Most investors are interested in what hedge fund managers recommend today, Insider Monkey, your source for free insider trading data, pays more attention to what they recommended in the past. The annual Ira Sohn Investment Research Conference is, by some standards, the top venue for hedge fund managers to showcase their best ideas. In May 2009, Stephen Mandel, Jim Chanos, Bill Ackman, Lee Hobson, Mark Kingdon, and David Einhorn were among the hedge fund managers that presented a long or short investment idea at that conference.
We picked these hedge fund managers because their picks were highlighted in a Reuters or Bloomberg article. It’s been almost two years since that conference, so whatever the investment thesis of those recommendations, they had ample time to come true. Here is how those 10 stocks recommended by top hedge fund managers performed since that conference:
Strayer Education (STRA): Lone Pine Capital’s Stephen Mandel was extremely bullish about Strayer. “Strayer will be a far larger business 10 years from now, with cash flows a multiple of today’s levels,” he said. The interesting part came 10 minutes after Mandel’s presentation. Jim Chanos was extremely bearish about for-profit education companies. Chanos explained that these companies spend too much money on advertising and their government funding will soon be cut. Chanos was bearish about these companies long before Steve Eisman. Strayer closed at $175.11 (prices are adjusted for dividend payments and splits) on May 28th 2009. Today, Strayer closed at $122.40, losing more than 30% during the past 20 months. Chanos was right, Mandel seems wrong so far.
Lincare Holdings (LNCR): Jim Chanos was right about Strayer but he was wrong about Lincare. Chanos was expecting Lincare’s prfit margins to weaken. The stock returned 93% since then. Of course, we should compare a short seller’s performance based on a benchmark. The Russell 2000 index ETF (IWM) returned 68% since then, so Chanos’ performance isn’t as bad as it may have first seemed.
General Growth Properties (GGP): This was the best recommendation at the Ira Sohn Conference. General Growth Properties, then in bankruptcy, increased 10-fold since May, 2009. Ackman stated that GGP had “huge potential reward and generally limited risk”. He was right then and he is still reaping the rewards of that investment. Ackman’s GGP investment was the main reason Pershing Square returned 29.7 per cent in 2010.
Millicom International Cellular (MICC): Highside Capital’s Lee Hobson recommended buying Millicom on the expectation that the company will expand into emerging markets. MICC returned 58% since then, beating SPY’s 47% return.
Ritchie Bros. Auctioneers (RBA): Lee Hobson also recommended shorting Ritchie Bros because the company was facing falling merchandise prices and the market’s profit growth expectations were too high. He was right. RBA’s stock price increased by only 16% vs. SPY’s 47% increase. If one had bought MICC and sold RBA to form a market neutral portfolio, he would have made 42%.
Bank of America (BAC): Kingdon Capital Management’s Mark Kingdon recommended Bank of America because of its huge potential. John Paulson made the same recommendation later in 2009. Unfortunately, BAC returned 31%, underperforming the SPY by 16 percentage points. Citigroup (C) would have been a better recommendation.
Moody’s (MCO): David Einhorn is the main reason why Ira Sohn Conference is so famous. In 2008, he recommended shorting Lehman Brothers. In 2009, Einhorn recommended shorting Moody’s (MCO). Moody’s gained 15%, underperforming the SPY by 32 percentage points. This was another great recommendation. Warren Buffett was aware of Moody’s grim prospects and he has been selling his holdings.
Valeant (VRX): HealthCor’s Joseph Healey was expecting Valeant to double in the following 12 to 18 months. That was in May 2009. We hear these kinds of bullish statements all the time, and usually they don’t come true. This time was different. Joseph Healey’s prediction was actually very conservative. Valeant increased by 232% since then.
Hologic (HOLX): HealthCor was a $3 Billion healthcare fund. Healey’s second recommendation was Hologic. He also said that he was expecting this to double. The stock didn’t double but went up by 58% since then, beating the SPY by 11 percentage points.
Life Technologies (LIFE): Joseph Healey’s third recommendation at the Ira Sohn Conference was Life Technologies. Healey predicted a 60% increase in LIFE. The stock returned 38%, underperforming the SPY by 9 percentage points. Glenview’s Larry Robbins and Maverick’s Lee Ainslie have LIFE in their portfolios as well.
Long/short hedge funds are better stock pickers. Their best stock picks perform much better than their usual stock picks. If one had bought the long stock recommendations and sold the short stock recommendations made by these hedge fund managers, they would have achieved a triple digit return by assuming a much smaller risk than the market. Insider Monkey, your source for free insider trading data, follows hedge funds and developed a methodology to determine their best stock picks. Stay tuned.