From yahoo finance message boards:
“My friend - how much do you know about how hedge fund managers ‘hedge?’ Let’s say you thought the banks were in for a disaster. You would find a stock/s that you thought would suffer and you’d go short. To ‘hedge’ yourself you would go long another company (citi) that would only go up if your short thesis was totally wrong. If you are right and you’ve positioned your capital appropriately, your shorts would go down more than your longs and you’d profit - using very modest leverage. Shorts and total return swaps meant to replicate short positions are not reported on the 13F statements so mere mortals like us will never know what shorts and total return swaps ESL has in place.
Let me ask you a question. Do you really think Eddie Lampert of all people sat there and sucked his thumb while the US banking system melted down and the country basically collapsed if it weren’t for the Fed and the Treasury? Because that’s what happened. Buffett knew that the system was destroyed and the govt would never let GS and GE go down. So he got in front of the Govt. with 10% returns. Why do you think WEB didn’t take common? Because he really doesn’t expect GS or GE to appreciate, but he KNOWS the govt. won’t let them fail and will either pay his 10% coupon or call his preferred. Brilliant. Eddie in same league I guarantee you that Citi was a hedge on a massive banking short. Those homebuilders he bought and the Sallie Mae position — shorts, shorts, shorts on the other side.
Do make grand statements about people’s positions and losses unless you know how to manage a hedge fund.
BTW, I learned this from a handful of Tiger Cubs who learned working for Julian Robertson.”
Everyone now and again, you will find a intelligent post on yahoo message boards. Here are three reasons why I think Lampert didn’t go long only on his Citigroup stake:
1. During the 2007 shareholder meeting, he mentioned he read the Black Swan. The Black Swan touches on the risks of leverage and mortages within Fannie May and Freddie Mac. Also, I believe Lampert was bearish on the economy given all the macro indicators he was seeing through SHLD sales data. I don’t think he was buying Citigroup because he saw tons of upside.
2. Lampert’s hedge fund buddy and fellow SHLD board member is Richard Perry of Perry Capital. Richard Perry has been on the right side of the meltdown by betting against mortgages and subprime lending. I imagine Lampert and Perry exchange views every now and against.
3. Lampert is a deep value investor. Buying Citigroup at 52 week high isn’t Lampert’s investing style. Given the lack of transparency into hedge fund reporting, I dont see the point in trying to extrapolate fund returns.
Re: Conclusion about SHLD - yahoo.com