There is a money manager out of Chicago, that has secretly become one of the biggest traders of ETFs on the planet. The firm Good Harbor Financial LLC, which had less than $10 million in assets in 2008 has grown to almost $12 Billion today by frenetically trading in and out of ETFs.
The firms strategy is to make aggressive bets on a small number of bond and stock ETFs, while using as much as 1.6 times leverage. Good Harbor trades so aggressively and so rapidly that it can move from 100% stocks to 100% bonds in a single day.
This aggressive trading strategy has worked exceptionally well, Good Harbor has returned 20% annualized over the last 5 years with less risk than the overall stock market. Good Harbor lost less than 1% in 2008 versus a 37% loss in the S&P 500 and it made 47% in 2009. Furthermore when almost every single equity based hedge fund and mutual fund lost money in 2011, Good Harbor returned 12.73%.
Good Harbor uses quantitative models that signal whether to buy stocks or bonds based on changes in investor risk premiums (the VIX), momentum, economics data and yield curve dynamics. The founder and Chief Investment Officer of Good Harbor has a strong quantitative background with a degree in electrical engineering from Michigan Technological University located in Houghton, Michigan a masters in electrical engineering from the University of Michigan and an MBA from the University of Chicago.
Good Harbor is one of the funds that I constantly watch at the billionairesportfolio.com as they have shown a consistent ability to time the market. Also due to the size of their ETF trades, their trades and signals are very easy to follow.
This month Good Harbor has been pouring more than $7 Billion dollars into bond ETFs betting on a recovery in both corporate bonds and treasuries, a move that is being closely watched even as equity markets are making all time highs.
Good Harbor is a great example of how one can tactically use ETFS to beat the market and for individual investors they are a firm to watch as they have shown a strong ability to time the stock and bond markets.
Will Meade
President of The Billionaires Portfolio
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 42% a year annualized since 1995. Even more incredible in 2012 he more than doubled the S&P 500’s return with a 39% return and in 2013 he returned an incredible 100%.
Let me repeat that Michael Masters of the Marlin Fund returned 100% last year.
Master’s investing style is very similar to ours at The Billionaires Portfolio he trades stocks and options based on catalysts. He does not look at a company’s earnings or cash flow, all he cares is about is whether there is a catalyst present that will push the stock higher in the short term. Secondly Masters also looks at what sectors and markets the top investors and hedge funds are investing in follows them, something we do everyday at the billionairesportfolio.com
Master’s also is one of the biggest options traders on the street, and he is a buyer of options not a seller, he buys call options on stocks that he thinks will move up because of a catalyst and because of the leverage in options he has put up some of the best performance numbers in the industry.
But the coolest thing about Michael Masters is that he is a 100% self made man. Masters never worked on Wall Street, or went to an Ivy League School, he does not have an MBA or even a graduate degree, he is just a “regular guy” from Marietta, Georgia who graduated from the University of Tennessee and started off his career selling door to door literally as a full commission stock broker.
Yet Masters was confident in his stock picking ability and ad tired of the sales grind of the brokerage business and started his own hedge fund at the incredible ripe age of 27.
Masters pooled together money from friends and family about $200,000 and launched his hedge fund in 1995, without any experience, and the rest as they say is history.
What this should tell you is a couple of things: first performance is everything, if you can perform the money will come, no matter who you are or where you came from.
Secondly persistence and the ability to stick to your “guns” even when things are not going your way is the key to success. Masters had a very tough time between 2000-2003 as his investment style of trading stocks and options on catalysts underperformed the market and his assets shrunk from over a Billion to just $200 million.
After that Masters decided he was not going to let investors or people dictate his life, he basically stopped trying to raise money and just decided to let his performance do the talking and never deviated from his investment style of buying stocks on catalysts.
But after putting up two huge back to back years in 2012 and 2013 Masters didn’t have to try and raise money it just came pouring in, especially after putting up a 100% gross annualized return in 2013. Now Masters manages well over $2 Billion dollars and has become one of the highest paid hedge fund managers on the street.
