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Some interesting quotes from Steve Cohen, one of the top hedge-fund managers around...

http://online.wsj.com/article/SB115836320295965062-search.html?KEYWORDS=SAC&COLLECTION=wsjie/6mo...

The Hedge-Fund King Is Getting Nervous

Inside billionaire Steven Cohen's hidden world
of massive trading and lavish art. Is the party over?
At home with Van Gogh, Gauguin and a skating rink
By SUSAN PULLIAM
September 16, 2006; Page A1

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"That quick-trading game is now over, says Mr. Cohen. With about 7,000 hedge funds competing for investment ideas, good stock investments are getting more scarce. "It's hard to find ideas that aren't picked over, and harder to get real returns and differentiate yourself," he says. "We're entering a new environment. The days of big returns are gone."

To make matters worse, the stock market, he says, is no longer as forgiving for investors. The tailwind of low interest rates, low inflation and strong corporate profits, he says, has been lost. There are no more easy pickings, he says."

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Mr. Cohen says he is now making bigger bets and holding the stocks longer. The throng of rival hedge funds could create a dangerous logjam, he says. Mr. Cohen worries that some of his largest holdings are also favored by other hedge funds. A rush for the exit could spell trouble. He says he expects that eventually there will be a sudden and sharp reversal in the stock market -- but he's not worried about that happening this year. "There will be a real decline that may devastate hedge funds that have crowded into the same stocks," he predicts.

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Over the years, many styles of investing have proven to have finite shelf lives. When too many investors start doing the same thing, that tactic often stops working well.

SAC's difficulties, particularly its ill-fated Tenet investment, led Mr. Cohen to rethink his approach. As he recuperated at home, he says, he decided to move more decisively away from short-term trading. He set up an SAC unit called "Intrinsic" and staffed it with 30 analysts to hunt for longer-term investment ideas. Mr. Cohen began investing in small- and mid-cap companies in the health care, energy and technology sectors.

SAC now hangs onto stocks for an average of six to twelve months. That might not qualify as long-term investing to Mr. Buffett, but it far exceeds the norm of several years ago -- often just a few weeks.

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The hedge-fund run is not over," he said. "I think the game is changing, and if it is, I have to react. We won't go off the ledge with everyone else."

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