund manager I have ever seen in this space. He has generated almost 40% annualized returns for more than 20 years.
The Worst Performing or Overrated Hedge Fund Strategies
1) Convertible Arbitrage– This worked for years in the 1990’s and early 2000s but is completely dead now, as the markets have become too efficient, with so many hedge funds trading in this space.
2) Long Short Equity– Basic long-short equity has performed horribly over the past 5 years. Shorting has always been a very difficult strategy. There are a litany of forces working against you, not the least of which are short selling restrictions and government policy responses (in times of turmoil). Moreover, there has been incredible growth in ETF’s where even bad stocks are purchased and bid up by index funds and ETF companies.
3) M&A– Again another strategy that has been hurt by the huge number of funds and trading desks that are involved in this space now.
If you are looking to invest in a hedge fund, I would start with the first three categories, and then narrow it down to a mix of some of the best established managers — only managers with strong track records of generating market beating returns and avoiding annual losses and huge drawdowns.
If you don’t have $10 million (a common minimum to participate in the top performing funds) and you don’t want to pay the huge 2% management fee and 20% performance fee, you can just join our online service for self-directed investors, The Billionaires Portfolio.
Our Billionaires Portfolio, consists of 20 of the best stocks from the best hedge fund managers in the activist, biotech and distressed space all equal weighted and hand selected by me. I only pick stocks from the best hedge fund managers (both established and emerging managers) that have the biggest potential return combined with the lowest downside risk. It’s like an actively managed fund of funds for just $297 a quarter.
Through our Billionaires Portfolio the average/everyday investor can co-invest with the top hedge funds in the world for only $297. That my friends is a pretty good deal!
Forbes released the newest World’s Billionaires List this week. Now that you know who they are, let’s talk about what stocks they are buying.
At billionairesportfolio.com we track all of the stock holdings of the top billionaire investors. Here are the most recent stock purchases by some of the world’s richest, most powerful investors, including the richest man in the world, Bill Gates.
1) Bill Gates, through his Gates Foundation, recently purchased a stake in Air Products and Chemicals (APD).
2) Warren Buffett, number four on the new Forbes World’s Billionaires list, recently purchased Goldman Sachs (GS), Exxon Mobil (XOM), Liberty Global (LBTYA) and Suncor Energy (SU)
3) Carl Icahn, the 25th wealthiest man in the world, recently purchased Hologic Inc (HOLX), Talisman Energy (TLM) and Apple (APPL).
4) George Soros, another hedge fund icon, is the 26th richest man in the world. He recently purchased JP Morgan (JPM) Essent Group (ESNT), Barrick Gold Corp (ABX), Citigroup (C) and Leucadia National (LUK).
5) John Paulson comes in at number 78 on the Forbes World’s Billionaires list. He recently purchased Extended Stay America (STAY), American Airlines (AAL), Compuware Corporation (CPWR) and Digital Realty Trust (DLR).
Will Meade
President of The Billionaires Portfolio
I have been blessed in that I have worked for and had clients who were Billionaires. But there is one Billionaire I met during my hedge fund days that I will never forget, because he was one of the best options traders I have ever seen.
He had a 5 Step system for trading options that I use for my all my options trading today. I am going to share this with you today and I call this ” The Billionaires 5 Rules of Options Trading”
1) Never ever buy an Option (a Put or a Call) unless there is a catalyst or event. This means you only buy an option when there is an event that will dramatically move the price of the stock up or down. These events or catalysts can be anything from: Earnings Announcements, Fed Meetings, Economic Releases, an Activist Hedge Fund buying a stock to any type of corporate change, CEO, sale of a business unit, merger or acquisition. The key is to buy the option before this event occurs, you never ever want to buy an option after the catalyst or event. So in summary only buy an option when there is catalyst or event that will dramatically alter the price of the stock.
2) This Catalyst or Event must occur before the option expires. An easy example of this is Earnings, you only want to buy an option that expires more than a week after the earnings date. Again this means when you buy an option make sure you leave yourself enough time so that your option does not expire before the catalyst or event occurs.
3) The Option must be Cheap. This can be hard to measure but I like to keep it simple, I personally don’t like paying more than a $1 for any option. But if its a high priced stock, I will only buy the option it gives me at least 25 times leverage or more on the stock. Meaning divide the price of the stock by the actual option price. For example if the stock of XYZ is $100 do not pay more than $4 for the option on that stock, that’s the easiest way to make sure the option is cheap.
4) Only buy options in stocks that have low volatility. This means you want to buy options on stocks that have moved sideways of flat for months at a time. Look at a chart if there has not been a significant uptrend or downtrend in the last 3 to 4 months, there is a good chance that the volatility in the stock is low and the options are cheap. Also if you have options software, you can compare the stock and its options implied volatility and underlying volatility to its historical implied and underlying volatility. This may sound confusing but its the same premise value investors use, they buy stocks when they are cheap in comparison to what they historically sold for, so you want to buy options when the volatility is low or lower than what it historically has sold for.
5) Only buy options if you can make 300% or more on the option. This is very important, too many people buy options with no exit plan or profit target. You have to set a goal or sell point when you buy an option and to make it worthwhile from a risk reward standpoint. The option should have at least a 300% or more upside. Why 300%? because there is a good chance when you buy an option, you will lose the entire value or premium of the option (or 100% of your investment in the option) therefore to be rewarded for that risk you need to be able to make 300% or more in that option. Simply stated only buy an option when you have at least a 3 to 1 reward to risk scenario.