How do you get rich? Piggyback the investments of private equity, Golden Gate Capital purchased 22% of Zales (ZLC) at $2 in 2010, Zales was just recently acquired for $21 dollar a share last week. 10 Bagger, 1000% plus return by just following the stock picks of private equity.
See chart below
William Meade
President of The Billionaires Portfolio.
“Someone is risking $1.5 million on the hope that shares of Southwestern Energy will rise nearly 15% in the next 3 months.
In a massive, unusual options bet, one institutional player is making a wager that Southwestern Energy (SWN) will have an especially energetic run between now and June.
On Thursday, one options trader bought 15,000 June 47-strike calls for about $1 each. This trade won’t make money unless Southwestern rises above $48 by the middle of June, which is some 15 percent above current levels.
If the stock closes below $47 at June expiration, the entire $1.5 million spent on the trade will be lost.”
Here is my take on this huge million dollar options trade. Southwestern Energy (SWN) is a pure play on natural gas prices (and the company happens to be the lowest cost natural gas producer) and with natural gas prices hovering at their highest level in four years one has to believe Southwestern Energy will report their best earnings in years on May 2nd. (This is because the company’s May earnings report will incorporate this winters high natural gas prices of $5 and $6)
Therefore the stock could easily hit $50 on an earnings pop especially by June, when the option expires. Even Better the options are currently selling for only $.70 cents (nearly 30% lower that what the huge option trader paid) and if Southwestern Energy goes to $50, you will make more than 320% on this option trade.
I found that if I took a basket of the biggest and best billionaire activist investors and hedge funds (many of the names we follow in our service, The Billionaires Portfolio) and bought just the stocks they owned, whereby they had initiated an activist campaign against a company, that basket returned 31% annualized over the past 12 years. The S&P 500 returned just 6.1% in the same period.
This means a $20,000 investment 12-years ago, would be worth over $500,000 dollars today. The same investment in the S&P 500 would just be worth $40,000 today..
More importantly, the stock picks of these top activists had only one losing year during the period and that was of course 2008.
In 2008, the stocks in this basket of the top activists lost 18.2% versus a loss of 37% in the S&P 500. So in our study, these activist investors beat the stock market by more than 4 times on an annualized basis or nearly 23 percentage points. But they lost significantly less than the stock market in a losing year (in fact, a terrible year).
To put this return in perspective, no other mutual fund, ETF or private money manager on the entire planet has a returned anywhere close to 31% annualized over the period. The best performing mutual fund in the world returned 14.5%, which is not even half of the annualized performance of our basket. And that same mutual fund lost more than 45% in 2008!
Bottom line: By just following my Activist Select Strategy, you would have outperformed over 20,000 mutual funds, 5,000 money managers and 1,000 ETFs. And you would probably be considered the best investor on the planet.
Yet my next study has even better news. In my next study I took the same top Activist Billionaire Investors and Hedge Funds but this time I only tracked the performance of the activist stocks that fit the following criteria: 1) They had to be a small cap, meaning a market cap under $2 Billion and or 2) had to have a low share price under $15 combined with a market cap of at least $500 million and the results were astonishing.
The average annualized 12 year return for, what I call the Activist Small Cap Strategy, was an amazing 52% annualized over the last 10 years. Again this compares to only a 6.1% annualized return in the S&P 500.
Therefore a $20,000 investment in the activist small cap strategy would now be worth more than $3,000,000 million dollars today
Let me repeat that, because I know it sounds too good to be true, but by only selecting the lowest priced and smallest cap stocks owned by the best activist investors and hedge funds $20,000 investment in 2002 would be worth more than $3,000,000 million dollars today. Of course these huge returns come with a more volatility, yet this activist small cap strategy still had only one down year (2008) over the last 12 years, another amazing statistic.
