One of the more interesting things about following hedge funds is the behaviour of those who run them. At various times they will get into wonderfully childish slanging matches with one another that generally take on the following dialogue.
Hedge Fund Loser One – The stock you own is bullshit…
Hedge fund Loser Two – It cant be bullshit I own….nah….
This scenario is currently playing itself out around Valeant Pharmaceuticals. Some have accused Valeant of inflating their returns, whereas those who are long the stock are clinging to it like a rat to a sinking ship. This sort of behaviour intrigues me since ego defensiveness is a guaranteed ticket to the poor house as an investor. However, as we have seen returns dont matter for hedge funds and their principals. It is very much a heads I win, tails you lose style of game.
What is also interesting to me is the unwillingness of those within the stock to execute any form of risk management at all, we all get it wrong and there comes a time when you need to admit you got it wrong. The chart below is of Valeant, on it I have place a series of stops which are anchored off the breakout in January of this year.
From this chart you dont have to be a trading genius to realise that it has gone horribly wrong and this failure to admit that it has gone wrong is, as one would expect showing up in the returns of funds that are long the stock. I do understand that some operate under a different narrative to me. Many believe that good stocks always get better (define good stock ), others believe that you must always be in the market all the time but there comes a time when you have got it wrong and it is time to take Billy big boy steps in the opposite direction.
Great call Chris.
I’m amazed at the almost negligent ease that some ‘professional successful investors’ sprook so publicly that price doesn’t matter and technical analysis is irrelevant as long as you hold good stocks. I recall 3 such people proclaiming this as WOW began sliding down past 35 all the way to 23 and they were still calling it a great stock while other traders were having a great time shorting the crap out of it.