Hedge funds have been getting a lot of negative press due to their mediocre performance but one hedge fund has quietly been blowing the doors off the industry. The Marlin Fund run by Michael Masters, who was once profiled in the book Stock Market Wizards, has quietly averaged 44% a year since 1995.
That means $1000 invested in the Marlin Fund would now be worth $1 Million dollars today!
In 2012 he more than doubled the return of the S&P 500 with a 39% return then in 2013 he returned an incredible 100%.
Let me repeat that Michael Masters of the Marlin Fund returned 100% last year.
How does Masters produce these eye popping returns? He does it by simply trading call options on blue chip stocks. Last year Masters made 100% by simply buying call options on Apple, Chevron, Citigroup and Delta Airlines stocks that everyone in the world has heard of and he did this while managing more than a billion dollars.
Even more interesting is that Michael Masters is not some quant PHD or Wall Street trader. Michael Masters is just a regular guy from Marietta, Georgia who graduated from the University of Tennessee (a school not even ranked in the top 100 Universities according to US News). In fact his only experience in investing was working as a local stock broker before he started his hedge fund at 27.
Yet Master’s fund has beaten almost every single hedge fund and investor in the world. Masters currently manages more than $2 billion dollars and has one of the longest track records of any fund I have ever seen.
I have spend the last month studying all of the filings and interviews on Michael Masters, and I have finally figured out how he trades options so successfully and trust me you will be amazed at how simple and easy it is.
By subscribing to the Billionaires Portfolio today you will not only get the same trades that these incredible billionaire use, but you will also learn the strategy behind their trading as well.
Warren Buffett held his annual Berkshire Hathaway annual meeting last Saturday and of all the advice that he gave out, one thing really stood out. Buffett suggested that investors should allocate 90% of their entire net worth to stocks — and only 10% in short term treasuries.
This is incredibly important because this absolutely flies in the face of conventional wisdom.
So Buffett said when he dies he will put all his money into a trust for his wife. And he had advised the trustee to put only 10% of it in short term treasuries and 90% into the S&P 500 index fund.
Listen, the world’s greatest and richest investor just told you, for free, how you should manage your retirement portfolio and your net worth.
Don’t pay your financial advisor, stock broker, financial planner, etc 2% of your net worth to allocate your assets, fire them! Do what Buffett says. Buffett is everything your broker, advisor and banker isn’t. Buffett is the richest and most successful investor in the world, educated at Wharton and Columbia. Yet you pay your broker/advisor 2% of your money. He isn’t a billionaire. He doesn’t have Buffett’s record of success.
So take good advice, especially when its free. And maybe you too can become rich like Buffett. Invest 90% of your money in stocks. Sell your gold, your long term bonds, your ETFs, covered calls, annuities and all of the other crap in your portfolio, and take Buffett’s advice.
Our Billionaires Portfolio is based on same philosophy that Warren Buffett follows. Our Billionaires Portfolio returned 34% last year. Those are real results. We eat our own cooking. And we have a $100,000 account you can follow — co-invest with us. While Buffett has a tremendous long term record, we actually beat him last year, and the S&P 500.
To successfully trade options you must have a catalyst and an exit plan. High probability option trades are rare but recently I found a mispriced stock with a catalyst that is set up perfect for a quick options trade.
Whenever there is significant insider buying in a stock, especially when by the CEO or Founder of a company I pay attention. Over the last week Richard Kinder, the CEO and Founder of Kinder Morgan, Inc, purchased almost $10 million shares of $KMI stock at an average cost of $32.50. The stock is currently trading at $32.21.
Secondly the stock has formed a double bottom and has strong support at $32. The stock has recently been sold off for non fundamental reasons, including the stock declared its dividend on Feb. 18th, which always causes a sell off especially in high yielding dividend stocks like $KMI, Kinder Morgan currently has a 5% dividend yield.
So the catalyst is the significant insider buying and the best way to play a bounce in this stock after its sell off, is to use my secret stock replacement strategy.
My secret stock replacement strategy, uses deep in the money call options as a proxy for buying the stock. I use this strategy when I am looking for a quick bounce in an oversold stock with a catalyst, which is exactly the situation with Kinder Morgan.
The trade I would make is to buy 10 March Kinder Morgan Call Options at $2.35, and you are only paying a $7 cents premium over the stock price (why I call it a stock replacement strategy). Also the March $30 Calls will move almost one for one with the stock, (again you are basically owning the stock with almost no premium). By purchasing 10 calls I am controlling 1000 shares of Kinder Morgan for only $2300 instead of $32,000 which is what it would cost to buy 1000 shares of Kinder Morgan.
My exit plan is to put a GTC order $1 above my fill price, as I looking to make a quick $1000 on this trade in less than 3 weeks, for a 40% Internal Rate of Return on my investment. Once it hits my GTC order $1 above my fill price I am out with a $1000 profit.
I will sell the option if Kinder Morgan, the stock, closes below $32, its that simple.
Will Meade
President of The Billionaires Portfolio
https://www.fxtraderprofessional.com/order/billionaireport/