So there a couple of conclusions you should come away with from this study. First as I have told you before there is no more powerful strategy in the world from a risk reward perspective than piggybacking the stock picks of the world’s best activist investors and hedge funds. Secondly Activist investors do not need the stock market to produce these huge annual returns as proven above, even when the market went through a 10 and 12 year period of low to medium single digit returns, the stock picks of these activists still produced huge market beating returns of 31% to 52% a year!!
Will Meade
President of The Billionaires Portfolio
Providing Sophisticated Hedge Fund Strategies and Analysis For The Everyday Investor
I receive hundreds of emails a week asking me about trading advice, but one email that I received recently really made me think.
It was from a student at one of the top business schools in the world who wrote me a very passionate and eloquent email about options trading, that it took me weeks to think about how to answer him.
His basic question was how do I learn how to trade options?
He told me he had watched videos, read newsletters, books talked to brokers at Morgan Stanley but still felt confused as ever on how to trade options.
So I wanted to share with everyone what I wrote to him plus some other advice that I have learned over 15 years of trading and working for some of the top hedge funds and research firms.
1) Only trade options with money you can lose, meaning never ever bet the house on an option, use 5% to 10% at max of your trading account for options.
2) Do not follow options tips from newspapers, even the prestigious Barrons, and their nice and creative options writer Steven Sears is not a good mentor. Mr. Sears is a good writer, but he is not an options trader, I have written him at least 6 times about mathematical errors in his options columns and mistakes, he seems to think that you can make more than 100% selling an option, its mathematically impossible, yet the editors allow it… Scary huh..
3) Do not follow option tips from Floor Traders, yes traders who worked on the floor of the CBOE or the NYSE or AMEX exchanges
have traded a lot of options, but their scalpers who pay little if any commission or spread on an options trade, so you will
never be able to replicate their trading technique unless you are on the floor. Moreover 99% of floor traders make their
money off deal flow and spread, very few if any take outright positions in options. So their advice is simply not applicable
to the regular investor.
4) Do not trade options or take options advice from full service brokerage firms, for two simple reasons: Brokers are salespeople they make money regardless if you win or lose on your trade, and more importantly they charge huge commissions as much as $100 per trade. There is no worse place to trade options than at a full service brokerage firm.
5) Do not take options advice from newsletter gurus who spam with you promotions, they have no skin in the game and they have blown out more accounts than they have profitable trades. Remember really good option trades are rare, so anyone telling you they can consistently make money trading options is not being truthful.
So where do you go to learn about options or how trade options, let me share with you the letter I wrote to the young business school student the other night.
Dear,…..
It looks like you are on a great path to be a successful options trader.
I honestly think the best way to learn about options is trial by fire. Meaning either paper trade or trade any money you have so you can experience the ups and downs of the market.
Trading is very emotional, you need to see what type of trader you are?
Are you patient and can take drawdowns- then try and use longer dated options where there is a catalyst that could reprice the stock before the option expires. That is how we trade options in our service at The Billionaires Portfolio. But these types of option trades are rare so you have to be very patient.
If you are a short term trader use deep in the money options, 1 to 2 months out maximum and buy calls on popular and market leading stocks (Apple, Google, Twitter, Facebook etc.) after major selloffs and use limit orders and Good Till Cancel Orders. If you don’t know what this is google it and learn it!
Finally there is no magic bullet for trading options, so you have to be flexible and adjust your strategy and temperament to the current market conditions.
Yet options will always be popular, because of the huge profit potential that can be made off a good options trade (100% 500% 1000% and yes many of the greatest hedge fund traders and hedge fund managers started their career and funds with huge options trades that not only made them rich but put them on the map as well.
So stay tuned as I will continue to talk about options trading and strategies on this blog.
Will Meade
President of The Billionaires Portfolio
If you ever wanted to buy Apple (AAPL) now is the time. Technically, Apple has the best short term bullish trading set up I have seen all year.
Apple today just bounced off the psychological $500 round number level. Actively traded stocks always find support or resistance at round numbers, because there is a lot of trading activity that occurs at round numbers.
