Replies to post #281731 on Option Millionaires

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Hedge funds reeling from the recent stock-market turmoil are rallying around a hot tip: Buy nothing.
After an abrupt decline that sent the Dow Jones Industrial Average into correction territory, a number of hedge- fund managers are focusing on defense. Some are stockpiling cash. Others, including some managers who are known for making bold bets on stocks when markets plunge, are bracing for an extended downturn unlike any seen in recent years.
"We wake up every day looking for reasons to buy new stocks or increase existing positions, but just as often we find reasons to sell positions instead," Cobalt Capital Management wrote in a recent note to investors that also disclosed it is holding on to a high proportion of cash. "Everybody likes buying a bargain, but catching a falling knife is no fun at all."
For example, the Dow Jones Industrial Average was down more than 350 points around 2 p.m. EST Wednesday .
These managers are departing from a strategy that many of them have followed, and profited from, since the financial crisis: Double down on market dips and wait for the bounceback.
"It's really the inverse of what we've seen previously. Dips usually get bought and rallies usually get sold," said Steven Bulko , chief investment officer of hedge-fund manager Lombard Odier Asset Management (USA) Corp. Mr. Bulko has reduced his use of leverage, or borrowed money, and said he doesn't expect as quick a rebound as in recent drops.
Omega Advisors founder Leon Cooperman , who has forecast rising stocks for years, is cautioning investors to be wary in what he has described as an unusual and unpredictable environment, a person familiar with the matter said. David Einhorn , the hard-hit manager of Greenlight Capital , has slashed by half the firm's proportion of bets on rising stocks compared with a year earlier.
"It's just easier to be less exposed right now," said Adam Taback , head of global alternative investments at Wells Fargo Investment Institute , which invests more than $10 billion in hedge funds.
Already in the year's first two weeks, the activist investor Nelson Peltz's Trian Partners is down nearly 10%, more than wiping out its gain from 2015. Trian's largest positions include the conglomerate General Electric Co. and chemical giant DuPont Co. , which have both sustained losses.
Larry Robbins's Glenview Capital Management has lost nearly 14%, while William Ackman's Pershing Square Capital Management is down more than 9%, adding to steep losses for those managers last year.
A pair of multibillion-dollar funds run by protégés of Messrs. Robbins and Ackman, Roystone Capital Management and Sachem Head Capital Management , are down 8% and 5%, respectively, to start the year.
Hedge funds have been squeezed by steep drops in a small collection of stocks favored by the industry overall. That group, which includes Facebook Inc. and General Motors Co. , lost 9% in the first two weeks of the year, according to Goldman Sachs Group Inc. , its second-worst drop over such a short stretch since October 2011 .
Hedge-fund managers and their investors have been steadily lowering their expectations in recent years, after a streak of disappointing performances by high-profile firms. The average hedge fund lost money in 2015, falling short of a thin gain for the S&P 500, including dividends, and a broad Barclays bond index.
Managers are down again this month on average, according to early estimates from HFR Inc. Even some of the firms that are typically among the steadiest performers are nursing losses. Senator Investment Group , part-owned by private- equity firm Blackstone Group LP , is down around 3%, a person familiar with the matter said.
Write to Rob Copeland at [e-mail]

(END) Dow Jones Newswires
01-20-16 1402ET
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