Secondly, the $500 level is the exact price that Apple broke from in Late October, and as most chart watchers know previous resistance become support.
If Apple can hold above the $500 price today it is a very strong bullish reversal signal, and it also creates a great trading setup.
On Monday morning you can put a stop in $10 below Apple’s current price (at $490.50). If Apple holds above $500 today then I believe there is a greater than 90% chance it will go up to fill the gap to $550. That means you can risk $10.00 to make $50 or a 5 to 1 risk reward if Apple closes above $500 today (Monday).
You should take profits or put a limit order in at $550 as well, in order to achieve the 5 to 1 risk reward trade.
For aggressive traders you can buy a $500 February Apple Call Option, or mini apple call option (remember a mini option is much cheaper and gives you the right to hold 10 shares of Apple’s stock not a 100).
Either way if you buy the stock or buy a February Apple call option, the risk/reward of being long Apple here at $500, is just too good to miss.
Furthermore, Billionaire Carl Icahn just spent $500 million of his own money purchasing apple stock at or around $500 as well. Its hard to second guess a man who is averaged 27% a year for over 51 years and is worth $20 billion today.
At billionairesportfolio.com our specialty is finding deep value stocks that have a catalyst at work.
One of our favorite “deep value screens” not only identifies cheap stocks, but also situations where a rich, influential investor has taken a significant stake. As a shareholder, the presence of this type of investor can mean you have a partner on your side, working everyday to push management to unlock value in the company.
Selecting deep value stocks, with the presence of an influential investor that is hell-bent on unlocking value, is a very powerful formula. It’s especially powerful when we find situations where the big investor is down on his investment. That tends to raise their sense of urgency and their aggressiveness with management.
Here are four stocks that currently meet these criteria:
1) J. C. Penney Company, Inc. (JCP) – Billionaire David Tepper owns JCPenney at much higher price than where JCP currently trades today. According to my estimate the average price Tepper paid for JC Penney is around $10 a share. If you bought JC Penney today you are getting a 34% discount to what billionaire David Tepper paid for his shares.
1) Transocean (RIG) – Billionaire Carl Icahn owns almost 6% of this oil and gas exploration company. Icahn’s average cost is $50. The stock currently sells for $47. This means you are getting a 6% discount to what Icahn paid for this stock. To even sweeten the deal, RIG currently pays a 5% dividend.
3) Sony Corp (SNE) –The average price Billionaire Dan Loeb paid for Sony is more than $18 a share. If you bought Sony today you are getting a 5% discount to what Loeb paid for his shares. Moreover, Sony is selling at distressed valuation levels. It has a price-to-sales of 0.19 and price-to-book of 0.61.
4) Hologic, Inc. (HOLX) – Two top Billionaire Activists own more than 10% of this healthcare stock. The two Billionaires, Carl Icahn and Ralph Whitman of Relational Investors paid an average cost of $23.10 for Hologic. That means if you buy Hologic today you are buying it at 6% discount to what these top Billionaire Investors paid for their shares.
To piggyback our actively managed portfolio of deep value stocks that are owned by the world’s best billionaire investors, follow us at www.billionairesportfolio.com
Retail-Apparel stocks have been hit hard due to the extreme cold weather conditions that have plagued most of the United States over the last two months, but a bottom could be finally in.
American Eagle (AEO) one of the biggest and most profitable teen retailers had strong insider buying today. Jay Schottenstein, the company’s interim CEO and Chairman stepped up big and recently purchased over 500,000 shares or more than $6 million dollars of the American Eagle’s stock at around $12.84 a share. This purchase occurred some time over the last two days.
Any insider who purchases over $5 million dollars worth of his company’s stock is always a significant and bullish sign — especially when the purchase comes after the stock has been in a significant decline.
Also, technically it looks like American Eagle has formed a double bottom at $13, with a bullish outside day — a major bullish reversal signal. With this, we may have seen the bottom in all retail and apparel stocks, and if so the risk reward of buying retail apparel companies has never been better.
